Engro Fertilizer (EFERT) has announced 1QCY20 consolidated profit after tax of Rs571 million (EPS: Rs0.43) down 86/91% YoY/QoQ. The decline in earnings is mainly attributable to: 1) a 54%YoY lower topline, led by anticipated 61/60% YoY dip in urea/DAP offtake and 2) a 74%YoY decline in other income due to absence of one-off gain recorded from the sale of land to EPCL in 1QCY19. The result was below expectation where major deviations resulted from: 1) gross margins declining to 34%, likely due to lower than anticipated ending inventory, 2) higher than expected finance cost and 3) effective tax rate of 49% as against an estimate of 25%. Offtakes are likely to normalize from 2QCY20 onwards as EFERT has reduced its urea price to bring at par with those of FFC. To recall, GIDC elimination in February 2020 followed by lower urea price cut by EFERT as compared to FFC, leading to a steep market share decline for the former. Nonetheless, investors are advised to remain cautious, as the urea price reduction is expected to eat into the company’s profitability.