Engro Fertilizers Limited ($EFERT)

Okay. Perfect. So thank you all for joining the corporate briefing session for Q4 2025. We've -- on this particular call, I will be presenting some slides on the particular quarter. I also have my finance team available for any question and answers. [Operator Instructions] We also have our CEO, Mr. Ali Rathore within us -- will come with us. He's also available online. So we'll together try and sort of answer your queries as a team. So I'll take some -- my team can answer some over to the chart and Ali can take you if it feels appropriate. So first of all, thank you all for joining. I think before we take a start, I think it's important to understand that we are sitting very close to quarter -- end of quarter 1, well, rather than just 1 day away. And it's due exactly on 30th of March but this corporate briefing relates to quarter 4 of last year. So we'll try and be focused on the quarter of last year primarily. We will have some sort of discussion on where we are today, and you can then ask your questions also because we will be having another corporate briefing session in mid-April somewhere once we announced our quarter 1 results. So with that introduction, I'll just sort of take a start. So it is just a disclaimer. I think we all are aware of this. So we just move forward. So I think we'll just start with the key highlights of this particular year. So inflation has been around 5.6% this year as compared to 4.1%. So I think it's been under control primarily. We've seen policy declining from 13% from the start of the year to around 10.5% by the end of the year. So that was a healthy sign for the economy. Exchange rate remains stable. I think it is one of those deals where we see stable exceeded for throughout the year. GDP and every growth rate. I think this is something which we need to be aware of that we had a 2.7% growth rate as it is 2.5%, but every sector specifically only grew by 0.6% as compared to 6.5% give or take last year. For this particular year, we are -- there is a target of 4.5%. But I think as we speak, we are close to around 2% as of now. So until -- steep [indiscernible]. In terms of the stock market, the stock market in December, again, to be exact, I'm talking about December specifically, we have seen a different stock market post December. But out of December, we closed 174,000 points. So it was definitely with the highest increases we were seeing. And again, so now on the geopolitical front, yes, we do see there are challenges. So 2026 has been different year, but I think we will come to it later. In terms of recap of the farmer economics, you understand the start of the year, last year, farmer economics was under pressure. Especially because of wheat prices, they had gone much lower around INR 1,800 per month. So -- and that got a lot of challenge for farmers but eventually, gradually and then towards the end of the year, we did see some support price coming in and some welcome tests by the government also. And then the price moved up to INR 3,500 of [ lead ] per month, which helped the farmer in terms of improving his buying capacity. The start of the year, again, 2025, first half, so challenges in terms of water. We were actually had some news also about droughts and everything. But then a while ago, we had rains and snowfall and then sort of floods also and that sort of fell to the water availability. So that solved towards second half of the year. Input costs of the farmers inflation was stable. So there were impact but not as huge as what we expect to get. But yes, again, '25, '26 is the new altogether. In '26, there are multiple challenges which you all see. And when I logged on, I saw the first question of the chat, it was related, especially again to where we are today, so we'll try and cover -- to come on that. Very brief on business performance. So in terms of urea sales, so we've achieved the higher sales this year at 6.7 million tonnes as an industry against 6.5 million tonnes last year on the U.S. specifically. Our market share last year was 31%. This year, it's 34% higher than last year. So last year, definitely we -- because there was a turnaround also last year, which impacted our sales. But this year, we achieved a little higher than our usual market share, which is around 33%. But specifically, when we talk of Q4, so we had a [indiscernible] of 41%, so it was a good sort of quarter 4 for us. So we're able to sell more. And that translates into the inventory levels. So the industry is roughly around the same level as compared to last year, 200,000 plus some tonnes for the industry. We were 28% last year this time we're 23%. So better than last year, but I think nothing extraordinary. But again, I think the positive message here is that inventory levels of the entire industry were at reasonable levels. I'm sure we had multiple discussions across our previous analyst briefings, where we saw very, very high inventory levels for the entire industry and especially for us, also, we were carrying high [ annuity ] levels. But as I mentioned, because of the farmer economics and all that, all the water ways and everything, things got better and eventually the ending inventory for the