We expect Engro Fertilizers Limited (EFERT) to post earnings of PkR4.5bn (EPS: PkR3.4) in 1QCY22 as compared to PkR5.7bn (EPS: PkR4.3) in the same period last year. This depicts a decline of ~21%YoY because of a 17%YoY lower assumption of urea offtakes for the quarter, at 500k MT (2MCY22 urea offtakes currently stand at ~378k MT).

To recall, EFERT sold ~602k MT urea in the same period last year due to a pre-buying spree by farmers before the prices were increased. Secondly, we expect the gross margin this quarter to hover at 31% compared to 39.3% in the corresponding period last year as the company now accrues gas rate in the Enven plant at the normal fertilizer policy rate of PkR302/mmbtu.

In addition to this, Brent Oil price has averaged at ~US$93/bbl (vs ~US$61/bbl in SPLY), and the local currency has devalued by 12%YoY on average during this time which implies the gas rate of ~PkR980/mmbtu under PP-12 compared to ~PkR745/mmbtu in SPLY.

We also expect the company. We currently have a Buy rating on EFERT with Dec’22 TP of PkR103/sh, implying an upside of 9.2% and DY of 16% at last close, a TSR of 25%.

Courtesy – AKD Research