Dear Clients,

Engro Corporation’s (ENGRO) earnings jumped by 46% Y/Y to PKR 44,112mn (EPS: PKR 43.56) during CY20 aided by the performance of nearly all of its key investments. The profitability of EFERT rose by 7% Y/Y supported by improved DAP and Urea pricing; EPCL’s bottom-line rose by 55% Y/Y aided by record high primary PVC margins; FCEPL managed to emerge out of losses and post a profit of PKR 177mn during CY20; and the profitability of the company’s investment in its Power (Engro Thar) and Mining (SECMC) business was realized for the entire calendar year (vs. 6 months in CY19). Along with the result, the company announced a final cash dividend of PKR 2.00/sh, taking full year payout to PKR 26.00/sh.

Key highlights

– ENGRO’s top-line increased by 10% Y/Y to PKR 248,818mn during CY20 primarily because of its power & mining business, which were operational for the entire calendar year. ENGRO’s other investments, however, witnessed top-line attrition for a plethora of reasons. Despite record urea production, EFERT’s revenues fell by 13% on account of lower Urea prices. EPCL’s top-line also dipped by 7% because of lower PVC and Caustic Soda sales while EPQL’s top-line fell by 39% Y/Y because of the conclusion of its debt component.

– Share of profit from JVs and associates increased by 144% Y/Y to PKR 2,796mn largely because of recovering profitability of the company’s investment in FrieslandCampina, which managed to emerge out of losses witnessed the preceding year.

– ENGRO’s overall financial charges increased by 39% Y/Y to PKR 20,473mn despite lower interest rates likely because of the debt of its power and mining business.

– We have a BUY stance on ENGRO with a Dec21 TP of PKR 412/sh primarily because of the company’s healthy balance sheet and planned large-scale projects, which have the potential to add considerable value. The stock presently trades at a CY22 PE of 5.9x.

Regards,
KASB Research