Karachi, July 31, 2023 – Engro Fertilizers Limited (EFERT) faced a setback in its earnings as the implementation of the super tax adversely impacted its financial performance.
During the 1H2023 Corporate Briefing Session held today, EFERT’s management addressed the challenges posed by the super tax and discussed their future outlook.
According to the management, EFERT’s Profit After Tax (PAT) for 2Q2023 would have been Rs4.8 billion if not for the 10% super tax, as opposed to the actual PAT of Rs1.1 billion. The imposition of the super tax had a significant impact on the company’s earnings for the quarter.
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The breakdown of applicable super tax in 2Q2023 includes an additional 6% (Rs1.4 billion) for Tax Year 2023, an extra 6% for Tax Year 2024, and an impact of Rs1.5 billion of deferred taxation. The revaluation of deferred tax has become necessary since the super tax is now a continuing phenomenon.
EFERT management is currently exploring legal avenues to challenge the retrospective application of the super tax for Tax Year 2023. However, prospects of a positive response appear dim, as the super tax has now become a part of tax laws, applying to all industries.
Despite facing unplanned shutdowns, EFERT’s production for 1H2023 only experienced a slight decline, with sales standing at 1.03 million tons compared to 1.09 million tons in 1H2022. This decline is in line with the industry average. The management projects the Urea market to reach 6.5 million tons by the end of 2023.
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EFERT’s market share for Urea in 1H2023 was 33%, down from 34% in 1H2022. However, the management anticipates a slight improvement in market share in 2H2023, as no major plant turnarounds are expected for the remainder of the year.
Regarding Urea imports, the management forecasts an estimated range of 0.25 million tons, dependent on RLNG (Re-gasified Liquefied Natural Gas) availability for Agritech and Fatima Fertilizer. Imports could rise if lower gas is made available to the companies starting from September.
DAP (Diammonium Phosphate) market experienced a 15% decline in 1H2023, causing EFERT’s market share to decrease to 18%, down from 21% in 1H2022. The decline in market share was a strategic move to avoid excess inventory. However, the management foresees an increase in the DAP market to 1.3-1.4 million tons by the end of 2023, with EFERT’s share expected to rise to 23-25%.
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The rise in DAP market demand can be attributed to falling international prices and improving farm economics.
During the briefing, the management advocated for a unified Weighted Average Cost of Gas (WACOG) across the fertilizer industry, suggesting that efficiency should be the sole differentiating factor among fertilizer players.
To offset the impact of the 5% Federal Excise Duty (FED) and a Rs25/bag adjustment in dealer margin, EFERT increased its bag prices by Rs175/bag, effective from July 01, 2023.
Lastly, EFERT announced a dividend of Rs3.0/share for 2Q2023, bringing the cumulative dividend for 1H2023 to Rs6.50/share.
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With the implementation of the super tax causing a considerable dent in EFERT’s earnings, the management’s efforts to challenge the retrospective application will be closely monitored. Meanwhile, the company remains optimistic about its future prospects, particularly with the expected upturn in the Urea and DAP markets.
