Engro Fertilizer earnings to decline on lower offtake

One of Pakistan’s largest urea manufacturing companies, Engro Fertilizer limited (EFERT) is scheduled to announce its financial results for January-March quarter (1QCY16) on 25th April. According to a forecast by AKD Securities the company is expected to post profit after tax of Rs1.65 billion (EPS: Rs1.24) for 1QCY16 as compared to net profit of Rs3.06 billion (EPS: Rs2.3) for 1QCY15, a decline of 46%YoY/68%QoQ.

This significant fall in earnings will be at the back of: 1) a decline of 28%YoY/64%QoQ in topline to Rs12.79 billion caused by likely 34%YoY decrease in Urea offtake to 302,000 tons from 481,000 tons during the corresponding period, 2) Gross margins (GMs) coming off by 200bps to 36.3% on account of increase in feedstock and fuel gas prices in September 2015 and low product prices (6%YoY decrease in urea prices) on the back of depressed international price trend ‑ down by 25%YoY to an average of US$238/tons during 1QCY16 and 3) a 70%YoY lower other income as a result of 54% YoY reduction in T‐Bills and other fixed income placements to Rs10.1 billion. A dividend payout of Rs0.75/share is expected to accompany the result announcement.

CY16 is expected to be a very tough year for the fertilizer manufacturers with no major volumetric growth, depressed farmer income, weak pricing power and high cost of raw material (gas prices slated to go up in July’16). EFERT remains top pick of analysts among the fertilizer companies primarily on account of concessionary gas pricing for Enven Plant and swift deleveraging resulting in significant saving in financial cost and integration of DAP business (2MCY16 offtake of 51,000 tons) that constitutes a 25% market share in the industry). Analysts advocate building positions in EFERT due to potential upside.


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