Buying Shares in This Pakistan Company May Not Be Smart at This Time: Engro Corporation


Getting rid of its food business may be a prudent move

Stock: Engro Corporation Ltd (EGCH.KA)

(1 USD equals 105.39 Pakistani Rupee)

The 163.1 billion Pakistani Rupee ($1.55 billion) investment company, EnGro Corporation, has an attractive 7.7% dividend yield, 2.4 times price-earnings ratio, 1.2 times price-book value, and 1.1 times price-sales ratio.

**This article consists of the company’s operations and figures. For quicker reading jump ahead to the conclusion part.**

First quarter performance

In its three months operations that ended in March, the Karachi-based company reported 34.5% drop in revenue to 22.5 billion and 23% profit drop to 2.84 billion.

According to filings, EnGro experienced the disappointing first-quarter results because of its lower urea sales coupled with discounts to sustain market share—indicating more intense competition. In addition, revenues from the company’s dairy business are no more consolidated as a result of the disposal of majority equity interest in EFoods last year.

Total returns

EnGro has returned 3.6% total gains so far this year compared to the Global X MSCI Pakistan ETF (ticker PAK) 15.8% total losses (Morningstar).

EnGro Corporation

EnGro Corporation traces its roots in 1957 and is a Pakistani public multinational corporation based in Karachi with subsidiaries involved in the production of fertilizers, foods, chemicals, energy, and petrochemicals (Wikipedia).

EnGro Corporation Limited is an investment holding company. The Company, through its subsidiaries, is engaged in the manufacturing and sale of cement and building materials, and specialty polymers (Reuters).

EnGro has five segments.

1 Fertilizer: Manufacture, purchase and market fertilizers.

In the quarter, fertilizer revenue fell 15% year over year to 10.1 billion (36% of unadjusted revenue) and profit margins of 16% compared to 18% a year earlier.

2 Polymer: Manufacture, market and sell Poly Vinyl Chloride (PVC), PVC compounds and related chemicals.

Revenue in the polymer business grew 19% to 6.8 billion (24% of unadjusted revenue) and margins of 12% compared to 0.31% a year earlier.

3 Food: Manufacture, process and sell dairy and other food products.

Food revenue fell 98% to 297.2 million and recorded margins of 28% compared to 8% a year earlier. During 2016, EnGro disposed of 54.1% of its investment in Engro Foods Limited (EFoods).

EnGro sold its stake for an estimated $446.81 million to Dutch company FrieslandCampina Pakistan BV (FC Pakistan).

4 Power: Includes Independent Power Projects (IPP)

Revenue in the power business grew 97% to 2.98 billion (11% of unadjusted revenue) and generated margins of 19% compared to 21% a year earlier.

5 Other operations: Includes chemical terminal & storage services.

Revenue in the other operations increased 27% to 7.75 billion (28% of unadjusted revenue) and margins of 74% compared to 68% a year earlier.

Sales and profits

In the past three years, Engro recorded an average revenue growth of 0.39%, profit growth of 103.6%, and profit margin average of 18.5% (Morningstar).

Cash, debt and book value (equity)

As of March, Engro had 607 million in cash and 4 billion in debt with debt-equity ratio 0.04 times compared to 0.1 times a year earlier.

Overall debt increased by 19 million while equity rose 64 billion to 39.8 billion.

Cash flow

In the quarter, Engro did not generate positive cash flow from operations and down to -905.8 million compared to -279.4 million a year earlier. Capital expenditures were 48.2 million.

The cash flow summary

In the past three years, Engro allocated 42.95 billion in capital expenditures, raised 15.94 billion in share issuances, 3.5 billion in debt (net repayments), generated -3.75 billion in free cash outflow, and provided 28.4 billion in dividends.


Engro’s divestment of its food business definitely resulted in a lower business performance in the first quarter albeit it received a good amount of cash in its divestment of its Efood business. Nonetheless, the food business has been a lower profit generator for the company in recent years.

Meanwhile, the company’s polymer business (24% of unadjusted sales) has been consistently a low-profit generator has shown a marked improvement in profits in the recent three months of operations and should be steadily be observed in the coming quarters. Engro also had a marked increase in its power business revenue.

Engro also has a steady balance sheet growth mostly brought by the increase in short-term investments (liquidity) and may be brought by its stake sale last year. Nonetheless, the company has been having troubles in delivering positive cash flow from its operations in recent years.

Applying three-year revenue growth and price-sales multiple followed by a 20% margin indicated a per share figure of 200.87 PKR vs. 311.48 at the time of writing.

In summary, Engro is a pass despite its attractive earnings multiple.

DisclosureI do not have shares in any of the companies mentioned.

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