By: Adam Securities Private Limited
Result Review: Engro Fertilizers Limited posted PAT of Rs 8.2 bn (EPS: Rs 6.29), registering a healthy growth of 49% YoY. Uplift in Volumetric offtake in Urea, NPK & NP, courtesy to full year availability of additional gas from Guddu, helped to gain 23% YoY growth in the topline of the company. However, margins plunged due to higher input gas prices resulted in 2% rise in gross profits. Moreover, higher distribution expenses dragged down the operating profit by 3%. However, improvement in profits came from 112% higher other income and 33% lower finance cost due to deleveraging. Company also declared cash DPS of Rs 3.0 along with financial results.
EFERT to open its wings: Due to prevailing gas crisis in Pakistan, Engro Fertilizer Company is considering expansion plans, but in some offshore markets (UAE and Africa). On the continuation of 60mmcfd additional gas from Guddu, ECC has approved the arrangement till Dec’15. To compensate favor EFERT will install gas booster compressors (costing approx. USD 100 mn) for 747MW Guddu Power Plant (GENCO-II) before Apr’15.
ENGRO to offload some portion if it’s holding in EFERT: ENGRO plans to offload some portions of its holding in EFERT. This divestment will increase the supply of shares in the market and may keep price performance of the stock in check. Our sources suggest that ENGRO intends to hold the transaction by the end of March-15. ENGRO is yet to decide whether the divestment will be conducted through SPO, private placement, or a combination of the two.
Outlook: For CY15, we expect EPS of Rs 9.20, up 46%. We maintain our TP of Rs 90 per share and recommend ‘Buy’ on the scrip. The scrip is trading at CY15E PE of 8.5x and provides dividend yield of 4%.