Salient points of Efert financial result for 1HCY21

During 1HCY21, EFERT sold Urea of 1.11mn tons, up 10% yoy, amid better farm economics and purchasing power of farmers. However, DAP offtake in 1HCY21 declined by 5% yoy to c.125,000 tons. The company expects Urea production in CY21 to be around 2.0mn tons. However, if the government imposes a strict lockdown, then it will be challenging to meet the production target.

The company has started booking feed gas to the Enven plant at an average rate rather than the hitherto concessionary rate of US$0.70/mmbtu, from 1 August 2021. But EFERT is in talks with SNGPL and the government to allocate the quantum of gas, which the government had promised but did not supply in the initial years of the plant. EFERT has also obtained an interim stay from Sindh High Court regarding this matter. The annualized impact on the bottom line of concessionary gas discontinuation will be c.PKR3.4bn.

Regarding whether GIDC is payable on concessionary gas, the management guided that the case is still pending in the court, and no progress has been made.

During the first half of CY21, EFERT sold Urea to sales tax registered dealers only and thus, no provision was booked in other expenses, which fell 63% yoy in 2Q. In case of sales to non-registered dealers, a provision is booked equivalent to the amount of non-refundable sales tax (from FBR).

From 28 July 2021, EFERT has increased Urea prices by PKR50/bag to pass on inflationary pressures, expected increase in Petroleum Policy gas price and interest income lost on receivable subsidy and sales tax from the government. It has accrued PKR6.5bn and PKR4.4bn as subsidy and sales tax receivable from the government.

Management also pointed out that local Urea prices are presently selling at a c.62% discount to international prices. Local Urea bag price during 1H hovered around PKR1,718/bag vs international price equivalent of PKR4,546/bag.

Courtesy – Intermarket Securities Limited

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