Engro Fertilizers (EFERT) management commented that the demand for urea would be 6.6 million tons in 2024, of which 6.4 million tons will be estimated for local production and 200k will be imported.

The company posted higher volumes year-over-year in 1Q2024, with DAP offtakes increasing by 85% to 83K tons and Urea offtakes rising by 13% to 622K tons. Urea offtakes included 75K tons of Imported Urea volumes and Zabardast Urea (Zinc Urea). The shortage of urea forced the government to import around 220K tons in 2023 to meet domestic requirements. Unlike previous incidents, no subsidy was offered to Fertilizer players. EFERT had a 35% share of these imports.

Regarding Zinc Urea, management commented that in 2023, they sold 350K tons of this speciality Urea, and this year, they have already sold 47% higher volumes on a YoY basis in 1Q2024.

Zinc Urea is a premium product since it improves crop yields; therefore, the company’s margins are also higher.

The government has increased the gas price from Rs580/MMBTU to Rs1,597/MMBTU. This has been done only for 60% of the sector on the SNGPL network. However, gas for 40% of the industry, which includes FFC and FATIMA, is still at Rs580/MMBTU. Management welcomed the decision but wants the price disparity to be removed.

Despite the gas price increase, the EFERT Ura price per bag is still 34% lower than the landed international Ura price. As of March ’24, the EFERT bag price is Rs4,549/bag compared to the global price of Rs6,862/bag. Before the recent bag price increase, the discount was 45%.

EFERT’s Enven plant is undergoing a turnaround of at least 55-60 days, which management says could extend even further. The undertaking began on April 22, 2024, and is expected to last until at least June 14, 2024. Such turnarounds will be necessary every five years in the future.

Due to Enven plant turnaround, management anticipates a lower dividend payout in 2Q2024 compared to 1Q2023.

The government plans to import an additional 200k tons of Urea. EFERT will be involved, and the impact of these off-takes will be observed in the coming quarters.

Regarding the pressure enhancement facility at Mari Field, management commented that Phase 1 is 74% complete and is scheduled to be finished by the end of 2024. The second and final phase will be completed by the end of 2025.

Courtesy – Topline Pakistan Research