Engro Fertilizer – a review of performance in 1HCY2020

The management of Engro Fertilizer Limited (EFERT) arranged an analyst briefing session today to discuss the 1HCY20 financial result and future outlook.


· To recall, the company posted consolidated earnings of PKR 4,456mn (EPS: PKR 3.34) in 1HCY20 against PKR 7,184mn (EPS: PKR 5.38) in 1HCY19, down by 38% YoY. This comes on the back of i) 4% and 3% YoY decline in urea and DAP prices and ii) 3% and 40% YoY reduction in urea and DAP offtake.

· During 1HCY20, the company reduced urea prices by PKR 160/bag after proposal of GIDC was approved in Jan’20, passing on the benefit to the farmers. The company further reduced urea price by PKR 240/bag during pandemic lockdown, in order to support the economy.

· The company booked a provisioning in other expenses related to sales tax on registration for fertilizer dealers. Due to this other expenses for 1HCY20 jumped up by 39% YoY.

· The company along with other fertilizer companies is in talks with Govt. to resolve sales tax on registration. If no settlement is reached then price will be increased, passing on the impact to fertilizer dealers.

· For CY20 the company expects to produce up to 2.2mn tonnes of urea given availability of gas. Following the last 5-year average agronomic demand for fertilizers stands around 5.8mn MT in CY20.

· DAP inventory has liquidated and company will be importing in near future.

· The company proposed utilization of RLNG plants for producing urea for exports. Company believe export of surplus urea has the potential to generate PKR 64bn for the country. At a spot price USD 2.2/ mmbtu of RLNG (which company claims can be locked for two years) exports of urea will benefit 3.6x of RLNG cost.

· The company is planning a turnaround in CY21 for which stock built up will be under taken in order to maintain future sales.

· The company also plans to commence new projects in future. Depending on size of new projects the company may withhold some dividend.

· The Govt. has granted subsidy on DAP and potash, which is likely to support the companies.

· According to the company locust attack has so far no impact on company’s urea sales.

(AHL Research)


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