The leading fertilizer company in Pakistan, that is, a wholly-owned subsidiary of Engro Corporation Limited, EFERT has come up with financial numbers for the third quarter that ended September 30, 2024. This has reported a PAT of Rs 8.55 billion, stating a decline of 11% Y-on-Y, compared to the Rs 9.58 billion accounted for the same period last year, posted on PSX on Monday.
Earnings per share (EPS) of Rs6.41 for the third quarter of the calendar year 2024. However, EPS is lower as compared to what the company reported at Rs 7.17 in the corresponding quarter of the calendar year 2023. The number was significantly above market expectations and analysts had not even expected something around Rs5 per share.
Oct 14, The BoD of EFERT declared an interim cash dividend amounting to Rs2.5 per share equivalent to 25% of the face value. The company has the existing interim cash dividend declared at Rs11 per share which works out to a healthy payout of 110%. A decision to pay out hefty portions of dividends reflects the commitment of the firm to return value to the shareholders even in tight financial conditions.
Egro’s revenue fell nearly 11% to Rs58.64 billion for EFERT, against Rs66.17 billion in 3QCY23. This downtrend in revenues does ring alarm bells over the health of the complete fertilizer business, which has been experiencing volatile demand and prices.
The gross profit of the company, therefore, was not immune to this decline as it contracted by 13% to Rs18.31 billion compared to the Rs20.99 billion reported year-on-year. Consequently, the bottom line of the company during 3QCY24 slumped by a wee margin to 31.2 percent against 31.7 percent corresponding year-ago quarter. This erosion in profitability cuts both ways and indicates that EFERT is wading through troubled waters with the lack of stability in a changing consumer preference and regulatory challenges.
One of the biggest contributory factors to the decline in its financial performance would be the exponential increase in interest costs. EFERT reported a whopping 155% increase in interest costs, Rs1.28 billion for 3QCY24, compared with Rs499.3 million for the same period last year. The upward curve in finance costs is primarily because of the growing interest rates, which have, in turn, increased the cost of borrowings for a business enterprise cutting across all industries.
Consequent to this, the company posted PBT at Rs14.03 billion, in 3QCY24, over 11% below the same period last year. The effective tax rate for the quarter also caused the company to pay Rs5.5 billion against Rs6.2 billion yielded during the same quarter last year. This might be associated with how the company is attempting to manage its tax liability in the wake of new market conditions.
The fertilizer industry of Pakistan is bound to face a rise in input prices, enhanced competition, and a shaky regulatory situation. The profitability decline of Engro Fertilizers might be in parallel to this. The growth strategies the stakeholders may have devised might have to be re-evaluated then.
The analysts will closely observe and monitor Engro Fertilizers and its approach toward a change in market conditions in the future. This can be faced by management who try to preserve the shareholder value to ensure long-term success for the company. Before that, the cost management and operational efficiency the company can undertake through various strategic initiatives can prove crucial for the restoration of profit margins and improvement in competitiveness in the market.
In conclusion, though the financials unveiled recently, a rather volatile quarter for Engro Fertilizers, proactive steps like dividend announcements and strategic planning bode well for that company to weather the storm in a competitive landscape. With continued change in the fertilizer industry, the performance of Engro Fertilizers will be a critical pointer for the concerned industry stakeholders and investors.
To Read More: Finance