Karachi, October 14, 2021 (PPI-OT): EFERT: Attractive dividend yield on cards
Engro Fertilizer (EFERT) announced its 3QCY21 result yesterday wherein the company posted after tax profit of Rs4,412mn (EPS of Rs3.3) during the quarter vis-a-vis PAT of Rs7,033mn (EPS of Rs5.3) in 3QCY20, registering a decline of 37% YoY. Along with the result, the company announced an interim cash dividend of Rs3.5/share. Engro Fertilizer Ltd held its corporate briefing session to discuss 3QCY21 results and the outlook of the company. We present key takeaways from the session.
EFERT’s 9MCY21 profit stands at Rs14,920mn (EPS: Rs11.17) against profit of Rs11,491mn (EPS: Rs8.61) in 9MCY20, depicting a 30% YoY increase. This was the highest 9-month PAT in the last 5 years. Company also achieved highest 9-month Urea sales volume. Along with the result, the company announced an interim cash dividend of Rs3.5/share taking the full year payout to Rs11.5/share, translating to CY21E/22F D/Y of 21%/14%, respectively.
The management acknowledged that there is lack of clarity on the issue of concessionary gas expiry, at present the company is accruing gas costs at regular Fertilizer policy rates on prudence basis. The company is in discussions with the GoP and SNGP on the matter and is confident of a favourable decision in light of previous ECC decisions.
The industry still faces the issue of pending Sales tax refunds to the tune of Rs45bn due to input-output tax differential, EFERT’s share in it is Rs4.5bn. Subsidy receivables are another challenge for the industry and the total receivables due from government are ~Rs20bn, EFERT’s subsidy receivable stands at Rs6.5bn. On the issue of Gas Circular Debt the management is of the view that decisions like weighted average cost of gas (WACOG) need to be taken and it is the only way forward to address the issue of rising gas circular debt. Any increase in gas prices is likely to be passed on by the industry.
The company shared that its Enven plant was shut down for routine maintenance for around 22 days in September.
The management highlighted the fact that out of a farmer’s total cost, only ~2.6% is spent on Urea and even though there has been a major rise observed in the price index of all other sectors, Urea prices have been almost flattish compared to price levels in 2012. The discount of local to imported Urea has now grown to ~75%.
In light of improved farm economics, better support prices and focus of government on the agriculture sector it is evident that the fertilizer sector will continue to be of prime importance.