Engro Fertilizer working on BMR project
Aftab Ahmed
Islamabad: Engro Fertilizers Limited (EFERT) is working on a BMR project to improve the efficiency of its base plant to mitigate the impact of the suspension of concessionary gas.
In this regard, the company has also applied for SBP’s TERF facility.
Engro Fertilizers Limited (EFERT) held its analyst briefing session on Monday to shed light on the 1QCY21 financial result and future roadmap.
Commenting on the lack of clarity with regards to the suspension of concessionary gas, the company mentioned that they are in talks with SNGPL regarding the timeline and may pursue legal options in case of an unfavorable decision. As per the management, the suspension of concessionary gas will have an earnings impact of PKR 2.5/sh.
To mitigate the impact of suspension of concessionary gas, the company is working on a BMR project to improve the efficiency of its base plant. In this regard, they have also applied for SBP’s TERF facility.
To recall, the company posted record-high earnings of PKR 5.7Bn (EPS: PKR 4.3) in 1QCY21, up to 10.1x YoY. Improvement in earnings was primarily on account of better margins and higher fertilizer offtake during the period. Key takeaways from the briefing are summarized.
The company recorded lower urea production of 0.52Mn tons down by 9% YoY compared to 0.57Mn tons in SPLY due to plant turnaround in 1QCY21.
On the other hand, urea offtake witnessed a massive surge of 3.4x YoY to 0.60Mn tons due to improved farm economics and low base effect.
On the prices front, local urea is trading at a substantial discount of nearly 46% at PKR1,751/bag relative to international prices of USD 350/ton (Landed equivalent of PKR 3,226/bag). According to the management, the industry continues to face challenges due to the pending subsidy receivables from the government (PKR 20.0Bn and PKR 6.5Bn for industry and EFERT, respectively) as the company has already passed subsidy benefit of 2.3x to farmers in form of lower prices.
On the other hand, the DAP market expanded by 40% YoY to 0.3Mn tons in 1QCY21, with EFERT having a market share of 19% and sales of 62000 tons in the same period.
Currently, as per the company, DAP prices have maintained their bullish run and are hovering between USD 560-580/ton. The company has increased local prices by 9% in 1QCY21 relative to international DAP prices which surged by 12% during the same period.
With regards to sales tax disallowance, the company mentioned that they have already obtained a specific exemption from providing for input tax on sales to unregistered dealers (SRO 1337(i)/2020 dated December 16, 2020).
The company will account for reversal in provision in coming quarters. Additionally, the reduction in minimum and withholding tax rates for dealers from 0.75% to 0.7% and 0.25%, respectively, will encourage more dealers to get themselves registered under the Sales Tax Act. Currently, nearly 59% of EFERT’s dealers have been registered.
The management also stated that for the upcoming budget (FY22), they have proposed FBR to eliminate the mismatch in the sales tax regime on supply of feed (5%) and fuel (17%) stock to fertilizer sector against the output tax (2%) on sale of finished goods. This will lessen the burden of sales tax refundable for the company.
