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EFERT 2QCY22 Analyst Briefing Takeaways (AKD Off the Analyst's Desk Jul 28, 2022)

AKD, Off the Analyst's Desk

EFERT 2QCY22 Analyst Briefing Takeaways

Engro Fertilizer Limited has conducted its analyst briefing where company has shed light on recent result and future outlook of the company. Key takeaways from the briefing are as follows

• Company has reported consolidated loss of PkR98mn (LPS: PkR0.07) in 2QCY22, as compared to profit of PkR4.7bn (EPS: PkR3.57) in SPLY. The reason for this massive decline in earnings is imposition of super tax.
• Production volume for urea clocked in at 1.11mn tons in 1HCY22 vs 1.07mn tons in SPLY. Urea offtakes for 1HCY22 clocked in at 1.09mn tons as compared to 1.16mn tons in SPLY.
• As per management, estimated urea demand of the country is expected to clock in at ~6.6mn tons in CY22. The reason for this growth is attributable to price disparity in nitrogenous and phosphate fertilizers. Furthermore, as per company’s estimates, country’s soil is not fully nitroge2\ntated and better agronomics has resulted in higher urea demand.
• Company’s ENVEN plant faced a technical problem during Jun/Jul’22, resulting in production loss of 111k tons of urea. Furthermore, EFERT’s base plant will undergo a planned BMR activity in Oct/Nov’22.
• The overall performance of agriculture sector has remained robust in FY22, thanks to higher commodity prices.
• Commenting on recent price increase of PkR350/bag in urea, management highlighted that this increase is primarily attributable to change in GST regime, higher borrowing rates and inflationary pressure.
• Company reported taxation charge of PkR7.2bn in 2QCY22, on account of imposition of super tax. To note, 10% super tax on last year PBT resulted in additional tax charge of PkR3bn. Furthermore, PkR300mn was recorded on account on super tax for this year.
• Due to change in tax rate for future years, company recorded tax charge of PkR1.6bn on its deferred tax liability.
• Company recorded higher than usual other operating expenses due to exchange loss on imported goods.
• Company is currently accruing the difference between the tax rate of industry tariff and concessionary gas. The matter is still in courts.
• Company continued to advocate for deregulated fertilizer market and believes that this is the right direction for the industry.