IGI Securities Limited – Flash Note (04-02-2020)

Karachi, February 04, 2020 (PPI-OT): Engro Polymer and Chemicals Limited: Higher financial charges and slower Ebit growth; EPS down by 20% y/y to PKR 4.0/share; total payout increased to 0.8/share

On a consolidated basis company’s earnings clocked in at PKR +3.7bn or PKR 4.07/share, down by 20% y/y. Similarly, on a quarterly basis, earnings are down by 18% y/y to PKR 0.97/share.

The company announced a cash dividend of PKR 0.2/share, taking total payout to PKR 0.8/share in 2019

Net sales for the 2019, improved by +7%y/y (+3% y/y in 4q due to previous year high base).

Gross margins decreased by a mere 15bps y/y to ~21.4% from last year 22.6%. Major margin attrition came during 4q whereby gross margin stood at 16.2% down by 360bps y/y, owing to unfavourable core delta. Nevertheless, company’s gross profit increased by +7% y/y which due to reduce other income did not translate into similar Ebit growth.

Moreover, company’s finance cost also doubled to PKR 1.8bn compared to PKR 0.6bn last year, which along with 27% effective tax charge, led to a 20% earning erosion in 2019.

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