Engro Fertilizers Ltd. (EFERT), in their recent notice, announced the unscheduled maintenance of the base plant. The tentative duration of this forced outage will be five days.
We expect this outage to result in a urea production loss of 16.25k tons, which will have a negative EPS impact of PkR0.2 (1% of CY24 earnings).
We have a Neutral stance on the scrip with Jun’25 target price of PkR176/sh and CY24 dividend yield of 15%,
A day before, Engro Fertilizer Limited (EFERT) conducted its analyst briefing earlier today to apprise investors/analysts of their 2QCY24 financial results. The following are the key highlights:
· To recall, company reported earnings of PkR1.7bn (EPS: PkR1.25) in 2QCY24 compared to PkR1.1bn (EPS: PkR0.79) in SPLY, an increase of 57%YoY. The said annual growth is attributed to a normalized tax charge during the quarter, as 2QCY23 had a retrospective super tax charge and deferred tax charge impact.
· As per management, deteriorating farm economics due to reduced income on wheat and maize crops have led to a decline in overall nutrient sales.
· The company’s production fell to 361k tons in 2QCY24 from 539k tons in SPLY, primarily due to a 55-day turnaround of the EnVen plant during the quarter. Consequently, urea sales for the quarter remained at 261k tons (down 45%YoY).
· Also, management reported a dip in Zabardast urea sales for the quarter.
· On the contrary, the company’s DAP market share increased to 17% during the quarter (from 14%in SPLY), despite a 7%YoY decline in the industry DAP offtakes.
· Management apprised that EnVen turnaround cost is ~US$50mn, with 30-40% of the amount incurred as operating expenses and the remainder capitalized.
· Regarding the Pressure Enhancement Facility (PEF), 85% of phase 1 is completed, with an expected completion in 4QCY24. As per management, out of the total cost of US$300mn, 20% is allocated to Phase 1, while the remaining amount is for Phase 2.
· On the PkR20bn loan facility from UBL, management stated that the credit line is normal running finance for operational working capital.
· As per management presentation, the gap between local and international urea prices remained at PkR1.7k/bag during the outgoing quarter, with local prices at PkR4,549/bag and international prices at PkR6,298/bag.
· Management urged the govt. Unify gas prices across the industry to eliminate the price disparity of end-products.
Courtesy – AKD
