EFERT Analyst Briefing: Export of surplus Urea by utilizing RLNG can generate export revenue

July 30, 2020 (MLN): Engro Fertilizer Limited (EFERT) held its analyst briefing today to discuss financial performance of 1HCY20.

The company posted its profit after tax of Rs 4.456 billion (EPS: Rs 3.34) i.e. 38% lower than the net profits of Rs 7.184 billion (EPS: Rs 5.28) of the corresponding period last year.

Alongside financial results, the Board of Directors of the company announced an interim cash dividend for the half year ended June 30, 2020 at Rs 4 per share i.e. 40%.

The decline in profitability emanates from lower offtake of Urea and DAP along with higher other operating expenses.

During 1HCY20, topline witnessed a decline of 20% YoY, clocking in at Rs 40.7 billion on an account of reduction in urea and DAP offtake and decrease in urea and DAP prices. As a result, the gross margins shrank to 31.82% from 34.46%.

EFERT’s market share remained relatively stable at 32% during the period under review. The management of the company expects that the market share may rebound to 36% in CY20, as per Aba Ali Habib research.

The other major highlight is the other operating expenses which surged by 39% YoY to Rs 1.370 billion, keeping the company’s profitability in check. the management apprised that company has booked certain provision on account of sales tax due to which operating expenses increased.

The Management hinted that if issue regarding sales to unregistered dealers is not resolved, the company may go for hike in urea prices, the research further added.

According to research review of Arif Habib Limited, during the period under review, total other income plunged by 79% YoY to Rs 504.7 million due to absence of gain on property plant and equipment.

Meanwhile, finance cost increased by 4% YoY while the company’s tax expense decreased by 44% YoY during 1HCY20.

According to the research note of Topline Securities, based on indigenous gas-based production only, management expects industry to have 600k tons excess inventory of Urea by the end of 2020. As per the management, RLNG plants are not operating currently. If they are allowed to operate for three months, they can further add 200k tons to Urea inventory.

On perspective of the industry, the company has presented a case for Urea exports to the government by utilizing excess RLNG capacity at spot rate purchase. Management views that export of surplus Urea can potentially generate US$384mn along with the income tax revenue of US$74mn, taking total benefit to US$458mn, as per Topline research.

Consolidated Financial Results for the year ended June 30, 2020 (Rupees'000)

 

Jun-20

Jun-19

% Change

Net sales

40,702,810

50,642,948

-19.63%

Cost of sales

-26,678,068

-34,527,984

-22.73%

Gross profit

14,024,742

16,114,964

-12.97%

Selling and distribution expenses

-3,427,557

-3,380,782

1.38%

Administrative expenses

-720,134

-590,983

21.85%

Other income

504,717

2,438,382

-79.30%

Other operating expenses

-1,370,595

-986,740

38.90%

Finance cost

-2,107,721

-2,019,147

4.39%

Profit before taxation

6,903,452

11,575,694

-40.36%

Taxation

-2,446,612

-4,391,519

-44.29%

Profit for the period

4,456,840

7,184,175

-37.96%

Earnings per share – basic and diluted

3.34

5.38

-37.92%

 

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Posted on: 2020-07-30T15:19:00+05:00

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