Engro Corporation’s strong earnings growth came from a combination of volume growth, margin expansion and start of new businesses, according to analysts.
All the company’s subsidiaries performed better in revenue terms during the first half of 2010 compared with the previous year.
Engro Foods was the largest contributor to the revenues, however, heavy marketing and advertisement expenses for the ice cream segment led to the subsidiary reporting a loss of Rs180 million, the company informed analysts in a briefing.
New projects are starting to bear fruit as power generation made a profit of Rs376 million in the period under review.
The corporation will have a 28 per cent increase in earnings before taxes and 25 per cent growth in earnings per share over 2009 to 2014, predicted KASB Securities analyst Farrah Marwat in the company’s report.
Engro earnings surged 220 per cent to Rs3.4 billion in the first half of 2010 compared with Rs1.1 billion reported last year.
Engro Foods, Avanceon and Polymer reported losses while Fertiliser, Energy, Eximp and Vopak posted profits.
Foods the largest contributor
Engro Foods was the single largest contributor to the consolidated revenues, accounting for 29 per cent of the total revenues.
However, the company remained in losses mainly on account of ice cream segment while dairy products posted a profit of Rs149 million.
Engro Foods also moved to number one slot in the UHT (ultra high treated) milk market share. Aggregate revenues from Olpers and Tarang crossed the Rs7.7 billion mark. The company successfully launched Tarang powder (tea whitener) in March.
The company also launched its juices brand in May 2010. Increasing awareness of juices, ice cream and the increasing market share of milk will bode well for the company, said BMA Capital analyst Omar Rafiq.
Fertiliser: the front-runner
The fertiliser business was the main profit driver for Engro with earnings contribution from Engro Fertlilser and Eximp adding up to 88 per cent to the corporation’s net profit.
Urea sales were 17 per cent higher at 492,000 tons against 419,000 tons last year. Average urea price was 16 per cent higher which provided a further push to profit margins. Average urea price was around Rs788 per bag versus international price of Rs1,585 per bag during the first half.
Gas curtailment was only five to six per cent against planned reduction of 12 per cent which improved production margins, informed Rafiq.
Further, the company highlighted that gas curtailment issues are likely to continue till October 31, however, a meeting scheduled next week is likely to clarify the government’s stance on the subject.
Exquisite Eximp
Engro Eximp’s net profit jumped 389 per cent to Rs973 million while revenue also surged 279 per cent to Rs5 billion.
Record phosphate sales of 78,000 tons during the first quarter with additional 25,000 tons in the second quarter propelled the subsidiary’s profitability.
The management also announced that the rice plant which is expected to come online during the fourth quarter will boost profits further as Eximp has been working on rice trading contracts.
Energy: powering growth
Engro Energy was responsible for the production of 427 gigawatts per hour since March 27, which resulted in revenues of Rs2 billion during the period.
The company recorded net profit of Rs379 million compared to a loss of Rs40 million over the corresponding period last year.
Published in The Express Tribune, July 31st, 2010.
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