February 12, 2019 (MLN): Engro Fertilizer Limited (EFERT) conducted its analyst briefing on February 11, 2019 to discuss its financial results of CY18. As per a report by Sherman Securities, the key area of discussion hovered around the ongoing issue of GIDC (Gas Infrastructure and Development Cess) settlement.
During the briefing, the Company informed that government is taking strong measures for fertilizer sector, including 50% waiver in GIDC payables for the period Jan’12 to Dec’18.
Along with this, government has also decided to give 50% reduction in prospective GIDC rates to those companies who opt for this scheme while they have to reduce urea price by Rs200/bag.
However, the management of the company revealed that they did not agree with reducing urea price following decline in GIDC, as they have not passed on other cost to consumers since last few years.
The management was of the view that if company had fully passed on the impact of GIDC and other costs, then urea price would have been around Rs2,000/bag instead of existing price of Rs1,740/bag.
The management believed that opting for this GIDC scheme and not reducing urea price may lead to the company’s recurring EPS to improve by Rs2/share. Moreover, they will also receive net amount of Rs. 17 billion from government (Rs9 billion extra GIDC paid + Rs8 billion subsidy and GST claims). Thus, in this case, company will also book reversal of 50% GIDC in its book which translates into one time impact of Rs11/share.
Speaking to Mettis Global News on this, Mr. Saqib Hussain from Sherman Securities said that the government may compel company to reduce urea price and thus EFERT may not opt this amnesty scheme in order to avoid losses on recurring earnings or there are chances that government may further discuss this issue with fertilizer companies which may take some time.
‘If this situation prevails during 2019 and company continue to book 100% GIDC on old plant (feed+Fuel) and on new plant (fuel only), CY19 earnings of EFERT would likely be Rs11.4/share” he said.
On the other hand if company avails this amnesty scheme, receives full amount from government and maintain urea price at current level, EPS would improve to Rs24 in CY19, he added.
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