ENGRO CORPORATION LIMITED

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Dec 13 - 19, 2010

Engro Corporation (former: Engro chemical limited) is one of the leading Pakistani business conglomerates with stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries. The company's current manufacturing base includes urea nameplate capacity of 975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per year and is the second largest producer of urea fertilizer in Pakistan. Additionally, the company imports and sells phosphatic fertilizers for balanced fertility and improved farm yields. Engro's share of Pakistan's phosphates market mirrors or exceeds its urea market share. Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at Daharki. The US$1 billion project is well underway and on track for commercial production in mid 2010. This addition will increase Engro's urea market share to 35 per cent from 19 per cent at present.

ENGRO: PAT & EPS

YEARS 2004 2005 2006 2007 2008

2009

PAT (USD mn) 20 28 31 39 52

48

EPS (Rs) 8.3 11.33 12.40 13.54 16.81

14.08

During the financial year 2009, Engro delivered a profit after tax (PAT) of Rs3.96 billion as compared to Rs4.24 billion in 2008. The decline is primarily due to lower income from affiliates. Sales for the year amounted to Rs30.2 billion against Rs23.3 billion last year. Though urea sales volumes remained relatively constant, there was a significant increase in phosphate sales.

PRODUCTION OF FERTILIZERS ('000 TONS)

YEAR

FERTILIZER

UREA

SUPER PHOSPHATE

AMMONIUM NITRATE

NITRO PHOSPHATE

2004-05

4,606.4

163.1

329.9

338.9

2005-06

4,806.4

160.8

327.9

356.6

2006-07

4,732.5

148.9

330.8

325.8

2007-08

4,924.9

161.8

343.7

329.7

2008-09

4,918.4

187.4

344.3

305.7

July-March
2008-09

3,652.4

143.2

245.7

218.4

2009-10 P

3,783.6

122.5

244.3

210.8

Industry urea off take grew 17 per cent during the year to 6.4 million tons. Increase was mainly due to recorded wheat support prices (Rs950/maund) for Rabi 08/09 and 09/10 resulting in highest ever returns for the farmers, increase in acreages under Bt cotton requiring more urea and rising cotton prices encouraging increased fertilizer use.

Furthermore, Pakistan's domestic fertilizer industry witnessed a positive trend in production during 2009-10. The production in nutrient terms increased from 2906 thousand tonnes during 2008-09 to 3024 thousand tonnes during 2009?10 showing an increase of 4.1 per cent. Nitrogen production was 2611 thousand tonnes during 2009-10 and recorded an increase of 3.2 per cent (86.3 per cent in total nutrient production), phosphate 403 thousand tonnes (13.3 per cent share in total nutrient production), which increased by 10.7 per cent. Potash blends production was about 10 thousand tonnes and was almost same as in previous year (0.3 per cent share in total nutrient production). The subsidy on phosphatic and potassic fertilizers was eliminated in December 2008. However, from January, 2010, the government of Pakistan initiated a new scheme of subsidy amounting to Rs500 per bag of 50 kg for potassic fertilizers only.

For 2009-10, the subsidy on potassic fertilizers was estimated at Rs0.5 billion. Along with this, the subsidy on imported urea by picking the difference over its local price (for price stabilization purpose) continued for 2009-10. On flip side, imported urea has cost the GoP in 2009-10 at least Rs1400 per bag, while, the total subsidy on imported Urea is estimated at about Rs14 billion for 2009-10. In addition to this, the government is also providing an indirect subsidy to fertilizer manufacturers by selling feedstock gas (80 per cent of the raw material cost) at approximately 50 per cent lower rates as compared to the price for commercial users.

During 2009, global urea production capacity stood at 170.8 million tonnes while production 151.7 million tones. The main producers included mainly China, Oman, India, and Russia. In 2010, China, Russia, Iran, Pakistan will add 8 million tonnes to make global production capacity close to 178.8 million tonnes.

In 2009, global trade of urea was 34 million tonnes, compared with 2.9 per cent growth in 2008. India and the United States are major importers, accounting for nearly 30 per cent of global trade. Bangladesh, Pakistan, Thailand, Vietnam, and Mexico have significant growth in import demand. Russia, Egypt, and Oman are major exporters. China exports only 10 per cent of total global exports.

CONCLUSION

Currently, the government is taking action on increase in price of urea per bag. In Pakistan, the price increase may be rationalized and should be in consonance with the actual costs sustained due to the gas curtailment measure. Engro Corp is playing a pivotal role across the country to come forward with a practical business plan which could be implemented in reality to contribute to the Pakistan's economy.