Karachi, Engro Fertilizers Limited (EFERT) is positioned for an encouraging financial year, with expectations of a robust payout amidst anticipated sales growth and favorable market dynamics. Despite a projected dip in total production due to scheduled maintenance, EFERT is set to maintain strong sales volumes, buoyed by significant demand and strategic price adjustments in response to rising gas costs.
According to AKD Securities Limited, EFERT's comprehensive strategy and market dynamics are expected to drive the company's success in the current fiscal year. The scheduled two-month turnaround of the EnVen plant in the second quarter is likely to reduce annual production. Nonetheless, anticipated sales are expected to remain robust, supported by the import of 75k tons of urea and a 47% year-over-year increase in specialized fertilizer sales from the previous year. The recent gas price hikes have prompted EFERT to adjust its urea pricing, enhancing its competitive position and profitability, particularly in comparison with its main competitor, FFC, which faces a full impact on its production costs due to pending gas price revisions on the Mari network.
EFERT has strategically capitalized on the regulatory environment, particularly import restrictions, to bolster its market position and gross margins. The imposition of a 100% cash margin requirement on DAP imports has reduced competition, allowing EFERT and other local players to command a premium on their products. This scenario is anticipated to persist, supporting EFERT's profitability and enabling a gross margin improvement to 33.8% in CY24 from 32.3% in the previous year.
Moreover, EFERT's decision to close its seed and logistics business has optimized its working capital and debt profile, providing financial flexibility to support ongoing capital expenditures while sustaining high dividend payouts. The company projects a payout ratio of 97% for CY24, reflecting its strong cash generation capability and commitment to shareholder returns.
Investors are encouraged by EFERT's promising outlook, underscored by its advantageous position in the fertilizer market, enhanced profitability from DAP sales, and a consistent dividend payout strategy. Despite certain market risks, including potential delays in gas price adjustments and policy changes, EFERT's forward-looking financial metrics and strategic initiatives present a compelling case for investment, with AKD Securities reiterating a 'Buy' rating for the stock.