Dear Clients,

– Engro Corporation Limited (ENGRO) reported 1QCY21 result today posting Profit after Tax (PAT) of PkR8.3bn (EPS: PkR14.5, up 151% Y/Y). The result is in line with street consensus.

– The result was accompanied with an interim cash dividend of PkR12.0/sh.

– We attribute the increase in profitability to fertilizer business. EFERT’s profitability clocked in at PKR 5.7bn (EPS: PkR 4.3), registering a significant increase of 10.1x as a result of i) increase in urea volumes due to low base effect and ii) increase in fertilizer prices.

– Furthermore, profitability of Engro Polymer & Chemicals Limited (EPCL) also grew by 21x to PkR4.1bn (EPS: PkR 4.6), accredited to higher PVC margins and volumes.

– Additionally, Frieslandcampina Engro Pakistan Limited (FCEPL) reported profit of PkR 623mn (EPS: PkR 0.71) in 1QCY21 as compared to a loss of PkR 251mn (LPS: PkR 0.17). This is attributed to i) recovery in gross margins to 20% and ii) reduction in finance cost due to lower policy rate.

– Engro Powergen Qadirpur Pakistan Limited (EPQL) posted earnings of PkR 399mn (EPS: PkR 1.23), down by 55% Y/Y, in 1QCY21 compared to PkR 895mn (EPS: PkR 2.77) in corresponding period last year.

– We believe that other businesses (Elengy, EPTL and SECMC) have also lent support to the bottom-line.

– Similarly, contribution from the Thar business (EPTL & SECMC) during 1QCY21 is projected at PKR 2,493mn.

– Our target price for ENGRO stands at PkR 412/sh. The stock offers an upside of 35% and trades at a CY21 PE of 6.3x. We believe the stock has considerable upside potential on account of the company’s healthy balance sheet, and the management‘s ambition for growth.

KASB Research