Karachi, July 30, 2021 (PPI-OT): EFERT: A lacklustre second half ahead
Engro Fertilizer (EFERT) announced its 2QCY21 result yesterday wherein the company posted after tax profit of Rs4,810mn (EPS of Rs3.6) during the quarter vis-a-vis PAT of Rs3,886mn (EPS of Rs2.9) in 2QCY20, reflecting an increment of 24% YoY. Along with the result, the company announced an interim cash dividend of Rs4.0/share. Engro Fertilizer Ltd held its corporate briefing session to discuss 2QCY21 results and the future outlook of the company. We present key takeaways from the session.
EFERT’s 1HCY21 profit stands at Rs10,509mn (EPS: Rs7.9) against profit of Rs4,457mn (EPS: Rs3.34) in 1HCY20, depicting a 36% YoY increase. This was the highest 1st half PAT in the last 5 years.
The company gave guidance that profitability of the second half would be impacted by factors such as lower inventory available compared to first half, a planned turnaround and higher input costs. The company acknowledged that there persists a lack of clarity on the issue of the expiry of concessionary gas and that 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.
EFERT is still facing the issue of pending Sales tax refunds to the tune of Rs4.4bn due to input-output tax differential and subsidy receivables of around Rs6.5bn are also due from the government. 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 which has now grown up to Rs600bn. Any increase in gas prices is likely to be passed on.
On DAP prices, the company shared that international DAP prices are still hovering around US$630-US$640/ton with quotes going as high as US$680/ton. Given the circumstances, a further hike in local DAP prices can’t be ruled out.
Similar to previous briefing sessions, the company emphasized on the export opportunity and the fact that if LNG plants are run then the industry can export around 0.9mn tons of Urea. EFERT has planned to go for a BMR of the base plant which will be carried out in the next 1-1.5 years.
The management also disclosed that it is now only selling to registered dealers and this is the reason it did not have to record any provision in this regard in the outgoing quarter. The company highlighted the fact that out of a farmer’s total cost, only 2.8% 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 grown to ~62%. 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.