A review of Engro Fertilizers performance through corporate briefing

Engro Fertilizers (EFERT) announced 3Q2021 consolidated earnings of Rs3.30/share, down 37% YoY and 7% QoQ which came in line with industry and our expectations. It takes 9M2021 EPS to Rs11.17 up 30% YoY.

Along with the result, company also declared interim cash dividend of Rs3.5/share which came in slightly higher than industry and our expectation due to an adjustments taken by company during the quarter. It takes 9M2021 DPS to Rs11.50.

From 3Q2021 EFERT will continue to accrue normal fertilizer feed prices of Rs302/MMBTU on its Enven plant. However, company has taken stay order from Sindh High Court on concessionary gas issue while the discussion will also continue with the federal government and Sui North Gas Pipeline (SNGP) to extend the concessionary gas for the number of days for which Minimum Contract Quantity was not supplied.

Urea production went down by 8% YoY to 1,560k tons in 9M2021 compared to 1,694k tons in 9M2021 due turnaround of Enven plant for 22 days.

Current domestic Urea prices are at 75% discount to international prices. That said, chances of smuggling of Urea to Afghanistan and other places from Pakistan can’t be ruled out.

International DAP prices have increased by 81% YoY to US$680/tons in 9M2021 compared to 64% YoY increase in domestic DAP prices to Rs6,463/bag. That said, further increase in DAP prices cannot be ruled out considering higher international DAP prices.

EFERT discontinued sales to unregistered dealers from April 2021. These primarily include dealers whose annual sales are exceeding Rs100mn.

Subsidy receivable of Rs6.5bn and Sales Tax refunds of Rs4.5bn will continue to remain challenge for the company.

As per management, specialty fertilizer business is expected to contribute around Rs12-14bn to the total topline of the company during 2021.

The management shared that the farm economics for wheat, sugarcane, and rice have improved in 2020-21 with Wheat net income per acre improving to Rs32,978 in 2020-21 from Rs20,748 in 2019-20; Sugarcane net income per acre improving to Rs88,400 in 2020-21 from Rs60,200 last year; and rice net income per acre improving to Rs28,850 in 2020-21 from Rs22,900 last year.

Furthermore, management informed that food inflation has been one of the biggest worries of government. As a net importer of food items, Pakistan has been hit hard due to rise in global commodity prices.

Courtesy – AL Habib Capital Markets Pvt Ltd

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