Research of the Day: Engro Fertilizers Limited – Building Strong Investment Case – AHL Research

Research of the Day: Engro Fertilizers Limited – Building Strong Investment Case – AHL Research

By: Research Team, Arif Habib Limitedtop ranked

Detailed Report>>Engro Fertilizer Limited

Engro Fertilizers Limited (EFERT) is issuing 75mn ordinary shares, from which 56.25mn shares (75% of the total issue) will be offered through book-building mechanism at a floor price of PKR 20/share whereas the remaining 18.75mn (25% of the total issue) will be offered to the general public at the strike price to be determined through the book-building mechanism. In addition, Engro Corporation Limited (ENGRO), the parent, aims to divest its existing shareholding up to 30mn shares in EFERT at the strike price determined by the same book-building.

Offtake expected to jump 4% and 19% in CY14 and CY15 respectively

Engro Fertilizers Limited’s offtake is expected to increase 4% YoY in CY14, and a massive 19% in CY15, due to better production post long-term gas plan (discussed ahead in detail). Furthermore, gas diverted from the Guddu power plant is also expected to keep company’s production lifted till Mar-14.

Growth story – GP margins to hover around 41%, PAT to soar at 21% CAGR

Gas flows from Guddu along with the long-term gas plan bodes well for the company, as gross margins are expected to clock in at a CY13-16 average of a fat 41%. Furthermore, with both of the plants fully operational from 4QCY14 onwards, the PAT of the company is expected to massively jump at a 4-year CAGR of 21%.


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