ENGRO CHEMICAL PAKISTAN LTD.

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
Mar 16 - 22, 2009

Engro Chemical Pakistan Ltd (ECPL) is engaged in the manufacturing and marketing of fertilizers and product line that focuses on balanced crop nutrition. ECPL is also engaged in manufacturing and marketing of chemical terminal & storage, polyvinyl chloride (PVC) resin, control and automation, food and energy businesses.

Engro Vopak Terminal Ltd has 50:50 joint venture with Royal Vopak of the Netherlands which is engaged in handling and storage of chemicals and liquefied petroleum gas (LPG). The company has been winning the prestigious investor relation award of the CFA Association of Pakistan continuously since its inception and voted to first position by a jury of brokerage and investment houses.

Engro Polymer & Chemicals Ltd (EPCL) is a 56%-owned subsidiary of the ECPL. During the year ended Dec 31, 2008, EPCL produced 102,876 tons of PVC.

Avanceon Ltd is engaged in automation and controls of engineering company.

IMPORT PAYMENTS BY FERTILIZERS & CHEM.
(Thousand US $)
  JULY-JANUARY
COMMODITY Jan (P) 2009 Dec (R) 2008 Jan 2008 2008-09 (P) 2007-08
Fertilizer Manufactured 91,715 39,235 33,378 288,757 448,959
Others Chemicals 214,805 227,496 273,284 1,859,692 1,486,927
EXPORT RECEIPTS BY FERTILIZERS & CHEM.
Fertilizer Manufactured 61 0 275 303 1,090
Other Chemicals 11,630 18,617 27,211 167,144 159,699
Source: SBP
P: Provisional, R: Revised

UREA

Engro's urea sales were 5.5 mn tons during 2008, growing 12% over 2007 despite acute shortages. National domestic urea production during 2008 was 4.98 mn tons, 5% higher than 2007. In 2008, Engro produced 995 KT, fractionally short from the target of one mn ton due to forced outage in Sep 2008. ECPL sold 1,061 KT urea, which was mainly its own production and inventory (1,039 KT) partially complemented by TCP urea (21.5KT), with a full year market share of 19.2%.

Trade Corporation of Pakistan (TCP) imported 0.44 mn tons. Most of this imported urea was sold through National Fertilizer Marketing Ltd (NFML). Price differential between local and imported urea remained substantial. Average imported urea cost was around Rs. 2,000 as compared to local urea price of Rs. 580 per 50 kg bag. Government of Pakistan contributed Rs. 34 bn (including Rs. 14 bn subsidies on imported urea) and the remaining Rs. 113 bn by the fertilizer industry.

ENGRO CHEMICAL PAKISTAN IN KSE
DATE OPEN RATE CLOSE RATE
2-Mar-09 108.4 108.58
3-Mar-09 108.58 107.38
4-Mar-09 107.38 112.74
5-Mar-09 112.74 116.15
6-Mar-09 116.15 110.85
9-Mar-09 110.85 108.99
11-Mar-09 108.99 106.36


ECPL'S FINANCIAL HIGHLIGHTS

INDICATORS

FY08

Sales Revenue (Rs. Million)

23,317

Profit after Tax (Rs. Million)

4,240

Earnings per Share Rs.

20.50

Dividend Rs./Share

6.00

Shareholders Equity (Rs. Million)

23,084

Current Ratio

2.55

Debt: Equity Ratio

55:45

Price to Earnings Ratio

4.71

Net Assets per Share Rs.

108.5

Fixed Assets Turnover

1.0

Debtor Turnover

27.9

Inventory Turnover

4.6

Source: ECPL

PHOSPHATES

In 2008, global phosphatic fertilizer market suffered unprecedented volatility in price. From USD 750 per ton CFR Karachi in the beginning of the year, prices rose to USD 1,300 per ton CFR Karachi in June. At the end of the year, price fell to around USD 400 per ton CFR Karachi. In 2008, industry sales dropped to 0.8 mn tons from 1.461 mn tons in 2007, a 45% decline.

This huge decease is attributed to highest ever phosphate prices, liquidity crunch, uncertainty over subsidy and support prices for produce. Engro sold 128 KT of phosphates in 2008, against 514 KT in 2007, achieving 16% market share. Phosphatic fertilizer was subsidized by the Government of Pakistan during 2008. Subsidy remained at Rs. 470 per bag of DAP during first half of the year. It was increased to Rs. 2,200 per bag of DAP in second half of the year. Despite significant increase in subsidy, local DAP prices went up from Rs. 1,685 per bag at start of the year to Rs. 3,050 per bag at the end of the year.

ZARKHEZ

SALES VOLUME
(THOUSAND METRIC TONS)
COMMODITY 2004 2005 2006 2007 2008
Total Fertilizer Sales Volume 1,255 1,522 1,514 1,523 1,259
Zarkhez/Engro NP Sales Volume 114 143 116 135 89
Source: ECPL

Due to unprecedented increase in international and domestic prices of Phosphates and Potash, Zarkhez prices increased by 104% in the first half of the year. This factor, coupled with uncertainty on subsidy, impacted Zarkhez sales which dropped to 69KT, a 28% decline from 96KT in 2007. This drop is however much lower than Phosphate industry sales which dropped by 45%.

Poor production of sugarcane and potato, which absorb about 36% of Zarkhez sales, also had a negative impact. Despite these significant challenges, sales of 69KT were achieved from 20KT Nitrophos (ENP) sales during 2008 Vs 39KT in 2007 with a decline of 49%. Zarkhez and ENP production for 2008 were 98KT Vs 125KT during 2007.

MICRO NUTRIENTS

ECPL has shown consistent financial performance, growth of the core fertilizer business and diversification into other fields. In 2008, company achieved highest ever Zingro sales i.e. 1,781 metric tons against the plan of 1,500 metric tons. This is 54% growth over the last year sales volume of 1,158 metric tons.

CONCLUSION

Engro Chemical Pakistan Ltd is the second largest producer of Urea fertilizer in Pakistan. The year 2008 was another milestone year for the company because during the year it exhibited a strong result with profits after tax of Rs 4,240 mn. Despite a year of international economic upheaval the overall growth remained steady with all expansion projects on track.