EFERT maintains ‘AA’ rating with stable outlook

July 28, 2025 (MLN): The Pakistan Credit Rating Agency Limited (PACRA) has maintained the long-term entity rating of Engro Fertilizers Limited (PSX:EFERT) at ‘AA’ and the short-term rating at ‘A1+’. The outlook on the ratings remains ‘Stable’, as per the latest press release issued by the agency.

The affirmed ratings reflect EFERT’s strong business fundamentals, robust operational performance, and the strategic backing of Engro Holdings, a leading Pakistani conglomerate with a diversified portfolio. EFERT’s credit profile is further supported by its operational efficiency, stable cash flows, and critical role in the country’s agriculture sector.

The fertilizer industry in Pakistan enjoys a low business risk profile due to its essential role in food production, with urea and DAP being core inputs in crop cultivation. In this context, EFERT continues to benefit from its competitive positioning and established market presence.

During CY24, the company demonstrated a rising trend in turnover and improved margins, particularly in the fourth quarter, despite a relatively weaker second quarter. Overall, EFERT maintained profitability during the year in absolute terms.

However, in 1QCY25, the company experienced a dilution in turnover and margins, attributed primarily to softer market demand.

Industry-wide inventory buildup was reported by the end of March, with EFERT holding a comparatively higher volume. Management attributes this to seasonal factors and expects the inventory levels to normalize in the next six months.

To manage short-term liquidity, EFERT recently issued a privately placed short-term Sukuk, offering additional financial flexibility under current market conditions.

The company has sustained high levels of operational efficiency through consistent investment in plant optimization, which has resulted in enhanced capacity utilization and extended run times.

Financially, EFERT maintains a sound capital structure aligned with industry norms. While financial strain was evident during the recent period particularly from increased short-term borrowing, management expects stabilization in the upcoming quarters as sales volumes recover.

The company’s strong cash flow generation during CY24 has also equipped it to manage short-term pressures effectively.

Profitability remains sensitive to fluctuations in the spread between fertilizer prices and natural gas costs, making input cost volatility a key risk factor.

The capital structure remains moderately leveraged due to a rise in long-term borrowings, consistent with broader industry investment trends.

Effective short-term debt management will remain critical in maintaining the company’s financial strength.

Looking ahead, EFERT’s ratings are dependent on its ability to sustain its competitive market position, manage cost and inventory pressures, and uphold prudent financial risk management in a dynamic operating environment.

Incorporated in 2009, Engro Fertilizers Limited operates as a listed company with a primary focus on the manufacturing and marketing of urea and other fertilizer products.

The Company runs three production facilities, with a designed annual capacity of 975,000 MT at the base plant, 1,300,000 MT at the Enven plant, and 100,000 MT for NPK production. DAP is imported to supplement the product portfolio.

EFERT is majority-owned (approximately 56.3%) by Engro Holdings through Engro Corporation Limited. Other key shareholders include insurance companies (8.3%), mutual funds (2.2%), financial institutions (1.8%), and the general public (20.9%). The Board of Directors is chaired by Mr. Ahsan Zafar Syed, while Mr. Ali Rathore serves as the Chief Executive Officer. 

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