PACRA Maintains Entity Ratings of Engro Fertilizer Limited
Pakistan has an agrarian economy and fulfills around ~ 84% of its fertilizer requirement through local production while the remaining is met through imports. The Country's total fertilizer production capacity stands at around ~ 7mln MT of Urea and CAN ~ 1.7mln MT of DAP, NP, and NPK. In CY21, Urea’s offtake stood at ~6.3mln MT and DAP’s offtake stood at 1.8mln MT. Whereas in 1HCY22, Urea offtake stood at ~ 3.2mln MT posting a growth of 12%. However, DAP offtake stood at 0.5 mln MT, posting a decline of 10%. Considering the overall urea demand and supply situation and LNG unavailability for the plants, the Economic Coordination Committee (ECC) of the Cabinet has allowed to import 0.2mln MT of urea for second half of 2022. Overall margins of the industry remained healthy and going forward industry’s outlook is expected to remain satisfactory. International market prices fell at the start of quarter due to lower demand and sellers sought to offload barges in crowded markets due to force liquidity. Despite low demand, prices didn’t correct to expected levels due to changing geopolitical situation internationally.
The ratings reflect Engro Fertilizers Limited's ('EFert' or 'the Company') sound risk profile. EFert derives strength from its parent company i.e., Engro Corporation Limited ('Engro Corp'), the largest conglomerate in Pakistan. The Company's capacity utilization of both Urea and NPK remained strong, primarily attributable to continued gas supply and improved plant efficiencies, evident from improved production of Urea during CY21. The Company reaps benefits from the incentivized gas pricing. Moreover, EFert is pursuing an extension of concessionary gas till the number of days for which the supply of gas was curtailed. EFert continues to increase its topline backed by volumetric growth. The Company has also diversified its product portfolio into other agri-based products and has maintained healthy margins and profitability, over the years. Moreover, stable income from the subsidiary company provides support to the Company's bottom line. A moderately leveraged capital structure with very strong coverages and significant liquidity leads to a robust financial profile. Ratings draw comfort from sponsors' business acumen and their widespread reach. A strong governance framework and numerous corporate awards add strength to the Company's profile.
The ratings are dependent on the sustainability of operations and maintaining its market share. Sustainability in the performance of subsidiaries, stable dividends, and effective management of financial profile is important. Prudent management of the working capital, cash flows, and coverages are imperative for the ratings.
Engro Fertilizers Ltd. is a public listed company, incorporated in 2009, post demerger from parent company Engro Chemical Pakistan Ltd. e.f. Jan-10. EFert is engaged in the manufacturing, purchasing, and marketing of fertilizers, seeds, and pesticides and providing agri-services. The Company has three plants, out of which two Urea plants are located at Daharki (Base plant and EnVen) and one NPK plant is located at Port Qasim, Karachi. The total designed capacity of EFert’s Urea plants is 2.275mln MT. NPK has a total capacity of 100,000MT. The utilization level for Urea and NPK stood at ~99.5% and ~127%, respectively.
EFert is majorly owned by Engro Corporation Ltd. (Engro Corp) (~56%), the largest conglomerate in Pakistan. The rest of the ownership lies with the general public (~24%), financial institutions (~3%), mutual funds (~3%), insurance companies (~2%), and others (~12%). The Company's Board is chaired by Mr. Ghias Khan, whereas, Mr. Ahasn Zafar Syed heads the Company as the Chief Executive Officer. He is aided by a team of experienced professionals.