Engro fertilizers posts 40 percent decline in profit fir CY16

Engro Fertilizers Limited (EFERT) has posted profit after tax of Rs9.02 billion (EPS: Rs6.78) for CY16 as against net profit of Rs15.03 billion (EPS: Rs11.30) for CY15, a massive decline of 40%YoY. The results were anticipated but decline is more than expected. Despite the decline in profit the Board of Directors has approved distribution of final dividend of Rs2.50/share, taking the full year payout to Rs7/share. The major takeaways are: 1) topline declined to Rs69.51 billion from Rs85.00 billion, a fall of 18 percent, 2) reduction in urea prices (down 9%YoY) due to depressed farm economics and low international price trends (down 28%YoY) to an average of US$213/ton during the year under review, 3) there was a 32%YoY decrease in finance cost on account of swift deleveraging and low interest rate environment, 4) other income increased to Rs8.13 billion for CY16 from Rs4.31 billion a year ago, an increase of 88 percent.

Engro Fertilizers outperforms peers

Quarterly results of fertilizer manufacturers were keenly awaited by the investors. My previous post hinted towards the possible decline in earnings of the companies due to: 1) reduction in international prices of urea and 2) slower offtake. Today, review of the accounts of three companies are presented. Only one company, Engro Fertilizer has posted above expectations results, while Fauji twins have posted below expected results. Results of Fatima and Dawood are still awaited.  

Engro Fertilizers (EFERT) has posted unconsolidated profit after tax of Rs2.86 billion (EPS: Rs2.15) for July-September 2016 period as compared to net profit of Rs2.79 billion (EPS: Rs2.10) for the corresponding period of last year, an increase of 3%YoY. The recovery in earning has come from, 1) strong growth in topline to Rs20.76 billion (including subsidy) caused by likely 39%YoY increase in Urea offtake to 502,000 tons post subsidy in budget FY17 and 2) 31%YoY decrease in finance cost on account of swift deleveraging and low interest rate environment. The result also accompanies an unexpected cash dividend of Rs2.50/share, taking 9MCY16 cumulative dividend payout to Rs4.50/share. On a cumulative basis, 9MCY16 earnings slipped to Rs5.66 billion (EPS: Rs4.25) compared to Rs9.91 billion (EPS: Rs7.44) for 9MCY15, down 43%YoY on account of unprecedented adverse market conditions caused by weak farm economics (urea offtake down 16%YoY in 8MCY16) and delayed implementation of subsidy on urea by the GoP.

Fauji Fertilizer Company (FFC) has posted unconsolidated profit after tax of Rs2.61 billion (EPS: Rs2.05) for July-September 2016 quarter as compared to a net profit of PkR3.69 billion (EPS: PkR2.90) for the corresponding period last year, a decrease of 29%YoY. The decline in earnings was expected on the back of: 1) gross margins declining to 32% (includes subsidy) on account of reduction in Urea prices (down 9%YoY) due to depressed farm economics and low international prices, down 36%YoY to an average US$184/ton during 3QCY16 and 2) a 83%YoY decline in other income (excluding subsidy) in the absence of dividend from associated companies (AKBL, FFBL and FCCL) and reduction in return on term deposits. However, the result was also accompanied by a cash dividend of R1.75/share, taking 9MCY16 cumulative dividend payout to Rs5.15/share. On a cumulative basis, 9MCY16 earnings declined to Rs7.51 billion (EPS: Rs5.90) as compared to Rs11.96 billion (EPS: Rs9.40) for 9MCY15, down 37%YoY on account of unprecedented adverse market conditions caused by weak farm economics, urea offtake down 16%YoY during 8MCY16 due to delayed implementation of subsidy on urea by the GoP.

Fauji Fertilizer Bin Qasim (FFBL) has posted unconsolidated net loss of Rs1.05 billion (LPS: Rs1.13) for 9MCY16 as against net profit of Rs939 million (EPS: Rs1.01) for 9MCY15. This significant downturn in earning resulted from, 1)gross margin declining to 14% (including subsidy) on account of significant reduction in DAP prices, down 15%YoY due to depressed international price trends. Price came down 24%YoY to an average US$325/ton during 9MCY16 and increased feed and fuel gas prices in 1QCY16  and 2) a 38%YoY lower other income (excluding subsidy of Rs3.18 billion on DAP and Urea in the absence of dividend from associated companies and reduction in term deposit placements. Following the trend 3QCY16 the Company posted net loss of Rs159 million (LPS: Rs0.17) for 3QCY16 as against net profit of Rs181 million (EPS: Rs0.19) for 3QCY15. However, on sequential basis, 3QCY16 earnings improved slightly against net loss of Rs381 million (LPS: Rs0.41) 2QCY16 on the back of likely increase in DAP/Urea offtake to post subsidy announcement in Federal Budget FY17.

Engro Corp posts Rs17.3 billion net profit

Engro Corporation has released its financial results for the year ended 31st December 2015. The Board of Directors approved payment of 70 percent final dividend, taking full year payout to 180 percent. The announcement was a pleasant surprise for the investors in stock market, which is going through bearish spell lately.

Engro’s Corp’s profit after tax grew by almost 122 per cent to Rs17.3 billion (EPS: Rs26.32) for the year under review as compared to net profit of Rs7.8 billion (EPS: Rs13.59) earned last year.

Engro Fertilizers continued to be the chief contributor towards the profitability, recording net profit of Rs15 billion (EPS: Rs11.28) for the year 2015 due to availability of concessionary gas and inclusion of DAP in total sales.

Earnings of Engro Foods were recorded at Rs3.2 billion (EPS: Rs4.13) as compared to Rs0.8 billion (EPS: Rs1.16) last year. This growth was on account of volumetric expansion leading to a higher market share in the dairy segment coupled with margin accretion.

The chemical business, however, managed to keep its losses in-check by posting consolidated loss after tax of Rs0.6 billion.

In a stock filing, Engro Corp informed that it had appointed advisers for the potential sale of up to 24 percent holding in Engro Fertilizer through private offering to local and international investors subject to the approval of shareholders.