Restructuring of Engro and Dawood to take effect from Jan 1, 2025

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Staff Report: Regarding the restructuring of Engro Corp (ENGRO) and Dawood Hercules (DAWH), management stated that progress is in line with the timeline and will be effective from January 1, 2025.

The divestment of thermal assets is in progress and subject to approval from the lenders. The company expects the deal to be finalized within the next 6-9 months. The total worth of the thermal assets is Rs34.75bn, and any dividends realized from these assets are to be adjusted from the price.Engro Fertilizers (EFERT): Earnings Up 57% YoY, But Below Expectations

EFERT achieved revenue growth of 37% YoY, reaching Rs113bn in 1H2024, driven by higher volumes from DAP and specialty fertilizers. Urea volumes decreased by 17% YoY to 855K tons due to a 55-day plant turnaround. Management anticipates that the demand for specialty fertilizers will remain under pressure due to deteriorating farm economics.

EPCL reported a loss during the period as its business is closely tied to the commodity cycle. High energy costs, muted construction activities, and increased finance costs kept the business under pressure. Management expects the business to remain impacted for the next two to three quarters due to slow demand in China and India, which continues to suppress PVC prices.

Engro Elengy & Vopak experienced a 58% YoY increase in chemical handling due to an ease in LC openings in 1H2024. The company handled 36 cargos during the period, with availability above 97%. Profitability remained strong, driven by dollar-denominated earnings.

Engro Enfrashare expanded its tower footprint to 4,063 towers by adding 111 towers in 1H2024, capturing 52% of the ITC market share. The tenancy ratio improved to 1.23x in 1H2024, compared to 1.18x in 1H2023. Management remains optimistic about Enfrashare’s business performance once interest rates stabilize.

EPQL’s profitability increased by 33% YoY to Rs1.6bn in 1H2024 due to efficient operations and higher interest income. The company dispatched 2,041 GWh compared to 1,960 GWh in 1H2023.

FCEPL’s topline increased to Rs55bn, up 17% YoY, but profit declined by 7% due to a significant rise in interest costs. The recent imposition of sales tax on packaged milk impacted the company’s conversion ratio.

The company reported consolidated earnings of Rs6bn (EPS: Rs11.67), down 42% YoY in 1H2024, compared to Rs10.8bn (EPS: Rs19.54) in 1H2023.

However, in 1H2024, the company’s unconsolidated profitability grew by 50% YoY to Rs14.2bn, driven by higher dividends from the fertilizer business and cost optimization initiatives.