Department Of Business

Forman Christian College

(A Chartered University)

(Fall 2017)

Financial Management and Investment Portfolio

Engro Corporation

SUBMITTED TO:

Sir Abdul Jawad

SUBMITTED BY:

Nawazish Mehdi Zaidi

Muhammad Adeel Rana
Asad Omer khan
Muhammad Ali Shah
Shawn Gill
INTRODUCTION:

The rate of GDP growth has gradually been increasing over the last three years albeit
at a slower pace. Finally, the growth rate for 2016‐17 is estimated to be over 5 percent,
first time after 2006‐07. However, the government has missed a number of important
macroeconomic targets including sectoral and overall GDP growth, investment and
exports. The current trajectory of growth is unlikely to be sustainable unless these
challenges are addressed. Agricultural sector contributes 24% of GDP.

BENCHMARKING POPULATION GROWTH:

The population growth rate of Pakistan is 2.1 %

RECENT MACREECONOMICS DELEOPMENTS:

The country’s FX reserves have recently reached a record high of US$20bn+ in 2016.There is a
stable economy with decreasing interest rates and currency which is stable.

IMF PROGRAM:

IMF extended loan facility of US$6.6bn in 2013 with disbursement spread over 3 years with
US$5.6bn already disbursed. IMF has recognized that “Economic activity has continued to
gradually gain strength, and short‐term vulnerabilities have receded”.

CHINA PAKISTAN ECONOMIC CORRIDOR:

China‐Pakistan Economic Corridor CPEC has been labelled as a “game changer” for Pakistan.
CPEC involves development of US$46bn of projects in infrastructure and power sectors.

DISCOUNT RATE BY STATE BANK OF PAKISTAN:

The discount rate offered by state bank of Pakistan has been declining over the last few years and
was 6.5 in September 2015.

ENGRO CORP. OVERVIEW:

Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in Pakistan.
The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited
until 1991,when Exxon decided to divest their fertilizer business on a global basis and sold off its
equity of 75% shares in existent company. The Employees of Engro, in partnership with leading
international and local financial institutions bought out Exxon’s equity and the company was
renamed as Engro Chemical Pakistan Limited. Engro is a public limited company listed on the
Stock Exchanges of Karachi, Lahore and Islamabad.
The principal activity of the Company is manufacturing, purchasing and marketing of fertilizers.
The Company is also involved in the production and marketing of seeds and has invested in joint
Ventures engaged in chemical related activities. As part of its diversification strategy, controlling
Interest was acquired in a company offering industrial solutions in automation and control. A
new milk plant has been established at Sukkur the milk is branded as Olpers.

FERTILIZER BUSINESS:

Agriculture accounts for 25% of GDP and 45% of employment in Pakistan Second largest Urea
producer of Pakistan .Capacity975 KT/A Market share20% Second highest phosphates sales
(~400KT/A) –Market Share 23% ECPL’s Margins are by far the best in the industry. Zarkhez
(NPK) Market leader -Capacity 160 KT/A –Market Share 95% Urea shortage expected to grow
to 1.2 million tons/annum by 2010.World’s largest single-train Urea plant of 1.3 million tons
being setup at a cost of US$ 950 million. On commencement of operations in mid 2010, cash
fixed costs of the new plant will be a third of the existing plant; scale & brown field synergies
Gas consumption at the new plant will be 15% less than the existing plant. Engro’s Daharki
complex will become the world’s fifth largest Urea production site; 2.28 million tons, 3 plants.

TRADING & PROCESSING:

Engro EXIMP Agriproducts (EEAP) is a wholly owned subsidiary of Engro Corporation.

Situated in the heart of the basmati growing region it operates the most modern integrated plant
for processing rice in the country. Set up at a cost of USD 55M, it is capable of exporting 70,000
tons of rice. EEAP processes and exports the finest basmati & non-basmati rice in raw, parboiled
and steamed forms locally and around the world. Some of the largest European and Middle
Eastern brands are our customers while our brand Onaaj is the premier wholesale rice brand in
Pakistan. We export the best quality rice Pakistan has to offer with varieties across basmati and
non-basmati rice. Our plant and products are ISO 9001, ISO 14001, OHSAS 18001, Sedex, BRC
Food and Food Safety System 22000 certified. Most critically all our customers are repeat
customers because of the integrity, ethics and professionalism that are core EEAP values.

