Corporate results: Engro Corporation incurs loss of Rs135m

Local giant’s largest subsidiary operates only 33 days in six months.

KARACHI:

The country’s largest conglomerate Engro Corporation reported a loss of Rs135 million in January to June 2012 following its largest subsidiary finding it hard to operate due to gas shortage.

The new plant of Engro Fertilizers, the largest profit making subsidiary in 2011, operated for only 33 days due to gas shortage in the first six months of 2012. This, together with rising financial charges, pushed the company into losses for the second consecutive quarter.

The manufacturer’s most recent balance sheet shows short-term borrowings in excess of Rs5.6 billion compared with negligible Rs4 million at the end of 2011, which explains finance costs exceeding street expectations and pushing the company into loss despite urea sales gaining three times on a quarterly basis.

The local giant will continue to face financial challenges until a permanent gas supply solution to Engro’s new fertiliser plant is found, said BMA Capital analyst Farid Aliani.

Finance costs of the conglomerate rose by hefty 95% to Rs8.6 billon, mainly on account of fertilizer subsidiary’s new urea plant. Fertilizer business contributed 66% to the financial charges but only 24% to revenue.

The massive finance cost was the only reason which has pushed the company into loss, said Summit Capital analyst Muhammad Sarfraz Abbasi.

Foods: The silver lining

Engro Foods appears to be the silver lining for the conglomerate. The foods business continued its rapid growth trajectory registering a net profit increase of 368% to Rs1.02 billion in the period under review against Rs216 million during the same period last year. In addition, the Company’s investment in the Halal Foods business in Canada, Al Safa, also achieved sizable sales revenue of Canadian $5.7 million during the first half of 2012.

The petrochemicals business switched to a net profit of Rs59 million for the six months ended June 30, 2012, compared with a loss of Rs195 million in the corresponding period last year mainly attributable to increased volumes and higher caustic prices.

During the first half, Engro Qadirpur Powergen posted net profit of Rs1.07 billion due to higher gas efficiency and initiatives taken to ensure plant reliability and availability to the national grid. However, the substantial rise in the receivables due to circular debt is a major cause of concern for the business, the company said in a press statement. The subsidiary plant dispatched a total of 870.2 GWh to the national grid and demonstrated a billable availability of 100.8%.

The chemical storage and handling business – Engro Vopak Terminal Limited (EVTL) – had smooth operations in the first half and posted a net profit of Rs673 million against last year’s Rs478 million during the same period last year.

Published in The Express Tribune, August 17^th, 2012.