Engro Fertilizer (EFERT): 3Q2018 EPS Rs3.8, +81% YoY; DPS Rs4/share (Above expectations)
- Engro Fertilizer announced its financial results for 3Q2018, where the company recorded growth of 81% YoY to Rs3.8 in its EPS mainly due to increase in GP margins by 6ppts YoY to 35% as last year fertilizer manufacturers were offering discounts to offload their surplus inventory. GP Margin in urea segment has touched 47% during 3Q2018 vs. 29% in corresponding period of last year.
- Effective tax rate in unconsolidated business remained on lower side at 17% during 3Q2018 vs. 34% in 3Q2017. Lower tax rate could be attributed to utilization of tax credit of around Rs1bn on deferred taxes adjustments due to decline in future corporate tax rates.
- Finance cost during 3Q2018 was down by 23% YoY due to decline in interest bearing liabilities amid availability of cash flows owing to accrual of GIDC amount.
- Other income was down by 79% YoY to Rs213mn during 3Q2018 as last year the company recorded cash subsidy on urea amounting to Rs100/bag. Further, selling and distribution expense was up by 13% YoY.
- We flag, 1) PKR depreciation, 2) regulatory control on fertilizer industry, 3) poor crop season and 4) unfavorable decision related to GIDC as a key risks to our earnings/valuation forecast.
Engro Fertilizers Limited is a Pakistan-based company, which is engaged in manufacturing, purchasing and marketing of fertilizers. The Company's brands include Engro Urea, Engro NP, Engro DAP, Zingro, Engro MOP, Engro SSP and Engro Zarkhez. Engro NP is the Company's fertilizer brand with Nitrogen and Phosphorous content in equal quantity. Engro DAP primarily contains Di-Ammonium Phosphate, and is imported by Engro EXIMP and marketed by the Company. Engro DAP is marketed in approximately 50 kilogram bags. Zingro is a micronutrient fertilizer, and is imported by Engro EXIMP and marketed by the Company. Engro Zarkhez has Nitrogen, Phosphorous and Potassium, and is primarily offered for sugar cane, fruit orchards, vegetables, potato and tobacco farming. Engro Envy is primarily offered to urban market for gardens, lawns, flower beds, fruit plants and ornamental plants. The Company is a subsidiary of Engro Corporation.
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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