Karachi, August 01, 2023 (PPI-OT): EFERT: Corporate briefing session key takeaways
Engro Fertilizer Limited (EFERT) held its corporate briefing yesterday to discuss the 2QCY23 results and outlook. To recall, company reported consolidated 2QCY23 earnings of Rs1.1bn (EPS Rs0.8) compared to LPS of Rs0.07 in the SPLY. EFERT also announced a dividend of Rs3.0/share alongside results. Cumulatively, EFERT's earnings for 1HCY23 clocked in an EPS of Rs4.1, up 1% YoY. We present key takeaways from the briefing session.
During 2QCY23, higher prices were offset by decreased off-takes and base plant being shut down for around 21 days. As a result, revenue remained flat compared to the SPLY. Margins also dropped 1ppt YoY, however witnessed an increase of 5 ppts QoQ over higher gas prices being booked from 1QCY23.
Finance cost for the company increased by 21%/61 YoY/QoQ in tandem with rising interest rates. Additionally, business incurred a hefty super tax charge in June-2023 of ~Rs3.8bn. Tax expenses also included impact of deferred tax liability of Rs1.5bn, in-line with our expectations. Management shared that it has sought legal advice to contest the matter of super tax application for CY22 in court.
EFERT produced 539k tons of Urea during 2QCY23 compared to 551k tons in the SPLY as its base plant was unavailable for 21 days during 2QCY23. Similarly, in terms of sales, the company sold 484k tons of urea as opposed to the SPLY's 548 tons. EFERT's urea market share declined by ~1% in 1HCY23 due to disparity in prices. The management projects that the sector would sell around 6.5 million tonnes of urea and 1.3-1.4 million tonnes of DAP during CY23.
Management shared that despite dull DAP demand, the company will be able to maintain its market share for DAP. EFERT's share is projected at c. 25% of total DAP offtake. Management shared that although DAP margins vary, they are roughly around Rs1,000/bag at present for the company.
According to the management, Enven plant is charged as per Fertilizer Policy 2001 tariff while the base plant pays at PP12 rates for almost all of its gas usage. Additionally, PP12 rates for 2HCY23 are likely to remain around US$5.7/MMBtu.
As of 2QCY23 end, the company has sales tax refunds amounting to Rs12.2bn. Outstanding subsidy receivable stands at Rs6.5bn, where the quantum has been outstanding since 2018.
Management's perspective on WACOG is that the rate should be uniform for all fertilizer companies, with ideally identical rates for Feed and Fuel across the entire industry. This approach would make efficiency the sole differentiating factor among players.