EFERT Result Review – Earnings recover amid rising off-take

  • Engro Fertilizers (EFERT) announced its results earlier today, posting earnings of PKR 3,886mn (EPS: PKR 2.91) during 2QCY20, up 7x QoQ compared with earnings of PKR 571mn (EPS: PKR 0.43) recorded the preceding quarter. Earnings growth largely emanated from higher off-take during the period. On a cumulative basis, the company’s earnings dipped by 38% YoY to PKR 4,457mn (EPS: PKR 3.34) during 1HCY20 largely due to subdued performance during 1QCY20. Along with the result, the company announced an interim cash dividend of PKR 4.00/sh, maintaining its policy of high payouts.
  • EFERT’s sales increased by 177% Q/Q to PKR 29,911mn during 2QCY20 on account of an 4x recovery in urea sales to 0.67mn MT.
  • Gross margins for EFERT registered at 35% during 2QCY20, depicting an improvement of 3pps largely on account of improved off-take.
  • The company’s sales and distribution expense rose sharply by 125% QoQ to PKR 2,371mn during 2QCY20 primarily due to higher off-take and elevated average inventory levels within said period.
  • Financial charges declined by 27% YoY to PKR 1,220mn during 2QCY20 primarily due to lower effective interest rates.
  • Other income for EFERT fell by 83% YoY to PKR 244mn during 2QCY20 on account of a high-base effect. Note that other income during 2QCY19 was inflated due to sale of land, reversal in provisions and higher dividend income from subsidiaries.
  • Onwards, we believe the company’s off-take is expected normalize amidst the agricultural package. Moreover, the high payout will likely garner interest from investors looking to benefit from high yields in times of low interest rates.
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