Engro Fertilizers post 3%YoY growth in profit

Engro Fertilizers (EFERT) has posted 3%YoY growth in its 1Q2019 profit, which was better than market expectations, mainly on the back of one-off gain in other income. Land valuing Rs650 million was sold to Engro Polymer & Chemicals (EPCL) which was not considered by analysts in income forecast released. Excluding this one-off gain the result of core operating income was in line with the expectation. EFERT achieved 30%YoY growth in revenue on the back of urea price hike, up 21%YoY. Gross margin reduced to 32% in 1Q2019, mainly due to impact of currency depreciation as 70% of the Company’s gas prices are indexed to US$-PKR parity. Finance cost took a quantum jump by 56%YoY due to the hike in interest rates, up 475bps to 10.75% from Jan 2018 to date. On QoQ basis, earnings were down 22% led by lower revenues, down 41%QoQ. The likely risks facing the Company include:  1) PKR depreciation, 2) regulatory control on fertilizer industry, 3) poor crop season and 4) unfavorable decision related to GIDC.

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