Key highlights of the 1QCY26 results:

§  Net sales clocked in at PKR38bn, rising 25% YoY and down 63% QoQ. The annual growth reflects 7%/64% growth in urea/DAP sales amid improving farm economics. Sequentially, however, sales dropped due to seasonal impact and pre-emptive buying in December 2025. EFERT’s revenue came in slightly higher than anticipated, in our view, due to higher DAP retention prices.

§  Gross margins declined 4ppt YoY (due to higher contribution of low-margin DAP sales), while improving 3ppt QoQ to 31% in 4QCY25. The sequential improvement is driven by the absence of discounts during the quarter.

§  Selling and distribution expenses remained broadly flat YoY but declined 61% QoQ. With volumes up 13%, distribution cost per MT came in at PKR 9,398, reflecting an 11% YoY decline.

§  Finance costs declined 30% YoY and 31% QoQ to PKR14bn, coming in below our estimate of PKR2.2bn. This decline came despite a 42% increase in total borrowings, which now stand at c.PKR77bn. The rise in leverage is attributable to EFERT’s long-term borrowing to fund the Production Enhancement Facility (PEF), a US$300mn project aimed at boosting gas pressure from MARI’s HRL reservoir. EFERT holds a 34% stake in the project, with an associated capex commitment of c.PKR28bn.

EFERT delivered a decent result, led by volumetric growth and a slight margin improvement. However, we believe fertiliser offtake will stabilise amid pre-emptive buying at the end of CY25, on the expectation that discounts will be discontinued.

We expect EFERT’s balance sheet to remain stretched due to its high capex requirements, low cash balance, and high working capital requirements amid elevated urea inventory, which may lead to lower payouts in the near term.