Lahore, July 30, 2021 (PPI-OT): Pakistan has an agrarian economy, thus fulfills around ~84% of its fertilizer requirement through local production while the remaining is met through imports. The country’s total fertilizer production capacity sails around ~ 6.9mln MT of Urea and ~ 1.7mln MT of DAP, NP, and NPK. In 5MCY21, Urea’s offtake stood at 2.2mln MT. Meanwhile, DAP’s offtake stood at 423,000MT, as it is largely utilized in the Rabi Season. The industry’s overall margins posted healthy growth in gross and net levels due to unchanged gas rates, low fuel cost, and interest rates. In the local market, Urea’s price has slightly decreased.
Last year, the GIDC rate was reduced on feed and fuel gas and the industry reduced the Urea prices. However, as per the ruling of the Supreme Court in Aug-20, the further charge of GIDC was stopped and liability was made payable in full by all manufacturers in 48 months. Moreover, the subsidy of PKR1000/50KG on DAP by GoP may bring its price down by ~25%. In the international market, prices of Urea and DAP witnessed an upward trend. Going forward, Urea’s and DAP inventory is expected to be adequate.
The ratings reflect Engro Fertilizers Limited’s (‘EFert’ or ‘the Company’) sound risk profile. EFert derives strength from its parent company i.e., Engro Corporation Limited (‘Engro Corp’), the largest conglomerate in Pakistan. The Company’s capacity utilization of both Urea and NPK remained strong, primarily attributable to continued gas supply and improved plant efficiencies, evident from highest ever production of Urea during CY20. The Company reaps benefit from the incentivized gas pricing. Lately, the Company is pursuing extension of concessionary gas till the number of days for which supply of gas was curtailed. EFert continues to increase its top-line backed by volumetric growth.
The Company has also diversified its product portfolio into other agri-based products and has maintained healthy margins and profitability, over the years. Moreover, stable income from the subsidiary company from other sources provide support to the Company’s bottom line. The Company has a moderately leveraged capital structure with very strong coverages and significant liquidity leading to a robust financial profile. Ratings draw comfort from sponsor’s business acumen and their widespread reach. Strong governance framework adds strength to the Company’s profile. The Company has received numerous corporate awards.
The ratings are dependent on the sustainability of operations and maintaining its market share. Sustainability in the performance of subsidiaries, stable dividends, and effective management of financial profile is important. Prudent management of the working capital, cash flows, and coverages are imperative for the ratings.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com