Morning Briefing for Feb 29, 2012 – Standard Capital : AsiaNet-Pakistan

Morning Briefing for Feb 29, 2012 – Standard Capital

[ 0 ] February 29, 2012 | | Share:

Karachi: Focus on three Engros

Standard Capital considers CY12 to be a year of all three Engro companies such as holding company Engro Corporation (ENGRO), Engro Foods (EFOODS; Standard Capital’s target price Rs 141/share envisaged in Aug, 2011 vide detailed report) and now Engro Polymer (EPCL).

According to Standard Capital likes Engro Corp. (ENGRO) because one of its major companies Engro Fertilizer (EFL; still unlisted) shall perform well in the wake of promised feedstock gas supplies from Qadirpur to its newly installed plant that has got the capacity of 1.0mn tons of urea. EFL’s old plant at Daharki is already receiving dedicated gas and hence carrying the flag for the company for quite long with an annual capacity of 0.99mn tons of urea supplies. The CY11 price hike in urea was ostensibly due to EFL’s inability to produce urea from the new plant in the absence of feedstock gas supplies from Qadirpur via SNGPL network. Standard Capital expects this issue of non‐supplies shall resolve in CY12. Standard Capital does not see a lot of erosion in urea bag prices in CY12 despite the fact that farmers on the ground are now facing difficulties of lesser liquidity to buy this key agriculture input. Standard Capital also sees lessening incidence of financial charges this year since Standard Capital expects Pakistan’s interest rates are set to decrease wherein all long terms loans are on floaters; though, tapering of interest rates shall take place during CY12. Even if EFL’s new plant runs at 70% then EFL earnings could alone go as high as Rs 30/share; though it would depend upon supplies of gas from SNGPL. Moreover, EFL via Engro Eximp (EE) shall sell its inventory of imported DAP during 1QCY12.

EFOODS was Standard Capital’s key pick in CY11 wherein Standard Capital has assigned a DCF price of Rs 141/share much to the utter surprise of the market. However, Standard Capital’s assumption was based on the fact that even if EFOODS attains 50% margin of what NESTLE is attaining in milk segment then Standard Capital’s assumption would be prove to be right. Standard Capital sees EFOODS gaining foothold in ice creams, juices, flavoured milk apart from key flag brand OLPERS and other variants. Standard Capital expects EFOODS CY12 EPS could be Rs 4/share wherein as per Standard Capital’s old discussion with ENGRO management, EFOODS continue to be a value investment play.

EPCL shall also reap gains in CY12 since its accumulated loss shall decrease this year wherein Standard Capital sees EPCL shall make gains over local production of raw material VCM which is reportedly going smoothly. Standard Capital sees PVC supplies from EPCL is going good especially to export market of India (since company has attained benefit of duty protection) and also local supplies to Punjab is also going good due to its using in housing and other constructions. Remember, IFC is also major partner in EPCL. Hence viability of PVC project sounds credence.

Category: Brokerage

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