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Morning Call about – ENGRO to post 5.3x jump in CY13 earnings Chemicals – Arif Habib Limited

Karachi, February 11, 2014 (PPI-OT): EFERT analyst briefing key takeaways

1) ENGRO to get a 5.3x boost in CY13 earnings

Engro Corporation Limited (ENGRO) is scheduled to announce its CY13 results on February 14, 2014.

According to Arif Habib Limited, the company is expected to post substantial earnings growth of 5.3x to PKR 8,425mn (EPS: PKR 16.48) from PKR 1,334 (EPS: PKR 2.61) on consolidated basis.

Fertilizer: back in green

For CY13, Arif Habib Limited expects Engro Fertilizer Limited (EFERT) to be a major contributor in ENGRO (contributing 60% towards ENGRO’s profitability in CY13), posting PAT of PKR 5,497mn during the year. Improved production (51% YoY) along with efficiencies amid, Guddu gas availability coupled with 66% YoY jump in urea offtake were the major driver for remarkable growth during the year.

Chemicals: marvellous recovery on YoY basis

Furthermore, chemical segment (Engro Polymer Limited) registered a PAT of PKR 707mn compared to PAT of PKR 77mn last year, an exceptional jump of 8.2x on YoY basis. Improved VCM production (+15% YoY) along with better PVC margins amid PKR depreciation and successful debottlenecking of PVC plant were the major contributors towards this phenomenal growth.

EXIMP: some improvement expected in 4Q

Moreover, Arif Habib Limited expects some recovery in EXIMP business in 4Q, owing to 36% YoY jump in Dap offtake. However, on yearly basis Arif Habib Limited expects the business to post loss after tax (LAT) of PKR 380mn in CY13.

Food: CY13, a subdued year

Food segment remained depressed in CY13, particularly in 2HCY13 which drag the bottom-line to PKR 870mn massively down 66% YoY. The major dragger for the year includes supply chain issues coupled with the cost push inflation, product discount as the company focused more towards market penetration.


At current price level of PKR 171.6/share, the stock of ENGRO offers a massive upside potential of 69% to Arif Habib Limited’s Jun’14 SOTP price objective of PKR 283/share. Thus, Arif Habib Limited recommends a strong ‘BUY’.

2) EFERT analyst briefing update

Engro Fertilizer Limited (EFERT) held its analyst briefing yesterday to discuss its CY13 result. The company posted PAT of PKR 5,497mn (EPS: PKR 4.24) in CY13, as compared to LAT of PKR 2,935mn (LPS: PKR 2.26) posted last year.

Analyst briefing takeaways:

Company is drawing 22mmcfd and ~10-12 mmcfd of gas from Mari SML and Reti Maru respectively.

Capex with respect to long term gas plan (KPD) is deferred till the reconfirmation of the same from the Economic Coordination Committee (ECC).

The company is confident about the concessionary rate of USD 0.7/mmbtu and expects 2-3 months in finalizing terms with the related parties (SNGPL, MARI).

The concessionary rate would be applicable on 100 mmcfd, which includes 93mmcfd from MARI and remaining from SNGPL and the gas will be supplied to EnVen.

As per the management, the GIDC impact (PKR 114/bag) will be passed to the end consumer in phase wise manner. As the company will not absorb increased input cost in the longer run.

Further delay of 3 months is expected in KPD project (Now 1QCY15 vs. 4QCY14 previously).

The Guddu gas flow is expected to be with EFERT till 1HCY14, however it can be extended further till the completion of Guddu Thermal Power.

Int’l urea prices are expected to remain stable in 1HCY14, and uptick is expected in 2HCY14 amid elevated demand.

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