Engro’s comfort level

- File Photo

– File Photo

DAWN, 26th SEPTEMBER 2013:-In 2010, when Engro Corporation Limited — currently one of the largest private sector conglomerates in the country — launched its urea expansion project at Daharki, Sindh, which the company was proud to show off as the world’s largest single train urea-ammonia plant, its directors did not have the faintest idea of what lay ahead.

Engro’s Daharki plant, termed ‘Enven,’ with production capacity of 1.3 million tonnes per annum, required a staggering investment of $1.1 billion.

For as far back as one can see, Enven has been plagued by a shortage of gas. “All we ask for is the government to honour its commitment,” Ruhail Mohammad, a director on Engro Corporation’s board and CEO of the conglomerate’s flagship Engro Fertiliser, told Dawn.

He recalled that the company was given the assurance of gas supply for 20 years, with the first 10 years at concessionary rates. But that was not to be.

Enven is scarcely seen to operate at full capacity, and as the gas supply situation worsens, the giant Daharki project has been in and out of production for days and weeks. It is a sad tale of broken dreams.

And while our financial managers complain of the absence of foreign direct investment into the country, does Engro’s troubled plant serve as a sentiment booster for an investor wanting to put money into the industrial sector?

Ruhail says he couldn’t say about others, but it surely raises concerns for Engro Corporation over its huge investment in projects in the pipeline. They include Thar Power and Thar Mining, which would require a capital outlay of $1.8 billion, and the LNG project of $30 million. “The comfort level,” says Ruhail, “is low”.

But other than Enven, Engro Corporation has little to complain about. The conglomerate is engaged in businesses that include chemical fertilisers, PVC resin, a bulk liquid chemical terminal, industrial automation, foods, power generation and commodity trade.

The last reported figures for the year 2012 showed that Engro Corporation had a mammoth Rs190 billion in total assets.

The total equity of the company stood at Rs43 billion, with reserves at Rs23 billion — almost five times the share capital of Rs5 billion. The consolidated revenue (sales) of Engro Corporation for 2012 amounted to Rs125 billion, and the company posted a profit-after-tax of Rs1.8 billion.

Engro Fertilisers Limited, a wholly owned subsidiary of Engro Corporation, is a premier fertiliser manufacturing and marketing company with products that focus on balanced crop nutrition and increased yield.

The company markets primary and secondary fertilisers like Engro Urea, Engro DAP, Engro Zorawar, Engro Zarkhez and Zingro.

The CEO of Engro Fertiliser confirmed to Dawn that Engro Corporation plans to make an initial public offering (IPO) and list Engro Fertiliser on the stock exchanges in the next two months. It would serve to unlock the valuation and provide a big cash relief to the holding company.

In all its business segments, the company uses the latest technology. The heavy depreciation of the rupee hasn’t hurt Engro’s bottom line. Ruhail explained that the impact was neutralised by healthier prices in the rice business.

Market sources suggest the company has made a firm foothold in basmati rice in the international market due to lower stocks of Indian basmati.

The company exported 4.7 thousand tonnes of brown rice in the first quarter, representing a 100 per cent increase over 2012, when the Pakistan basmati brown market was unable to compete with Indian prices.

Engro Corporation has made ample progress in other lines of businesses as well, but the growth and pace of progress of the company hinges on its fertiliser arm.

Recent news flow suggested that under the new gas load management programme, the government is expected to curtail gas supply to fertiliser companies, captive power plants, industries and the CNG sector from December 2013 to February 2014 from the Sui Northern Gas Pipelines network.

But analysts say that in case the gas curtailment plan materialises, it would not affect Engro, as the company is drawing gas for both its plants from the Mari gas network.

The future of Engro is largely tied to the gas supply situation.

The CEO of Engro Fertiliser affirmed that the supply situation was stable for the last two months. He said the aggregate production capacity of 2.3 million tonnes was utilised by less than half, at one million tonnes, last year.

“This year, due to better supply situation, the capacity utilisation could improve to 1.4 million tonnes,” he hoped.

But for all its troubles on the gas supply front, Engro posted stellar earnings in 2012, and it shared the fortunes with its 18,768 shareholders on roll. Investors in the company were paid dividends to the aggregate sum of Rs796 million in 2012; with the biggest slice of the cake going to its foreign controlling stakeholders.

At the close of trading at the Karachi stock market on last Friday, the price of the company’s share of par value of Rs10 was tagged at Rs147.

At that price, Engro Corporation commands a market value at a staggering Rs735 billion.

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