Engro Fertilizers Ltd. (EFERT) announced its 3QCY24 financial results, posting consolidated earnings of PKR 6.8 billion (EPS: PKR 6.41), down 11% YoY compared to PKR 9.6 billion (EPS: PKR 7.21) in the same quarter last year. The decline in profitability is primarily due to lower offtakes, reduced other income, and increased financial charges. Alongside the results, EFERT also declared an interim dividend of PKR 2.5 per share, bringing its 9MCY24 cash payout to PKR 13.5 per share. While earnings were in line with expectations, the dividend fell short of market anticipation.
SALES DOWN, PROFITS PRESSURED
EFERT’s sales for the quarter dropped 11% YoY to PKR 58.6 billion, compared to PKR 66.1 billion in the same period last year. This was mainly due to a decline in urea, DAP, and NP offtakes, despite a 4% YoY increase in urea prices. Gross margins also fell, clocking in at 31.2%, compared to 31.7% last year and significantly down from 37.1% in 2QCY24. The decline in margins is attributed to higher expenses related to the EnVen plant turnaround.
COST ESCALATION AND BORROWING IMPACT PROFITS
Distribution expenses surged 43% YoY due to higher transportation costs, while finance costs spiked by 2.6x YoY to PKR 1.3 billion. The increase in finance costs was driven by a 2.4x YoY rise in borrowings, leading to a pressure on net profitability.
DIVIDEND BELOW EXPECTATIONS
While the earnings met expectations, EFERT’s interim dividend of PKR 2.5 per share fell short of market forecasts of PKR 6.0 per share. Analysts speculate that the company opted for a more conservative payout to balance its strong 9MCY24 performance, as the payout ratio stands at 100% compared to a high of 156% during 1HCY24.
OUTLOOK
As the company manages higher borrowing costs and margins remain under pressure, EFERT’s ability to maintain payouts amidst rising financial challenges will be closely watched by the market. However, with a cumulative payout of PKR 13.5 per share in 9MCY24, the company has still delivered strong returns to shareholders.
This performance update highlights EFERT’s ongoing operational challenges, but consistent shareholder returns through dividends reflect a balanced approach in managing the evolving macroeconomic conditions.
