ENGRO Analyst Briefing key takeaways

Engro Corporation (ENGRO) held its 2016 Analyst Briefing yesterday.

Following are the key takeaways:

• Engro Corporation (ENGRO) posted 2016 earnings of Rs69.11bn (EPS Rs131.94), up by massive 5x YoY on the back of 12x YoY growth in Other Income. On a sequential basis, 4Q2016 reported a profit of Rs60.52bn (EPS: Rs115.55), clocking in 12x YoY higher. The result was accompanied with cash payout of Rs4/share taking 2016 DPS to Rs24. Other Income was driven by one-time gains of Rs65/share that were booked on sale of EFOODS and Rs46/share on revaluation of EFOODS? existing holding. The revaluation was priced at Rs102/share.
• Among unlisted companies, increase in activity in Vopak increased the JV’s profits by 33% YoY, while Engro Agri-products closed the year with Rs478mn loss compared to Rs4,517mn loss in 2015.
• During the year, the company reduced holding in three subsidiaries namely EFOODS (from 87% to 40%), EFERT (from 75% to 57%) and Elengy (from 100% to 80%). Decline in holding and loss of major management control has resulted in EFOODS to now be categorized as an associate. The sale of EFOODS and EFERT also resulted in cash generation of ~Rs63bn.
• The management has explained the company’s strategy to take time on investing the surplus cash into future projects. Future project options can also include buying existing assets rather than a Greenfield project. While they would be assessing various options, the cash would be placed in short term and long term government papers. This would also be more comfortable to the balance sheet position, keeping the debt to equity on low levels. Current Debt to Capital stands at ~30%, down from 40% as at 2015. ENGRO repaid debt of Rs35.26bn during 2016, taking net debt addition for the year to Rs20.74bn.
• Engro Elengy has entered into a 200mmcfd agreement with SSGC and current LSA amendment is in process for the same. To recall, Elengy currently handles 400mmcfd LNG for the government, while it has a capacity of 600mmcfd. The management said that second LNG terminal tariff could be lower than current tariff however nothing has been finalized yet.