PACRA Maintains Entity Ratings of Engro Fertilizers Limited

The ratings takes account of sustained operations of the company; capacity utilization at both plants remained good on the back of continued gas supply, despite the plant’s turn-around period. The company has been able to secure sustainable gas supply. Efert is among the companies that benefits from the incentivized gas pricing of 70 cents under the fertilizer policy 2001, hence translating into strong margins. Plus, the domestic supply/demand scenario during 2018 was favorable - increased urea prices - provided additional cushion to the business in enhancing its profitability. The future demand supply scenario depends upon the economic dynamics of the farmer community, given input price escalation, and production from the stand-by plants (Agritech and Fatima Fert). Recovery of sale tax refunds and subsidy is an important milestone, which should be seen in the context of pending issue related to GIDC. GIDC related developments are expected to crystallize over the short term, which are likely to provide benefit to industry players generally. Currently, price parity with the international market for urea is quite favorable. The financial risk profile of the company is characterized by moderate leveraging, which has turned out to be more a function of its strategy for balance sheet efficiency. Efert continues to derive strength from its association with Engro Corporation Limited (ECorp) – a corporate conglomerate. Efert is diversifying its product portfolio into other agri based products. Moreover, the company has spun-off its DAP trading activity to a separate 100% owned subsidiary; named Efert Agritrade.
The ratings are dependent on sustainability of operations and profitability, resulting in sustained risk profile of the company. Any constraint to perceived ability to keep business and financial risk in respective matrix may impact the ratings.

About the Entity
EFert is ~56% owned by ECorp, a corporate conglomerate with a consolidated asset base of PKR 393bln and revenue base of PKR 171.5bln at end-Dec18. ECorp is majority (45%) owned by DH Corp. EFert's urea plants (with nameplate capacity base of 975k MT), Enven 1,300k MT) and specialized fertilizer plant are located at Daharki and Port Qasim, respectively. EFert's board comprises two Engro executives and four independent directors. Mr. Ghias Khan, the CEO of the parent company, is the Chairman of the board. Mr. Nadir Salar Qureshi, a seasoned professional, previously Chief Strategy Officer at ECorp, is the newly appointed President & CEO of EFert,