Corporate results: OGDC & Engro posts profits

OGDC's net profit rise 7% to Rs63.52 billion; Engro's profit rose Rs3.3 billion

KARACHI: OGDC profit hit by Rs15b expense

Oil and Gas Development Company’s net profit rose seven per cent to Rs63.52 billion in the financial year 2011 compared with Rs59.18 billion posted in the same period last year.

Profitability remained under pressure due to charges of Rs15.24 billion booked for Kunar field coupled with other charges of Rs5.53 billion during the period under review, said Global Securities analyst Syed Saquib Ali.

Moreover, the country’s largest oil and gas explorer also announced final dividend of Rs2.5 per share, taking the total payout to Rs5.5 per ordinary share of Rs10 for the financial year.

The result was in line with analyst expectations as, on average, they expected the net profit to stand around Rs63.9 billion.

OGDC encountered a one-off charge of Rs15.2 billion on crude oil revenues for January 2007 to April 2011 due to change in the pricing formula for its Kunnar field. Kunnar was provisionally fixed on the basis of Basin II pricing formula, however, this was changed to Badin I pricing formula and resulted in the charges.

The company contributes 23 per cent to the total gas production and 56 per cent to the total oil production of the country.

Net sales rose by nine per cent on account of higher prices which are estimated to have increased by 10% and 15% for gas and oil, respectively, added Ali.

The explorer’s gas production increased by 3.85% while crude oil production decreased by 1.85% compared with the preceding year, the company informed in a statement. Total of 21 wells were explored during the period of which two new discoveries were made.

Operating expenses jumped by 39 per cent during the period under review as the company expensed out two dry wells during the period. Expenditures also rose on the back of Rs4.72 billion amortisation charges and Rs800 million impairment charges booked in April.

Engro takes market by surprise

Engro Corporation’s took the market by surprise as net profit crawled up despite 36% surge in net sales.

The conglomerate’s net profit rose to Rs3.3 billion in the first half of 2011 compared with Rs3.2 billion in the same period last year, according to a notice sent to the Karachi Stock Exchange on Friday.

Higher financial charges diluted the margin impact on bottom-line, according to analysts.  Financial expenses surged 83 per cent to Rs4.4 billion in the period under review.

Analyst missed the net profit figure by 33 per cent as they expected it to range around Rs4.4 billion. The market reacted negatively to the result announcement as the stock fell to Rs132.08 from intraday high of Rs139.4 during trade at the Karachi Stock Exchange.

Moreover, the local giant also announced an interim dividend of Rs2 per share along with the result.

Mismatch between the commercial operation date and financial charges were also key culprits, said BMA Capital analyst Farid Aliani.

Engro made the conservative decision of expensing out financial charges relating to its new urea plant, EnVen even though the plant achieved commercial operations on June 24, 2011, added Aliani.

Hence, lower then expected earnings largely arise from subsidiary Engro Fertiliser where financial charges have been booked for May to June 2011 rather then capitalising them while revenues from trial production of new plant EnVen have not been booked in the income statement.

Out of Rs8.6 per share earnings, the company’s core fertiliser business Engro Fertiliser contributed around Rs5.5 per share, higher than last year but lower than market expectation, according to Topline Securities.

Net sales stood impressive at Rs46 billion led by urea business that rose 29 per cent to Rs12.1 billion food wing that jumped 41% to Rs13.4 billion.

Published in The Express Tribune, August 13^th, 2011.