February 11, 2022 (MLN): Engro Fertilizers Limited (PSX: EFERT), a wholly-owned subsidiary of Engro Corporation Limited will continue to payout maximum to the shareholders and any CAPEX required for urea plant debottlenecking could easily be done through debt financing as the company has the healthy balance sheet and credit ratings if internal cash generation is to be used for payouts only, the management of the company informed on Thursday while holding a corporate briefing session.
Throughout the year 2021, the company paid dividends over 100% of their posted earnings after calculating adjusted earnings by eliminating one-off non-cash items.
On Thursday along with the financial statement, the company again announced an interim cash dividend for the year at Rs5 per share i.e., 50%, taking full-year 2021 dividend to Rs16.50 per share which also came above industry expectations.
While apprising investors regarding the financial performance, the management noted that the company has settled the year 2021 in the green zone wherein the fertilizer giant witnessed an increase in its profitability by 16.32% YoY to clock in at Rs21 billion compared to Rs18.13bn in CY20.
The profitability is primarily attributed to higher urea margins, gain on a trading portfolio and registration of dealers in sales tax. Meanwhile, topline has increased on the back of highest ever urea sales of 2.3mn tons, an 11.6% increase from last year along with better pricing of phosphate product.
The company highlighted that Rs1.7bn depreciation reduction has been accounted for in the latest quarter after assets with zero value in books were still in use and that led to a reassessment of useful life and scrap values of the assets.
On the GIDC front, the management informed that no solid development on the GIDC payment issue or concessionary gas rate. Discussion is underway with govt and SNGPL to extend the period for which the gas was not supplied to the company on concessionary rate, as per the briefing takeaways covered by Darson Securities.
Meanwhile, the company has discontinued accumulated sales to unregistered persons above Rs100m per annum, a provision in income tax in relation to this has been charged this year but the risk associated with this has been mitigated by reduced exposure.
However, Rs8.94bn receivable is standing as sales tax refunds from govt accumulating from several years is causing the problem, said management.
For depletion of gas, the management is of the view that MARI reserves will be there for 10 years at least meanwhile there are collaborative efforts of the industry to resolve this problem.
On the issue of depleting gas reserves, the house was explained the difference between low BTU and high BTU gases- whose depletion is extremely concerning, where management indicated that fertilizer industry uses low BTU gases which Pakistan has ample reserves.
The management is of the view that 700tons of excess urea capacity could be exported, if allowed, where it could yield anywhere between $400m-$700m for the national exchequer while creating no shortages locally, it noted.
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