PACRA Maintains Entity Ratings of Engro Fertilizers Limited

The ratings of Engro Fertilizers Limited (‘EFERT’ or ‘the Company’) incorporate the strong sponsor profile of Engro Corporation (E-Corp) which is one of biggest and renowned conglomerates of Pakistan with strategically diversified portfolio of companies. The strength of the company lies in its product diversity and ability to switch between product streams in line with the market conditions. The ratings assigned to EFERT also take into account low business risk profile of the fertilizer sector owing to non-cyclical nature of the industry, increasing significance of food security amidst developing economic situation across the world and consequent enhancement in the strategic importance of the fertilizer sector for the Country. In 2023, the domestic fertilizer market remained steady, with urea demand at ~6.6MT, driven by improved farm economics and a 40% price discount compared to imports. Urea production rose to 6.4MT, while the domestic DAP industry saw a 34% increase , reaching 1.5MT, due to better agronomics and increased farmer liquidity during the Rabi season. The company has maintained strong operating efficiency at the Daharki and Zarkhez units with high-capacity utilization, surpassing the name plat capacity in FY23. The Company has continuously invested in optimizing its production plants and reaps the benefits of having increased utilization and higher run time of its production facilities. On the other hand, business risk incorporates sensitivity of margins to gas pricing . In addition, the ratings also reflect sound profile of the Company marked by stable growth in revenues, margins and profitability. Assigned rating also incorporates flexible growth strategy, tempered by a conservative financial policy and strong track record of producing premium fertilizer products. Credit challenges include significant exposure to natural gas prices, both as a feed and fuel stock as profitability margins for fertilizers are predominantly determined by the spread between fertilizer prices and natural gas prices. On financial risk profile side, the Company has low leveraged capital structure which is characterized by a combination of short-term financing raised to finance the working capital needs and long-term facilities aimed at expanding overall capacity. Nevertheless, EFERT has established a long track record of prudently managing financial policies to achieve an effective balance between maintaining credit metrics within the assigned rating category.
The ratings would remain dependent upon the Company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remain important.

About the Entity
Engro Fertilizers Limited was incorporated in 2010 as public unlisted company, post demerger from parent company Engro Chemicals Pakistan Limited effective Jan 10. EFERT is majority owned by Engro Corporation (~56%), one of the largest conglomerates in Pakistan. Rest of the ownership lies with general public (~24%), financial institutions (~3%), mutual funds (~2%), insurance companies (~3%) and others (~12%). EFERT is engaged in the manufacturing, purchasing, and marketing of fertilizers, seeds, and pesticides and providing agri-services. The Company has three plants: two Urea plants located at Daharki (Base plant and EnVen) and one NPK plant located at Port Qasim, Karachi. The total designed capacity of EFert’s Urea plants is 2.275mln MT, while NPK plant has a total capacity of 100,000MT. The company's board of directors is chaired by Mr. Mr. Ahsan Zafar Syed, who is also the CEO of Engro Corp, and Mr. Ali Rathore is the CEO of Engro Fertilizers Limited.