Earnings Report /
Pakistan

Engro Fertilizers: 1QCY22 Review: Payout delivers a surprise

  • Engro Fertilizers Ltd posted 1QCY22 EPS of PKR4.13, broadly in line with our estimates

  • GMs have slid by c.10% yoy to 29.5% due to discontinuation of concessionary gas, vs. our expectation of 32.8%

  • EFERT also announced a first interim cash dividend of PKR5.5/sh, higher than our expected PKR4/sh; reiterate Buy stance

Abdul Ghani Mianoor
Intermarket Securities
19 April 2022

EFERT has posted consolidated NPAT of PKR5.5bn for 1QCY22 (EPS: PKR4.13), down 4% yoy and 11% qoq. The result has come in broadly in line with our expected EPS of PKR4.05. Slightly higher topline and lower selling & distribution expenses explain the minor deviation. EFERT has also announced a first interim cash dividend of PKR5.5/sh – much higher than our expected DPS of PKR4.0/sh.

Key highlights from 1QCY22 result:

  • Net Sales increased by a strong 25% yoy to PKR36.8bn vs. our expected topline of PKR35.1bn. Higher Urea and DAP prices, along with a decent increase in DAP offtake, are the major reasons for the surge in revenues, in our view.

  • Gross margins have slid by a sharp c.10ppt yoy to 29.5% due to discontinuation of concessionary gas at the Enven plant. We assumed gross margins of 32.8%. Lower than expected GMs are majorly due to moderating inventory gains and trading margins booked on DAP and other fertilizer products during the quarter, in our view.

  • Selling and distribution expenses have increased by 10% yoy to PKR2.0bn – likely due to increase in transportation costs amid rise in fuel prices during the quarter. We await the Analyst Briefing for further clarity.

  • Among other line items (i) Admin expenses are up c.10% yoy to PKR482mn, (ii) finance costs have risen by a sharp c.75% yoy to PKR475mn likely due to higher interest rates and increased short term borrowings, (iii) Other income has increased by c.80% yoy to PKR511mn due to greater short term investments and policy rate, and (iv) effective tax rate has come in at 28% vs. 34% in 1QCY21.

EFERT has posted an impressive result in 1Q, coupled with a higher-than-expected payout. Going forward, strong Urea sales and potential further increase in Urea prices will help to sustain healthy earnings and payout in CY22. Therefore, we reiterate our Buy rating on the scrip backed by CY22/23f dividend yield of 13%/11%. However, we will look to revisit our estimates and TP in light of recent Urea price hikes.