October 15, 2021 (MLN): Engro Fertilizers Limited (PSX: EFERT), a wholly-owned subsidiary of Engro Corporation Limited is currently in talks with the government to extend concessionary gas for the number of days for which Minimum contract Quantity was not supplied, the management of the company recently informed while holding a corporate briefing session.
The management acknowledged that there is a lack of clarity on the issue of concessionary gas expiry. At present, the company is accruing gas costs at regular Fertilizer policy rates on a prudence basis. The company is confident of a favorable decision in light of previous ECC decisions, as per briefing takeaways covered by JS Global.
The management of the company also discussed the financial performance of the company during 9MCY21 as per which the company posted a 30% YoY increase in after-tax profits to Rs14.9bn (EPS: Rs11.17/sh) compared to Rs11.49bn (Rs8.61/sh) in the corresponding period last year. The financial results were accompanied by an interim cash dividend of Rs11.5/share.
Apprising investors on the financial performance of the company during FY21, the jump in the company’s earnings was emanated from a 12%YoY higher offtake in Urea, and a 54%YoY contraction in finance costs in light of the low-interest rate environment.
In addition, a 42% YoY increase in other income on account of higher dividend income from EAPL, higher interest income from government securities, term deposit certificates, and bank deposits also played a due role to support the bottom line.
The management also shared that company’s Enven plant was shut down for routine maintenance for around 22 days in September.
The industry still facing the issue of pending sales tax refunds to the tune of Rs45bn due to input-output tax differential. With regards to EFERT’s share in it, the management informed that the company’s overall share is around Rs4.5bn.
The management also indicated another issue pertaining to subsidy receivables by industry. The total receivables due from the government is around Rs20bn while, EFERT’s subsidy receivable stands at Rs6.5bn.
On the issue of Gas Circular Debt, the management is of the view that decisions like weighted average cost of gas (WACOG) need to be taken which is the only way forward to address the issue of rising gas circular debt. Any increase in gas prices is likely to be passed on by the industry.
The management underlined the fact that out of a farmer’s total cost, only 2.6% is spent on Urea and even though there has been a major rise observed in the price index of all other sectors, Urea prices have been almost flattish compared to price levels in 2012. The discount of local to imported Urea has now grown to 75%.
A report by Foundation Securities noted that the company has stopped its sales to unregistered dealers to whom annual sales exceed Rs100mn and also recognized a provision for sales/income tax disallowance.
On the positive side, the minimum tax and withholding rates for dealers have been reduced from 0.75% and 0.7% to 0.25% respectively.
Meanwhile, the company is up to explore existing opportunities within the agriculture space to create value for the shareholders.
Copyright Mettis Link News
27475
