Engro Fertilizer (EFERT): 2Q2019 EPS Rs2.38, down 2.5%YoY (-21%QoQ) (Below expectations)
- Engro Fertilizer (EFERT) posted earnings of Rs3.2bn (EPS Rs2.38) down 2.5% YoY mainly on the back of higher other operating expenses and finance cost. On cumulative basis during 1HCY19 earning remained flat at Rs7.18bn (EPS: Rs5.38).
- Consolidated gross margins of the company increased by 2.3ppts YoY to 31.5% in 2Q2019 owing to high retention prices on urea and lower proportion of DAP sales.
- Despite reduction in volumetric sales by 8-9% YoY, the company achieved 18% YoY growth in revenues on the back of price hike in Urea.
- Other Income recorded at Rs1.4bn compared to Rs509mn in 2QCY18 on account of sale of certain assets, as per our channel check. We await management clarity on this front.
- Effective tax rate of the company clocked in at 48% (vs. 33% in SPLY) in consolidated business and 34% in core urea business (vs. 29% in SPLY) during 2Q2019 owing to partial reversal of tax credit which the company utilized in previous quarters (close to Rs2bn) amid decline in future tax rates by Govt., we believe.
- Financial charges increased by 237% YoY to Rs1.2bn on the pretext of increase in the policy rate and borrowings.
- The company also announced first interim cash dividend of Rs5/share in 2Q2019.
- We flag, 1) PKR depreciation, 2) regulatory control on fertilizer industry, 3) poor crop season and 4) unfavorable decision related to GIDC as key risks to our earnings/valuation forecast.
Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.
Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.
Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.
JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).
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