Elixir Securities Limited – Analyst Briefing Takeaways

Karachi, November 01, 2016 (PPI-OT): ENGRO 3Q2016 Analyst Briefing Takeaways

Engro Corp held its analyst briefing today to discuss 3Q2016 financial results and key developments. Elixir Securities Limited presents key takeaways below:

Financial Performance:

The company reported 9M2016 bottom line of PKR8.58bn (EPS of 16.39/sh; ↓3.3%YoY) whereas 3Q PAT reported at PKR3.06bn (EPS PKR5.85, up2.5xYoY). The significant improvement in quarterly profitability is primarily attributed to one-off impairment charge booked last year on its subsidiary’s (Eximp Agri products) rice processing plant amounting to PKR2.14bn.

Apart from one-off, improvement in quarterly profitability is attributed to i) recovery in fert business in wake of higher fertilizer offtake with commencement of GoP subsidy, ii) increase in PVC volumes, iii) LNG operation at higher utilization levels.

Company’s payout ratio has also significantly improved as depicted from higher cash payout of PKR8/sh during 3Q and PKR20/sh during 9M2016.

The long term debt of the company has increased to PKR74.59bn at Sept’16 end from PKR59.58bn at Dec’15 end primarily on account of i) debt draw down for Thar Power Project and ii) conversion of LNG business’s short-term loan into Long term.

Key Developments:

As mentioned in EFERT’s briefing, the management highlighted that the Sindh High Court has declared the GIDC Act 2015 as null and void and as a result, the levy of GIDC since its inception has been declared as void ab initio. The court has further declared that all amount that has been collected to date are liable to be refunded/adjusted in future bills. Elixir Securities Limited believes that the decision would most likely be challenged by GoP in Supreme Court. Where as company would continue to provide for GIDC until further clarity.

On 5th Oct 2016, Friesland Campina Pakistan holding B.V. has made a mandatory tender offer (MTO) to acquire to 49,828,746 shares or 50% of free float at an offer price of PKR151.85/sh.

EFOODS sales, particularly for tea whitener remained under pressure on account of i) changes in tax regime and ii) rising competition. Despite falling volumetric sales and market share, profitability remained flat on YoY basis during 9M2016 at PKR2.59bn owing to i) lower milk procurement prices, ii) lower fuel and energy cost and iii) saving from lower financial charges.

During the quarter under review, management has also concluded its pilot project for Rice and Flour business on Aug’16 and decided to discontinue flour business while continue “Onaaj” rice business in wholesale level.

Petrochemical business performance has also improved during 3Q on back of i) higher PVC Ethylene core delta prices of USD304/MT during 3Q vs. USD253MT during 2Q and ii) increase in demand by 20%YoY. Resultantly, company achieved its highest ever PVC sales and production, posting 12% growth in volumes and securing 80% domestic PVC market.

Progress has been made on Thar project whereby Chinese contractor for both mining and power projects has been fully mobilized. At mine side, round the clock over-burden removal is also slightly ahead of schedule.

Management is considering investable avenues for deployment of cash generated by EFERT and EFOODS sale wherein possible investment in building second LNG terminal is also on the cards.