We expect Topline Fertilizer universe earnings to increase by 11% QoQ in 4Q2024, mainly due to a 31% increase in Urea sales and an 84% increase in DAP offtake. On a year-over-year basis, they are expected to increase by 63% to Rs37bn. The year-over-year upward trajectory is attributed to higher Urea and DAP offtake by 18.6% and 23%, respectively, along with a 12% increase in Urea prices.
§ This will take 2024 earnings to Rs116bn, up 92.5% YoY, thanks to an increase in gross margins by ~224ppts amid higher urea prices and the lower effective tax rate of 40% (vs. 49% in 2023).
§ Urea sales are expected to increase by 19% YoY and up 31% QoQ to 2.0mn tons in 4Q2024. Similarly, DAP offtakes are expected to increase by 23% YoY and up 84% QoQ to 710k tons during 4Q2024. This will take 2024 Urea and DAP sales to 6.59 million tons (-1% YoY) and 1.64 million tons (+4% YoY), respectively.
§ Average Urea MRP during 4Q2024 increased by 33% YoY and declined by 1% QoQ to Rs4,750 per bag. Similarly, DAP prices have increased by 9% YoY and 1% QoQ, averaging around Rs11,650 per bag, respectively.
§ To recall, the government raised fertilizer gas prices to Rs1,597/mmbtu for feed and fuel effective from Feb-2024, except for MARI-based fertilizer plants.
§ Gross margins of the sector are expected to settle at 33.6% in 4Q2024, down 329ppts vs 36.8% in 4Q2023. However, in 2024, sector gross margins are anticipated to clock in at 32% vs 29% in 2023.
§ Finance cost of the sector during 4Q2024 is expected to increase by 26% YoY and 14% QoQ to Rs3.8bn primarily due to the sector’s borrowings.
Engro Fertilizers (EFERT): EFERT is expected to post consolidated earnings of Rs9.08/share, up 8.7% YoY compared to Rs8.35/share in 4Q2023. The anticipated increase in revenues is due to 19% YoY higher urea offtake during the last quarter.
§ On a sequential basis, we expect earnings to increase by 42% QoQ due to a significant recovery in urea offtake by 53%. Note that there was no plant turnaround during 4Q2024. Gross margins are expected to clock in at around 32.4% in 4Q2024 vs 39% in 4Q2023. The decline in margins is primarily attributed to higher gas prices and lower urea prices, as the company announced a discount of Rs100/bag during 4Q2024.
§ In 2024, the consolidated earnings are expected to clock in at Rs22.5/share, up 15% YoY vs Rs19.61/share in 2023.
§ Along with the result, we expect the company to announce a final cash dividend of Rs8/share, taking the 2024 total dividend to Rs21.5/share.
Fauji Fertilizer Company (FFC): FFC is anticipated to report unconsolidated earnings of Rs17.36/share, up 2.1x YoY in 4Q2024 derived by 24%/49% YoY increase in Urea/DAP offtake. However, on a QoQ basis, we anticipate earnings to increase by 1%, despite a 15%/66% increase in Urea/DAP offtake, as other income is expected to be down by 38% QoQ amid the absence of dividend income from associates and subsidiaries.
§ This will increase 2024 earnings to Rs60.34/share, up 152% year over year from Rs23.95/share in 2023, due to increased Urea and DAP offtake and higher prices.
§ Gross margins of the company are expected to arrive at 34.3% in 4Q2024 compared to 37.3% in 3Q2024. The company’s finance cost is likely to clock in at Rs1.9bn in 4Q2024, down 31% YoY, due to a decline in borrowings and lowering interest rates.
§ To note, we have incorporated the FFBL accounts into FFC to make a fair comparison based on the new number of shares, which is 1,423mn.
§ Along with the result, we expect the company to announce a cash dividend of Rs20/share, taking the 2024 dividend to Rs35.5/share.
Courtesy – Topline Pakistan Research
