Engro Fertilizers plans to open 4-5 retail stores during 4Q2024

According to Topline Pakistan Research, Engro Fertilizers (EFERT) plans to open 4-5 retail stores during 4Q2024 to ensure the smooth supply of products. This was disclosed in the 3Q2024 Corporate Briefing Session, where management discussed the financial performance and future outlook.

The company has launched a digital platform named ugAi, which enables services that allow farmers to book inventory directly from the company at defined rates and with quality products. The service is available only in Sindh, but the company plans to expand to other provinces. The management commented that the payout ratio aligns with the company’s historical trend, which was recorded at 100% in 9M2024.

The company’s urae market share declined by 8% YoY to 30% in 3Q2024 due to a decrease in sales volume during the period. Urea sales decreased by 33% YoY in 3Q2024 due to higher Urae prices compared to peers (Rs200/bag differential). The company has started to offer a discount of Rs100/bag on urea product since Oct’24 to get its market share. However, DAP market share improved by 2% to 18% in 3Q2024 vs 16% in 3Q2023. Management does not foresee any major risks arising from the strategic shifts of its competitor following the acquisition of the fertilizer businesses.

Regarding Zinc Urea a premium product, management commented that the product has enough potential to grow and company also plans to invest further in the product.

Regarding the pressure enhancement facility at Mari field, management commented that 90% work on phase one has been finished and expected to be completed by 4Q2024. Moreover, work on second phase has also started with the order of compressors and is expected to completed by the end of 2025. Out of US$100mn EFERT’s share, 20% of the CAPEX is incurred for phase one and 80% is allocated for Phase 2.

To highlight, government increased gas price from Rs580/MMBTU to Rs1,597/MMBTU for players based on SNGPL networks. This accounts only 60% of the sector, while, gas for 40% of the sector which includes FFC and FATIMA is still at Rs580/MMBTU. Discussions are ongoing with government and management hopes the gas price disparity will be removed.

The management expects the urea demand to remain stable, however, timing difference may affect the volume, but overall no major risk is associated with the demand.

FERT is currently trading at a 2025E P/E of 7.1x and dividend yield of 14.1%.