Engro Corporation announced its 3QCY20 result, recording PAT of PKR 9.3Bn (EPS: PKR16.2) versus PKR6.1bn (EPS: PKR10.7) in the same quarter last year, up 58/51% QoQ/YoY, taking 9MCY20 PAT to PKR 18.5Bn, up 42% YoY.

The YoY increase in earnings can be mainly attributed to better performance of subsidiaries including EPCL (profit increased by 47% YoY) and EFERT (profit increased by 111% YoY). The company also announced an interim cash dividend of PKR10.0/share along with its result. The result was slightly above our expectations due to the lower finance cost from Engro Thar.

Net sales increased by 21/19% QoQ/YoY to PKR75.3bn as against PKR63.4bn in SQLY. The YoY Increase in revenues can be attributed to increase in top-line of subsidiaries (EFERT net sales jumped up 38% YoY). On the other hand, gross profit of the company increased by 12% YoY to PKR21.8bn. Moreover, selling and admin expense remained relatively flat, increasing by a meagre 1% YoY to PKR4.0bn.

Finance cost significantly declined by 43% YoY to PKR2.7bn vs PKR4.7bn due to deleveraging done by EFERT (finance cost for Efert declined by 46% YoY in 3QCY20).

We expect ENGRO to continue good performance mainly due to the expectations of better performance of its subsidiaries (EFERT is expected to fare better in 4QCY20 mainly due to upcoming Rabi season and EPCL is expected to post good results owing to higher PVC margins).