Engro Fertilizers Limited (EFERT) announced its 1Q2024 result, in which it posted a consolidated PAT of Rs10.8bn (EPS of Rs8.08), up 145% YoY while down 3% QoQ. The result was higher than expected due to higher-than-expected gross margins.

Alongside the result, the company announced a DPS of Rs8, which exceeded expectations.

Gross margins for 1Q2024 were 31% vs. 24% in 1Q2023. Higher-than-expected gross margins are due to inventory gains and lower gas costs on PP12 amid rupee appreciation.

However, on QoQ, margins declined as in 4Q2023, EFERT recorded extraordinary gross margins of 38.7% due to higher margins on DAP and other speciality products.

EFERT recorded a topline of Rs73.8bn in 1Q2024, up by 68% YoY while down by 2% QoQ. Increasing revenue on a YoY basis is due to higher offtakes of Urea and DAP and higher selling prices. Revenue decreased slightly on a QoQ basis due to lower QoQ DAP off-takes.

Distribution costs increased by 78% YoY while declining by 10% on QoQ basis.

Admin Expenses increased by 99% Year over Year while declining by 43% Quarter over Quarter due to reclassification and the absence of a one-off in 1Q2024.

Finance cost declined by 63% YoY and by 42% QoQ due to lower borrowings.

Other income increased by 79% YoY but declined by 29% QoQ. This increase was due to higher investments and the policy rate.

EFERT recorded a gain on subsidy allowance of Rs58mn in 1Q2024 compared to loss allowance of Rs1.9bn on subsidy receivable from the government in 4Q2023.

We maintain a Buy call on EFERT with a Target Price of Rs170 per share. Currently, EFERT is trading at 2024F and 2025F P/E of 6.3x and 5.8x.

Courtesy – Topline Pakistan Research