EFERT – 1QCY23 earnings to clock in at PkR2.9/sh: We expect Engro Fertilizers Limited (EFERT) to post a NPAT of PkR3.9bn (EPS: PkR2.9) in 1QCY23, a decline of 29%YoY and 39%QoQ. Revenue for the quarter is likely to clock at PkR41.3bn, an increase of 12%YoY on the back of higher prices for product offerings. On the flipside, Revenue will be recording a decline of 10%QoQ due to DAP sales reducing by more than half when compared to 4QCY22, although slightly offset by higher urea offtakes. Margins for the quarter are expected to increase to 25.8%, an increase of 290bps compared to the previous quarter, as higher urea prices along with relatively improved fixed-cost absorption supported profitability for the quarter.

EFERT is likely to record an operating profit of PkR7.3bn, up by 14%QoQ when compared to PkR6.3bn posted in the last quarter as Selling & Distribution expenses are likely to normalize back down. Profit before Taxation for the quarter is expected to clock in at PkR5.9bn, up by a mere 6%QoQ as higher Finance costs (PkR1.1bn) owing to higher ST borrowings along with lower Other Income (PkR732mn) are likely to partially offset the benefits of better gross margins in 1QCY23 as compared to SPLY. After a tax reversal of PkR888mn in the last quarter, taxation is expected to normalize and clock in at PkR1.9bn with an ETR of 33%.

We expect the company to announce a dividend of PkR3.0/sh for the first quarter of the year, although the possibility of a payout ratio higher than 100% cannot be ruled out given the company’s recent history.

Courtesy – AKD