Engro Fertilizers (EFERT): 1Q2018 EPS: 2.9, +137% YoY, (- 8% QoQ) (Above expectations)
- Engro Fertilizer reported its earnings growth of 137% YoY to Rs3.9bn (EPS: Rs2.9), slightly higher than our expectations as company’s total fertilizer sales volume jumped by 74% YoY to 585k tons and GP margins improved by 5ppts YoY to 40%.
- Total urea sales during 1Q2018 went up by 89% YoY to ~510k tons due to 1) continuation of subsidy scheme, 2) early procurement by dealers in wake of urea shortage amid closure of few SNGPL based urea plants and 3) exports of ~12k tons. Additionally, DAP volumes posted growth of 35% YoY to ~50k tons, due to its seasonal demand.
- During 1Q2018 gross margins improved by 5ppts (in line with our estimates) due to higher retention prices of Rs1300-1310 per bag on urea (vs. 1270-1280 per bag in SPLY). While, change in subsidy mechanism on DAP (substitution of cash subsidy with reduction in sales tax to Rs100/bag) also contributed to margins.
- Finance cost went substantially down by 24% to Rs524mn, thanks to the 1) successful re-profiling of various loans in previous quarters and 2) continuous deleveraging of the balance sheet.
- Key Risks include 1) decline in international urea prices, 2) water shortage for sowing season, and 3) poor crop season.
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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