Engro Fertilizers Ltd. · PSX:EFERT
Engro Fertilizers — Q3 2019 Earnings Presentation
28 slides from Engro Fertilizers's earnings presentation, 2019
Slide 1: Analyst Briefing 3Q 2019
ANALYST BRIEFING 3Q 2019
Slide 2: Business Highlights
BUSINESS HIGHLIGHTS For 9M 2019, EFERT’s Profit After Tax (PAT) stood at PKR 10,511 PKR M 9M 2019 9M 2018 M vs 9M 2018 PAT of PKR 12,249 M Total Revenue 77,462 69,215 Lower profitability was due to: Gross Profit 24,955 23,896 Lower Volumetric Sales Finance Cost (3,229) (1,420) Higher Gas Cos
Slide 3: Urea Market Environment
UREA MARKET ENVIRONMENT Urea Industry Urea industry sales for 9M 2019 clocked in at 4,330 KT, up by 5% vs SPLY (KT) Change 9M 2019 9M 2018 Opening Inv. 186 260 EFERT market share stood at 31% vs. 36% in 9M 2018 primarily on account of Production 4,585 4,096 operation of LNG based plants and sale
Slide 4: Phosphates Market Environment
PHOSPHATES MARKET ENVIRONMENT 9M 2019 industry sales stood at 1,181 KT vs 1,236 KT in 9M 2018 (down 4%). Phosphates Market Share 9M 2019 Lower industry offtake was mainly due to escalating DAP international prices and rupee devaluation 8% 26% EFERT’s market share clocked in at 26% for 9M 2019 vs
Slide 5: Efert's Production is consistently growing
Efert’s Production is consistently growing Higher Gas avails have led to higher production EFERT Production (KT) Trend EFert’s 9M 1,460 1,451 production this year 1,440 1,428 is the highest in last 5 years despite 2 1,420 1,397 1,400 1,400 1,380 turnarounds during the 1,360 year 9M 2016 9M 2017 9M 2
Slide 6: Industry Supporting farmers through affordable Urea
Industry Supporting farmers through affordable Urea Despite significant delta vs. international Urea prices, the Fertilizer industry continues to transfer benefit to the farmer, which translates to PKR 20 Billion for the year, over and above the feed gas price subsidy Comparison of Local vs. Interna
Slide 7: Business Challenge: Increasing costs
Business Challenge: Increasing costs Increasing gas Axle Load price regime Has resulted in increase in price of Has resulted in commodities increase in price of commodities FP Gas increase PP Gas increase Expected Freight 54% Cost Increase 17% ~32% *Effective from 1Jul 2019 *Avg YoY increase 2019 *A
Slide 8: Business Challenges: Subsidy and GIDC
Business Challenges: Subsidy and GIDC Fertilizer industry continues to face challenges in the form of prior subsidy despite the fact that the subsidy given on fertilizers was timely passed on to farmers whereas the government is yet to pay back the subsidy (Industry - PKR 20 B, Efert PKR 6.5 B) Su
Slide 9: Business Challenges: Sales Tax Refunds
Business Challenges: Sales Tax Refunds Refundable created due to mismatch between input and output tax: Urea sales: PKR 2.4B / year (PKR 60/bag) DAP sales: PKR 1.3B / year (PKR 111/bag) The tenor of the settlement of these refunds create working capital issues and thereby increase finance co
Slide 10: Achievements
Achievements 1SAP Go-Live with effect from 1st of October. This is by far the largest SAP S/4HANA business transformation project in the private sector in Pakistan. Best Corporate Report Award EFERT secured second position for the best corporate report in the Chemical sector in August 2019 Cor
Slide 11: Smart Subsidy
SMART SUBSIDY SOLUTION TO CHALLENGING FARM ECONOMICS AND LOW AGRI PRODUCTIVITY 11
Slide 12: Smart Subsidy commitment by the Government
Smart Subsidy commitment by the Government Provide smart subsidy for agricultural inputs to 3 million small farmers (up to 5 Acres) PTI Government’s vision 12
Slide 13: Fertilizer supply gap met with imports
Fertilizer supply gap met with imports… Historically, domestic urea demand hovers between 5.6-5.8 Mn Tons vs supply of 5.5 Mn Tons from indigenous gas based plants The shortage of 0.3 Mn Tons of urea has been historically bridged by expensive imports and urea production with imported gas Urea Demand
Slide 14: Despite unutilized local capacity
… despite unutilized local capacity Plants based on indigenous gas have idle capacity which can be utilized to produce incremental urea at best efficiency index eliminating the need for imported urea and imported gas for urea production Capacity vs Production 2.3 Plant has an 1.9 additional 0.6 capa
