FOR the first time since the launch of the Enven urea-ammonia plant at Daharki, Sindh, five years ago, Engro Fertilisers can breathe easy.

Enven — built with a staggering investment of $1.1bn — could scarcely operate at full capacity owing to a shortage of gas, as the government’s promise to supply gas for 20 years (the first 10 at concessionary rates), remained unfulfilled.

But things have now taken a turn for the better. “Both our plants have been receiving gas,” Ruhail Mohammad, CEO of Engro Fertilisers Limited (Efert), told Dawn last Thursday.

Earlier this month, the Oil and Gas Regulatory Authority (Ogra) approved the terms of the tripartite agreement between Efert, Mari Petroleum and the Sui Northern Gas Pipelines Limited for supply of feed gas to the company’s beleaguered fertiliser plant at a concessionary price of $0.7 per mmbtu.

The CEO said in order to protect margins against any unforeseen disruption in the gas supply situation, the company plans to import and market other agricultural products, like insecticides and pesticides.

“We also envisage making a foray into the international markets,” said Ruhail, adding that possibilities in markets like the US, Africa and Middle East are being explored.

Engro Fertilisers’ CEO says in order to protect margins against any unforeseen disruption in the gas supply situation, the company plans to import and market other agricultural products, like insecticides and pesticides

Efert was demerged into a separate business entity by the parent Engro Corporation on January 1, 2010. Currently the second-largest fertiliser producer after Fauji Fertiliser Company, Efert’s total assets stood at Rs112bn by December 31. Its paid-up capital amounted to Rs13.2bn, with 86pc of its Rs10-par value stock vested in the parent company. The stock closed last Thursday at Rs78.19 a share.

The company posted a profit-after-tax of Rs8.20bn for calendar year 2014, translating into earnings-per-share (eps) of Rs6.29. This represented a growth of 35pc over the previous year’s profit of Rs5.49bn and eps of Rs4.66. Its board declared a dividend of Rs3 per share, higher than analysts’ consensus forecast of Re1 to Rs1.50 per share.

AKD Securities investment analyst Munib Mujeeb Jilani attributed the top line growth of 23pc (to Rs61.4bn) to continued gas supply from Guddu. Hassan Bin Ghafoor, an analyst at Taurus Securities, stated in a recent report that the volumetric rise in offtake levels of urea, nitrogen-phosphorous-potassium (NPK) and nitro-potash (NP) fertiliser owing to full-year availability of additional gas from Guddu led to the rise in the company’s top line.

However, falling margins due to higher gas prices resulted in a meagre 2pc rise in gross profits. In its briefing for analysts, Efert’s management stated that urea production went up 16pc year-on-year (YoY) to 1,819KT in 2014, as the company operated both urea plants.

Urea sales rose 14pc to 1,818 KT, increasing the company’s market share in the segment to 32pc from 26pc in 2013. Other income also went up to Rs2.44bn from Rs1.15bn due to improved liquidity.

Investment analyst Umair Vayani at JS Global observed that the company’s “management reiterated its confidence regarding the continuation of 60mmcfd gas from the Guddu power plant to Enven until December 2015.

“As per the agreement with relevant authorities, the company has agreed to install gas booster compressors for the 747MW Guddu power plant (GENCI-11) in lieu of additional gas by next month, with a capital expenditure of $100m. The management also hoped to pass on the impact of higher gas prices through local urea prices.”

Meanwhile, the company’s finance costs also declined 30pc to Rs6.62bn from Rs9.92bn on account of early repayments and lower interest rates. Vayani observed that EFERT repaid over Rs10bn of its financial obligations last year and refinanced loans worth Rs3.2bn at cheaper rates.

Ruhail, the CEO, told this writer that the debt reduction — from a peak of Rs70bn in January 2013 to Rs35bn — had greatly helped in strengthening the company’s balance sheet.

He also dispelled fears that the government’s proposal to increase gas prices from mid-April would be a blow to the fertiliser industry, saying that the impact will be manageable. He expressed optimism for the future, stating that the local industry is ahead of its competition with imported urea, as average local prices are at a 21pc discount to foreign prices.

The market share of imported urea fell amidst higher domestic production and the farmers’ and dealers’ preference for branded urea, placing this segment’s market share at 87pc in 2014.

The company also looks forward to augmenting earnings from the recently acquired trading arm Engro Eximp Private Limited (a sister concern). Efert would now also import and market phosphate-based fertilisers, mainly di-ammonium phosphate (DAP).

In its briefing to analysts a month ago, the company’s management said local demand for urea is expected to remain stable this year, despite the dip in farmers’ income from rice and cotton in 2014. “Gas curtailment issues are likely to continue in 2015, hence the fertiliser industry will continue to face challenges due to intermittent supply,” the company officials said.

Published in Dawn, Economic & Business, March 30th , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play