July 31, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained entity ratings of Engro Fertilizers Limited at ‘AA’ for long-term and ‘A1+’ for short-term. The outlook on the assigned ratings is ‘stable’.
According to PACRA, the ratings take account of sustained operations of the company; capacity utilization at both plants remained good on the back of continued gas supply, despite the plant’s turn-around period.
The company has been able to secure sustainable gas supply. Efert is among the companies that benefits from the incentivized gas pricing of 70 cents under the fertilizer policy 2001, hence translating into strong margins. Plus, the domestic supply/demand scenario during 2018 was favorable – increased urea prices – provided additional cushion to the business in enhancing its profitability.
The future demand supply scenario depends upon the economic dynamics of the farmer community, given input price escalation, and production from the stand-by plants (Agritech and Fatima Fert).
Recovery of sale tax refunds and subsidy is an important milestone, which should be seen in the context of pending issue related to GIDC. GIDC related developments are expected to crystallize over the short term, which are likely to provide benefit to industry players generally. Currently, price parity with the international market for urea is quite favorable.
Efert is diversifying its product portfolio into other agri-based products. Moreover, the company has spun-off its DAP trading activity to a separate 100% owned subsidiary; named Efert Agritrade.
The ratings are dependent on sustainability of operations and profitability, resulting in sustained risk profile of the company. Any constraint to perceived ability to keep business and financial risk in respective matrix may impact the ratings.
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