EUR 5.00 For Business Accounts Only

ENGRO Corporation (ENGRO): 4Q2018 EPS Rs5.3, +11% YoY (-28% QoQ) ; 2018 EPS Rs24 up by 35% YoY; Cash Dividend of Rs2/share, Bonus 10% (Below expectations)

• Engro Corporation (ENGRO) announced its financial results for 4Q2018, where the company’s profitability growth of 11% fell significantly short of industry expectations due to inflated expenses. Earnings of the company clocked in at Rs5.3 per share, taking full year EPS to Rs24.3, up 35% YoY.
• The 4Q earnings deviated from consensus amidst higher other operating expense 33% YoY and 257% QoQ coupled with substantial increase in admin expenses by 85% YoY. The former increased on back of higher exchange losses on Engro Elengy Terminal and higher WPPF expense, we believe. While, latter swelled amidst expenses incurred on special projects carried by the holding company.  
• Fertilizer segment of Engro depicted 22% YoY growth in its 4Q profitability, driven by 22% YoY growth in DAP volumes coupled with increase in urea and DAP prices by 25% and 30% YoY, respectively. While urea sales during 4Q2018 were slightly down 2% YoY.
• Polymer/Chemical division (Engro Polymers) also witnessed strong growth of 1.4x YoY during 2018 amidst rupee devaluation and 9% YoY increase in PVC sales to 203k tons.
• Finance cost of the company increased by 20% YoY to Rs1.8bn on the back of higher interest bearing liabilities and increasing interest rates.
• We highlight 1) poor crop season, 2) scarcity of water for sowing season 3) volatility in polymer margins and 4) change in regulatory structure in energy division as key risks for the holding company.