Engro: Out of oxygen?

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From gas curtailment and delays in Thar Coal project to Asad Umars resignation, the current year has been harsh to Engro Corporation. Unlike CY11 when Engro rose above the choppy times, CY12 has been distressing for the corporation so far.

Engro has painted an abysmal performance for the 1HCY12 where the overall profitability dipped in comparison to a similar period last year. Debunking the progress, revenues from the fertilizer business remained largely flat at 5 percent during 1HCY12 compared to 1HCY11.

But clouds might be clearing up. Much of the negativity of the performance during 1HCY12 reflects massive losses during 1QCY12, during which the top line of the fertilizer business remained jittery due to a slow industry-wide urea off-take coupled with massive inventories of cheap imported urea.

However, the second quarter of CY12 saw improvement in not only urea off-take by three to four times, but also a rise of 30-40 percent year on year in average urea prices.

A sizeable decline in the earning during 1HCY12 also came from the gas curtailment issue which resulted in only 18-19 percent capacity utilisation of Engros plant: Enven. The new fertilizer plant fails to contribute to the companys progress through production due to extended gas curtailment.

Furthermore, the bottom line was shaken up by a massive hike of 95 percent in financial charges for the period, sending the earnings into the red zone.

The corporation faces the risks of further slowdown in urea sales due to existing inventory and planned imports. Besides, nothing can be said about the resolution of the gas crisis.

On the brighter side, the successful rescheduling of the fertilizer businesss debt could provide the company a financial cushion till the resolution of the gas allocation issue. Recently, the government has shown interest in reviving and allocating gas to the struggling fertilizer sector due to muted production on account of gas curtailment. Accordingly, if implemented, this might bode well for the fertilizer business as the programme will provide gas to the fertilizer plants on SNGPL network.

Courtesy: Business Recorder

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