ENERGY BUSINESS:
Established in 2006-100% owned subsidiary Pakistan is facing growing energy deficit –Energy
consumption has been growing at 7% per annum Setting up a 220 MW gas based power plant at
a cost of $220 million with commercial operation in 2009 Short-listed along with
3othercompanies for privatization of Jamshoro Power Company.

ENGRO FOOD:

Engro Foods Limited is subsidiary of Engro Chemical Pakistan Ltd. which is one of the most
reputed enterprises in Pakistan with more than 40 years of diversified business operations in the
areas of fertilizer and chemicals. Engro Foods started its business operations in March 2006 and
with the successful launch of Olpers Milk, Tarang, Olwell, and Olpers cream, it has established
itself as a major player in the foods business. Engro Foods has already set up two processing
plants at Sukkur and Sahiwal. With the ever expanding milk collection network and processing
facilities, the Supply Chain has geared us for the growing sales of our products.
ENGRO EVENTS:

Following are the events occurring in Engro’s industry.

ENGRO LIST OF SHARES:

Following are the list of Engro shares in there diversifies business.

ENGRO CORP. GROWTH STRATEGY:

 Engro Corp has historically raised significant capital (debt and equity) to finance growth
in the fertilizer & agri‐inputs, energy & related infrastructure and consumer verticals
 While achieving success Engro has also gained trust of reputable international partners –
IFC,ADB, VOPAK, DEG, Mitsubishi & GE
FUTURE INITIATIVE:

Engro Corp has expanded its energy vertical through investments in LNG Terminal, Thar coal
mining & power generation.

CAPITAL REQUIREMENT:

 As part of its strategic initiatives to enable the Company to diversify its portfolio and
meet its capital allocation requirements, the Company plans a further pruning of Engro
Fertilizers

 The Company has appointed advisors for the potential sale, subject to market conditions,
of up to 24% of the shares of Engro Fertilizers Limited by way of a private offering to
local and international investors

KEY BUSINESS RISKS AND MITIGATE:

1. Gas Availability

 The Fertilizer sector competes with the power, industrial and domestic sectors for gas
supply

 Engro Fertilizer receives gas supply for its new plant (Enven, from where bulk of its
EBITDA is generated) from a dedicated gas network, with a long term gas supply
agreement with Mari petroleum

 For the old plant the Company is negotiating with the relevant quarters for a long term
allocation of surplus gas for the base plant, which has been running on a temporary
allocation basis for the last 3 years.

2. Depressed International Urea Prices

 Historically , domestic urea prices have remained significantly lower than international
landed equivalent allowing the local industry to pass on any increases in cost while
ensuring that the local farmer benefit from low urea prices

 However due to the recent downturn in international urea prices in 2015/16, domestic
urea for the first time in more than decade is being sold at a slight premium to landed
equivalent international urea. This trend is expected to reverse in the long run once prices
rebound to normal levels
 3. Local Urea Oversupply Situation

 As a result of better gas availability (additional gas from Mari & LNG) and low
agronomic demand, a long supply situation has developed. This is expected to improve
over time as the Kharif season starts

 Further the industry as a whole is also exploring the possibility of exporting Urea to
reduce domestic inventories

4. GIDC on Concessionary Gas

 Gas was allocated to the Company’s new Enven plant at concessionary price of 70 cents
under the fertilizer policy of 2001. However, due to subsequent enactment of a GIDC act
a levy $2.9/MMBTU was imposed. This in the Company’s view is in direct contravention
with the Fertilizer Policy and our Gas supply contracts

 The Company obtained a stay order in 2015, and therefore no GIDC is being paid or
accrued for concessionary gas supplied to the new urea plant

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