With continuous curtailment and government’s considerations to allocate gas to other sectors ahead of the general elections, the market analysts foresee the fertilizer business of Engro Corporation to remain affected.
After evaluating various gas scenarios, the analysts at Topline Research have concluded that Engro Corporation’s earnings would range from Rs 5 to Rs9 per share in next couple of years (2013-2014).
Where other businesses like food, power and terminal would continue to perform, the fertilizer business would remain in losses at least till 2014 impacting the overall profitability of one of the largest conglomerate of Pakistan.
“Hence given unpredictability of cash flows in next few years, we have valued fertilizer business on net realizable method,” said Topline analyst Farhan Mahmood.
For Engro, the analyst said, gas supplies would remain a concern at least for next two years. Among various long-term options proposed, the construction of a dedicated pipeline to Engro would take at least two years, assuming 0.5km of pipeline is constructed each day, after the final approval of the project.
“Our understanding suggests that the construction of the pipeline would be started at different locations from each gas field,” Farhan said.
In the proposed scheme, he said, the new plant was likely to get gas from Kunnar Pasakhi, near Hyderabad, which has a distance of 300km from Dharki where the new Enven plant is located.
Moreover, some portion of gas from Reti Maru, located near Ghotki, was also likely to supply gas to Enven. “In such a scenario, we believe the full operations are expected to commence somewhere in mid of 2015,” said the analyst. Farhan says a hope that can restore gas to Engro’s new plant for few months was the change in the current political set up.
“In case PPP-led coalition government does not come to power in the upcoming election, chances are high that decent quantity of gas could be allocated to Enven,” he said.
In this case also, the formation of government and allocation of ministries would take another nine months. “Thereafter, negotiations would be held and that is why we don’t expect any substantial gas allocation in the calendar year 2013.”
The analyst said despite various shor-term options being discussed including diversion of idle gas from Guddu to Even and gas supplies on rotational basis, gas availability to both the plants, old and Enven, was highly unlikely.
“This is due to growing gas demand-supply gap in upcoming winter and government’s top priority to supply gas to power units in the run-up to elections in order to overcome load shedding,” he said.
In such a scenario, Farhan said, only Enven might be seen, which is currently operating on Mari gas network, continuing its production in 2013 while old plant to remain suspended.
