20000131

Dawood Group

acquires 30pc

shares of Engro

RECORDER REPORT

KARACHI: Dawood Group has acquired 25 to 30 percent shares of Engro Chemicals which might entitle them to get two or three seats in the Board of Directors of the company.

Engro Chemical's Board of Directors would meet on Monday to finalize financial accounts for the year ending December 1999. The current meeting is scheduled a bit earlier as against the past trend of finalizing accounts in mid-February. This early meeting signals Engro management's intention of holding the 34th AGM of company as soon as possible, thereby providing less time to Dawood Group to increase its shareholding before the upcoming election of directors.

Analysts expect AGM in March or April with the main agenda of election of 10 directors for a three-year term. Considering that Dawood Group has accumulated holding of 25 percent to 30 percent shares in Engro, placing three directors would not be a problem for the aforementioned. However, any major proxies can help the group to fight for the fourth seat.

On operation side the company has made a record sales of 0.8 million tonnes of local urea (up 12 percent from 1998) during 1999 despite dumping of 0.50 million tonnes of low priced imported urea. As against industry inventory of 0.25 million tonnes, Engro has been successful in keeping its inventory at a nominal level of just 5,000 tonnes of urea.

Analyst of IP Securities estimates that the 1999 profit after tax would be around Rs 0.98 million and earning per share at Rs 8.1 far better than initial pessimistic estimates by industry analysts. The company has already announced two interims of Rs 2 each and we expect a further Rs 2 cash dividend to be announced in this meeting, making the total cash payout of Rs 6.

Moreover, a bonus share of 15 percent to 20 percent is also expected. Though on fundamental the stock is being traded at a higher price, we rate the stock as "hold' amid expectation of price strength by the two groups before AGM.

According to Taurus Securities Engro urea off-take for December 1999 was around 181,242 tonnes. Given this exceptional urea off-take, the earning per share of Engro is likely to touch Rs 8.4 as compared to earlier estimate of Rs 7.7. It should be noted, however, that large inventory levels with dealers would result in lower off-take in the first couple of months of FY-2000.