Engro Fertilizers (EFERT): Earnings Up 57% YoY, But Below Expectations

Staff Report: Engro Fertilizers (EFERT) announced its financial results for the second quarter of 2024, posting consolidated quarterly profits of Rs1.7 billion, translating to earnings per share (EPS) of Rs1.25. This marks a 57% increase year-over-year (YoY), but a sharp 79% decline quarter-over-quarter (QoQ). The results came in below industry expectations due to lower-than-expected gross margins and higher-than-anticipated finance costs.CCP Approves Majority Stake Acquisition of Engro Powergen Qadirpur

The company also revised its 1Q2024 earnings downward to Rs7.7 billion (EPS: Rs5.81) from the previously reported Rs10.78 billion (EPS: Rs8.08). This revision was attributed to the booking of unamortized costs of Rs5.3 billion on imported urea in the first quarter, instead of amortizing them on a pro-rata basis.

For the first half of 2024, EFERT’s earnings reached Rs9.4 billion (EPS: Rs7.06), up 73% YoY from Rs5.5 billion (EPS: Rs4.09). The company declared a quarterly cash dividend of Rs3 per share, bringing the total 1H2024 cash dividend to Rs11 per share.

Gross margins for 2Q2024 were estimated at 30%, but the actual figure came in at 18%, primarily due to lower margins on diammonium phosphate (DAP) and higher costs associated with resuming operations after a turnaround. The company’s net sales grew by 3% YoY to Rs39 billion, but declined by 47% QoQ, largely due to a 37% QoQ drop in urea offtake resulting from a 58-day turnaround at the EnVen Plant.

Other income rose 67% YoY to Rs745 million in 2Q2024, driven by higher interest income. Distribution expenses decreased by 26% YoY to Rs1.6 billion, attributed to lower offtakes. Finance costs surged by 74% YoY and 7.6 times QoQ, reaching Rs1.2 billion, mainly due to increased short-term borrowings. The tax expense for the quarter stood at Rs893 million, with an effective tax rate of 35%, compared to Rs6.1 billion (effective tax rate of 85%) in the same quarter last year.