Engro Corporation (ENGRO) announced 2QCY21 consolidated NPAT of PKR8.72bn (EPS: PKR15.13) as compared with PKR5.74bn (EPS: PKR9.96) in SPLY, up 52% yoy and 5% qoq. The strong earnings growth of EFERT, EPCL and contribution from SECMC and Thar power plant (660MW) are majorly attributed. The result announcement was accompanied by an interim cash dividend of PKR7.0/sh, in addition to PKR12.0/sh announced in 1Q.

Key result highlights for 2QCY21:

Despite the decline in revenue of the Fertilizer business, net revenues jumped by 10% yoy to PKR68.5bn mainly on account of higher revenues from the Chemical and other businesses.

In the Fertilizer segment, EFERT posted 24% yoy growth in consolidated profits thanks to higher Urea and DAP prices. In the Chemical business, EPCL posted a massive jump in earnings from almost breakeven in 2QCY20, amid unprecedented levels of international PVC margins and higher sales.

Finance cost declined by 16% yoy to PKR4.4bn as compared with PKR5.2bn in the corresponding period last year due to lower short term borrowing due to higher profitability and better working capital position of group companies.

Among other line items (i) distribution expenses have reduced by 15% yoy to PKR1.8bn in 2Q; this is largely due to lower sales by the Fertilizer business, and (ii) effective tax rate has reduced to 17% yoy as compared with 25% in 2QCY20. We await detailed financials for more clarity.

We expect that earnings of ENGRO in remainder of CY21 could be lower as Fertilizer and Chemical profits may normalize due to the discontinuation of concessionary gas to the Enven plant of EFERT and reduced core delta of PVC for Chemical business. We have a Buy stance on the scrip with a TP of PKR380/sh.

Courtesy – Intermarket Securities Limited.