PACRA reaffirms Engro Fertilizers' 'AA' rating with stable outlook

July 27, 2026 (MLN): PACRA has maintained Engro Fertilizers Limited's (PSX: EFERT) long-term rating at 'AA' and short-term rating at 'A1+', with a stable outlook and no rating watch attached.

The ratings mirror the company's firmly established standing as one of Pakistan's leading fertilizer producers, backed by a solid operational base, well-recognized brand, wide-reaching distribution network across the country, and the financial backing that comes from its ties to Engro Holdings Limited, one of Pakistan's major diversified conglomerates.

Through CY25, the company held onto its strong footing in the market, capturing close to 34% of Pakistan's urea offtake, a reflection of its distribution reach and brand pull.

Fertilizer manufacturing carries outsized importance for Pakistan's economy given its close ties to farm output, food security, and the livelihoods of a largely agriculture-dependent population.

Even so, demand kept being influenced by crop-level economics, weather patterns, and how much farmers could afford to spend.

Within this environment, Engro Fertilizers posted stronger financial results in CY25, helped by increased fertilizer sales, favorable prices, and continued operational efficiency, which together fed into solid profitability and strong cash generation.

On an unconsolidated basis, revenue climbed to Rs193.2bn in CY25 from Rs186.7bn a year earlier, pointing to sustained business momentum.

Gross margin rose to about 35.4% in CY25 from roughly 33.0% in CY24, driven by favorable pricing and disciplined cost control.

Net profit, however, fell to around Rs23.8bn from about Rs30.2bn, pulling net margin down to roughly 12.3% from around 16.2%, largely on account of higher finance costs.

In 1QCY26, revenue came in at Rs26.3bn, up 8.2% year-on-year, while net profit slipped further to about Rs2.9bn, with net margin at around 11.0%, versus roughly Rs3.9bn and a 16.2% margin in the same quarter last year, again reflecting the impact of higher finance costs tied to greater borrowing.

Even so, the company's financial risk profile stayed strong, supported by healthy operating cash flows FCFO came in at Rs31.5bn for CY25, up sharply from Rs11.9bn a year before.

Working capital needs stayed elevated because of higher inventory levels and seasonal trade receivables, pushing up reliance on short-term borrowing.

The capital structure remains leveraged, with gearing climbing to 64.4% in 1QCY26, largely due to fresh long-term borrowing taken on to fund the Production Enhancement Facility (PEF) project along with maintenance capital spending.

The PEF initiative is meant to boost plant reliability, operational efficiency, and production optimization. Short-term debt made up 32% of the overall borrowing mix, mainly tied to working capital needs.

The ratings continue to hinge on the company's capacity to hold onto its market position, keep operations running efficiently, and maintain strong cash generation as industry conditions evolve and competition intensifies.

Continued profitability, supported by steady demand fundamentals and effective handling of input cost swings, will remain key to sustaining the assigned ratings.

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