Engro Corporation – future outlook

Engro Corporation Limited (ENGRO) conducted its 2022 analyst briefing yesterday where management discussed financial performance for 2022 and future outlook.

The management explained lower dividend in 4Q2022.  They elaborated that since the time between announcement of final quarter result and first quarter of next year is very less, therefore company keeps a strategy of paying higher dividend in first three quarters of the year instead of last quarter where window is smaller.

EPCL will be able to weather the storm of higher interest rates despite being leveraged due to dollar pricing of product and recent higher capacities providing economies of scale for the company. EPCL is a market leader in PVC with 95% market share.

Polypropylene feasibility study has been completed, however considering the macroeconomic environment the project is currently on hold. The management foresees growing demand for the product at 7% annually. It has not been decided whether the project will fall under EPCL or ENGRO.

Management commented that the available cash on its balance sheet will be utilized for future projects and buyback. Management believes in striking a balance between optimal capital structure and maintaining healthy financial ratios.

Engro Thar dividend will also be declared soon since the preference shareholders will be catered first and then the dividends will reach ENGRO.

Regarding Enfrashare the management stated that 1,083 towers were deployed in 2022, taking the total operational towers to 3,329. Plan is to increase the number of towers to 5,000 by 2024.

For EFERT a Mari gas compression project is underway which will provide gas sustainability for the next ten years.

Gas price hike for MARI yet not announced however management expects the price to be increased in line with recent SNGP and SSGC gas tariff hikes announced by the government.

SECMC phase 2 expansion came online during the year which doubled the capacity to 7.6MTPA. Phase 3 expansion is also planned which will increase the capacity to 11.4MTPA. Avenues are being explored to replace imported coal with Thar coal.

To recall, ENGRO announced 2022 profit of Rs46.1bn (EPS: 42.23) down 13% YoY. The company declared a final cash dividend of Rs1/share in 4Q2022, taking total dividend to Rs34/share in 2022.

Courtesy- Topline Securities

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