Engro Corporation (ENGRO) announced its 1st Quarter 2021 Financial results where its profitability hit PKR 8.3bn (EPS PKR14.5) in 1QCY21, significantly increased by 151% YoY against Rs3.3bn (EPS Rs5.8) in 1QCY20.
The result is accompanied with a cash payout of Rs12.0/share.

The increase in Net Profit is due to improvement in Fertilizer, Power, Polymer and Food businesses.
Engro’s fertilizer segment profitability improved by ~10x YoY due to (1) higher Urea/DAP off-take, (2) better Urea retention prices, (3) increased profitability from DAP trading, (4) increased profitability of NP and NPK, and (5) decline in finance cost.

Polymer business profitability increased due to 65/22% YoY/QoQ increase in PVC-Ethylene margins (avg. margin of US$839/ton during 1QCY21) and 11% YoY decline in gas prices due to removal of GIDC. Support to profitability also came from EPCL’s expansion of 100K tons which came online from March 2021 and has increased PVC capacity to 295K tons. However, Caustic Soda sales declined due to rising COVID cases in US Europe which resulted in slowdown of textile exports. This was followed by a seasonal decline in soap sector.

Share of profit from Joint Venture reached PKR 1,019 mn as improved contribution of trading terminals and better performance of food segment.
Increase in food segment profitability is due to increase in price for UHT milk by ~15% YoY, increased sales of Olpers due to change in preferences towards packaged milk amid outbreak of COVID-19, lower finance cost, and abolishment of custom duty on import of skimmed milk powder in Federal Budget FY21, in our view.
Improvement in EPTPL profitability is attributed to improved dollar indexation by 3.4% YoY. However, EPQL profitability is down by ~55% YoY given lower capacity charges on completion of principal charge in tariff.

Earning Review

 PKR in Millions1QCY211QCY20YoY
Cost of sales46,05031,25747%
Gross profit24,81613,72081%
Selling & distribution expenses1,6571,05757%
Administration Expenses1,2611,509-16%
Other operating income2,4403,443-29%
Other operating expense1,1321,747-35%
Finance cost3,5916,066-41%
Share of income from JV1,019270277%
Profit before taxation20,6357,054193%
Profit after taxation14,7795,941149%


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