omc: no mention; hence safe - BMA Capital Management

BUY
Fair Value: PKR 232
Current Price: PKR 182
Stock Statistics
Ticker ENGRO
3-month High/ Low 212.8/ 166.6
Mkt Cap USD mn 704
12M ADT mn 2.3
Beta 1.12
KSE vs ENGRO Relative Graph
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Volume mn(RHS) ENGRO KSE100
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ENGRO Profile: ENGRO Corporation
(ENGRO) is soon to become the largest
Urea producer in Pakistan with a name
plate capacity of 2.3mtpa. The company
has followed an aggressive growth
strategy and now operates in various
business lines such as FMCG, chemical
handling, polymer production and
automation.
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June 7, 2010
ENGRO Corporation: Eggs in more than one basket
Investment Summary
� Diversification: ENGRO’s main advantage stems from its diversified and
well entrenched business lines. The company operates in fertilizer, foods,
energy, chemical, chemical handling and automation business. The
company has recently gone through a demerger of its fertilizer operations
thereby becoming a holding company to better manage debt/cash flows for
its ventures and further expansionary needs.
� Largest Indeed: The company’s current expansionary plant to set-up a
1.3mtpa urea plant at Qadirpur is expected to make Engro the largest urea
producer of the country. Further the company is to receive feed stock gas
subsidy in excess of its counterparts up till 2020 (under the Fertilizer Policy
of 2001) at USD0.70/mmbtu compared to USD1.2/mmbtu prevailing for its
peers. Core margin differential for urea production is expected to be in the
tune of 7% which is to boost the company’s profitability. This increase in
core margin bodes well for the company’s ongoing growth orientation as it
has more access to internally generated funds in a high interest rate
environment.
� Synergies: ENGRO benefits directly and indirectly from synergies existing
between its business units. Chemical handling and polymer generate
supply chain links, Engro Foods benefits indirectly through market
penetration and brand recognition of the fertilizer operations while Engro
EXIMP acts like a trading arm for the fertilizer operations and potentially for
other subsidiaries. By CY11 it is expected that some of ENGRO’s
subsidiaries will reach the maturity phase and start paying out dividends.
This should help boost internal liquidity for the company and reduce
reliance on external sources of financing for the company.
Financials
CY09A CY10E CY11E CY12E
EPS(PKR) 12.07 15.09 23.30 34.94
Price to Earnings (x) 15.0x 11.9x 6.4x 5.2x
Dividend Yield (%) 7% 3% 2% 3%
EPS Growth (%) (7%) 25% 88% 23%
Return on Equity (%) 15% 15% 26% 28%
Return on Assets (%) 5% 5% 9% 11%
Source: BMA Research