Slide 15: Misdirected agri subsidy
Misdirected agri subsidy FOREX outflow on Urea import & LNG plus subsidy on the said is aggravating the local economic condition Burden on BoP Burden on fiscal deficit PKR 44 B PKR 21 B FOREX outflow on import of Subsidy on imported urea and urea and LNG urea produced from LNG Fiscal Deficit and Tra
Slide 16: LNG based production is only leading to inventory glut
LNG based production is only leading to inventory glut Closing inventory as at Oct 15, 2019 stands at ~0.7 MT which is almost equal to the production of LNG based plants CONSISTENT 9M OPERATIONS Closing inventory of Government is supplying 0.7 MT as at Oct 15, 70 mmSCFD LNG to Production of 0.7 MT 2
Slide 17: Excess Urea: Potential for Exports
Excess Urea: Potential for Exports Export potential of USD 210M 700 KT Proven Past 6.5 Export potential Record of Exports 5.8 In 2017, ECC approved exports of 635 KT earning the country FX of USD 150M Current Current Production Production with LNG Expected sales based on LNG operation Plants 17 Secu
Slide 18: 90% Farmers most impacted
90% Farmers most impacted 90% of the farmers have a land 52% of the farm area is held by holding size of less than 12.5 acres remaining 10% of the rich land lords No. of Farmers vs landholding 120% 100% 10% 80% 25% 52% 60% 90% of the 40% farmers most 65% 29% 20% 19% 0% No of farmers Farm area Upto 5
Slide 19: Disproportionate impact of nation-wide subsidy
Disproportionate impact of nation-wide subsidy Any subsidy that aims to reduce nationwide fertilizer cost will pass significant balance to the rich zamindars Subsidy Share (%) 19% 52% 29% Kissan upto 5 acres Medium scale Zamindars 19 Security Analyst Briefing 3Q 2019
Slide 20: What can be done? Kissan upto 5 acres
What can be done?-Kissan upto 5 acres FREE UREA 65% 100% subsidy on Urea Kissan upto 5 acres for small scale farmers Expenditure on subsidizing LNG and imported urea can be used to provide free of cost urea to 65% of total farmers nationwide holding 19% of the land area 20 Security Analyst Briefing
Slide 21: What can be done? Small and Medium Scale Farmer
What can be done?-Small and Medium Scale Farmer PKR 860/bag Price reduction on urea 90% 43% subsidy on Urea for small scale farmers Small and Medium Scale Farmers upto 12.5 Expenditure on subsidizing LNG and imported urea can be used to subsidize urea price by PKR 860/bag to 90% of total farmers nat
Slide 22: What can be done? Small and Medium Scale Farmer
What can be done?-Small and Medium Scale Farmer PRICE CAN BE REDUCED TO PKR 1,400/BAG WITH ONLY PKR 640/BAG AS SUBSIDY TO 90% OF THE FARMERS Subsidy of PKR 640/B will allow prices to settle at subsidized rates in 2016-17 of PKR 1,400/B 2,000 1,840 1,640 1,440 1,500 1,240 1,000 23% 47% 70% 93% 800 60
Slide 23: What can be done? Nation-wide
What can be done?-nation-wide Expenditure on subsidizing LNG and imported urea can be used to subsidize Urea price by PKR 350/bag to all farmers nationwide 19% 52% 29% PKR 350/bag Kissan upto 5 acres subsidy on Urea Small scale farmers 5 to 12.5 acres Will bring down the price of urea to PKR 1,690/b
Slide 24: Proposed Subsidy Mechanism
PROPOSED SUBSIDY MECHANISM 24
Slide 25: Proposed urea subsidy disbursement mechanism
Proposed urea subsidy disbursement mechanism The proposed subsidy disbursement mechanism is as follows: Fertilizer Sticker based Code redeemed Companies to subsidy digitally generate unique codes A sticker-based subsidy The portal would enable The farmers could mechanism should be fertilizer marketi
Slide 26: Agri leaders supporting the idea of targeted subsidy
Agri leaders supporting the idea of targeted subsidy 26 Security Analyst Briefing 3Q 2019
Slide 27: Key Takeaways and looking ahead
Key Takeaways and looking ahead….. Smart subsidy mechanism to improve balanced nutrient usage and resultant yields: Subsidizing urea and DAP for farmers holding upto 12.5 acres Improving use of Potash Export potential to be reaped as there is excess capacity available in domestic Urea indust
Slide 28: Thank You Q&A
THANK YOU Q&A Security Analyst Briefing 3Q 2019