Engro Fertilizers Limited (EFERT) announced its financial result for 4QCY20 on 15th Feb’21, posting a consolidated Profit after Tax (PAT) of PKR 6,643mn (EPS: PKR 4.97) against PKR 6,361mn (EPS: PKR 4.76) in SPLY, up by 4% YoY. On cumulative basis, CY20’s consolidated earnings clocked-in at PKR 18,133mn (EPS: PKR 13.58), ascending by 7% YoY. Additionally, the company announced a final cash dividend of PKR 4.00/share (PKR 13.00/share in CY20).
Result Highlights
· Topline in 4QCY20 plunged by 36% YoY settling at PKR 27,708mn, owed to i) fall in urea and DAP offtake of 10% and 69% YoY, respectively and ii) dip in urea prices by 16% YoY. Meanwhile, DAP prices rose up by 7% YoY. With this, net sales during CY20 arrived at PKR 105,846mn, plummeting by 13% YoY, on the back of a drop in urea and DAP prices by 10% and 1% YoY, respectively, tagged with 28% YoY reduction in DAP offtake.
· Gross margins clocked-in at 36.15% (up by 270bps YoY) in 4QCY20, amid decline in trading business volumes. In CY20, gross margins stagnant and clocked in at 32.36%.
· Other income declined by 5% YoY arriving at PKR 661mn in 4QCY20 given reduction in income from financial assets. Other income in CY20 settled at PKR 1,667mn, down by 62% YoY, given absence of gain on property, plant and equipment and reversal of liability for workers’ welfare fund.
· Finance cost retreated by 28% YoY to PKR 473mn during 4QCY20 due to fall in interest rates. Similarly, finance cost slipped by 17% YoY in CY20.
· The company recorded a re-measurement gain on provision for GIDC of PKR 2,121mn in the 4QCY20.
· The company booked effective taxation at 8% in 4QCY20 vis-à-vis to 35% in 4QCY19.
Recommendation
Our Dec’21 target price arrives at PKR 77.8/share, offering an upside of 23%. Hence, we recommend BUY.
Sources: Company Financials, AHL Research