Karachi, April 17, 2023 (PPI-OT): EFERT - 1QFY23 Result Review, (AKD Off the Analyst's Desk Apr 17, 2023)

Engro Fertilizer Limited (EFERT) reported its 1QCY23 earnings earlier today, where the company posted NPAT of PkR4.4bn (EPS: PkR3.3) for the first quarter of the year, down by 20%YoY and 31%QoQ. The result is above our expectations on the back of lower finance costs and lower operating expenses.

Net sales for the company have clocked in at PkR44.0bn, up by 19%YoY amid higher prices for products, while down by 5%QoQ owing to the lower DAP offtakes after the Rabi sowing season led to bumper offtakes in the previous quarter.

Gross margins for the quarter have been recorded at 24.5%, considerably lower when compared to the 29.5% recorded in the SPLY owing to higher gas prices and lower DAP trading margins. On the flipside, margins have increased compared to the 22.9% recorded in 4QCY22 owing to a hike in urea prices at the start of the year, while frequent plant turnarounds dented profitability in the previous quarter.

Selling and Distribution expenses have clocked in at PkR2.5bn for the quarter, amounting to ~6% of total sales, a proportion lower than the previous two quarters, while higher than the ~5.5% recorded in the SPLY, likely due to inflationary pressures.

EFERT has posted Other Income of PkR717mn for the quarter, compared to PkR1.0bn in the previous quarter. The decrease in Other Income is due to the one-off gain on disposal of assets recorded in the previous quarter, while on a YoY basis a 40% gain is witnessed owing to higher rate of returns.

Finance costs for the company are significantly lower than expected, owing to lower ST borrowings and likely on the back of some debt retirement in the quarter (leading to lower financial charges).

The company has announced an interim cash dividend of PkR3.5/sh, in line with its recent trajectory of keeping its payout ratio over 100%.