– Engro Fertilizers Limited (EFERT) reported 1QCY21 result today posting Profit after Tax (PAT) of PkR5.7bn (EPS: PkR4.3, up 10x Y/Y). The result is above our expectations because of better than anticipated gross margins.
– The result was accompanied with an interim cash dividend of PkR4.0/sh.
– Sequentially, the earnings declined because of absence of one-off GIDC gain in 4QCY20.
– EFERT’s topline increased by 173% Y/Y on account of low base effect. Recall that in 1QCY20, FFC decreased urea prices by PKR 400/bag post removal of GIDC. EFERT, however, passed on a limited impact on account of its concessionary gas. The pricing discrepancy led to subdued topline for EFERT.
– The gross margins improved to 39% in 1QCY21 as opposed to 34% as a result of better DAP and urea prices.
– To highlight, the company’s finance cost substantially declined by 78% because of lower policy rate.
– Additionally, the company recognized re-measurement loss on provision for GIDC of PkR 297mn and gain allowance on subsidy receivable of PkR 100mn during the period under review.
– The effective tax rate of the company clocked in at 34% in 1QCY21.
– We have an ‘Outperform’ recommendation on EFERT with our price target at PKR 73/sh, an upside of 12% from current levels. The stock offers an attractive dividend yield of 15.