entire industry was lower, and we had also had a lower market share. So I think it ended well as an industry for the [indiscernible] the entire year was much, much, much tough. Looking at the DAP business, the DAP was a difficult last year. So if you see the graph -- the international prices of DAP. So you see big SKUs try to write from around $600-odd dollars going right up to $800-plus and is coming back down again. So it was quite a spiral. So we had a lower market share than last year. And so we have a 19% last year, this year. And again, sorry, just to clarify last year's 2024. And when I say this year, it was '25 I don't talk 2026. So '25 was 13% SKU at 19%. And so we understand, we lost market share, but it was more -- it was a conscious call because the pricing was quite reliant in the international industry and then because of the farmer economics and to the challenges that local prices were also the pressure. So it was a cautious approach taken by the organization because you understand we paid in DAP, we report and we sell. So it was a conscious approach. So we did lose market share in last year. And that's also the picture to quarter 4 also. So we will also add 14% roughly, give or take in the last quarter also. So some on the financial highlights. So in terms of overall year, so everything is on the lower side, so revenue, profitability, EPS, everything lower than last year. Revenue has been lower primarily because of the [ Bijup ] contributor is DAP because as I mentioned, we had a cautious approach. We don't import as with DAP as we normally do. So that is the biggest delta you see in terms of revenue decline because we did make higher sales of urea as compared to last year. So the DAP primarily is one thing. Profitability, yes. So I think multiple reasons for it. First of all, if you see our gross margins, so we've been able to maintain our gross margins for the last year because we had more sales as compared to last year. In urea, we had lower DAP volume, but DAP had a positive -- very thin margin business to be honest, last year. And that coupled up with -- we had -- we've been offering discounts on urea so that also was a drag on our gross margins. But having said that, if you look at our financial statement, our gross margins were, give or take, the same or a little higher than last year. But the dip in profitability was eased because of 2, 3 mean reasons. I'll start right from [indiscernible], which has impacted most of our -- many of the organizations is super tax, which further [ distribution ] came out early part of this year with the impact of last year, and there was an approval of [ Section 4c ], which we had reversed because we had a decision in our favor. And in the previous calls but then because of the decision, we had to take that hit. So it was 2 billion hit. So that's the first impact. The other impact is because, as I mentioned, in the industry, and we were carrying higher inventories across the year. So that had the second impact of around 2 billion or 2 billion, give or take. So 2 billion give or take was super tax, 2 billion was in financial costs in terms of high inventory. Another 2 billion was the freight charges because of managing higher inventory. So if you look at these 3 things, I think, 2 each, so that sort of try and sort of equates to where we were last year. So these are 3 big items which impacted us this year, and that resulted in a lower profitability for the year and a lower EPS. And that's a similar story when you talk of the quarterly financial results. One important message here, we -- as an organization, we generally distribute approximately 100% dividends. We've been doing that for the past couple of years or even a little higher at times. This year, we were a little lower, close to 100%, but not 100% to be exact we were 89%. And the reason primarily was no change in dividend policy to be -- I'm making very clear there was no change in dividend policy. But the reason was because there have been so many things sort of roaming on us in terms of we had super tax, and then there was also news on [ GITC ], there were news on [ SIDC ] and whatnot. So the Board and the management heard on the side of caution. So we took a prudent approach to try sort of [ withhold ] some dividend in terms of any adverse decisions which may not have appealed impact what will definitely have cash flow back. So we do have arrangements in terms of our financing lines in broad lines in case the larger amounts like [ GIDC ] and those get paid. But I think it was prudent at our end to make sure that we withhold some dividend and try and have some liquidity with us. So that was the reason. So again, no change in policy as soon as things get better. This part will be reviewed and we will sort of -- and then the [indiscernible] cap that will be made in terms of dividends also. I think I've discussed most of this slide when I was talking previously but again, there have some numbers, revenue decrease, cost of [indiscernible] decreases, but the gross profit margin increase. Gross profit decreased by a small percentage. Borrowing cost increase as it decreased tax rate as the property has been lower by 20%. A brief snapshot on the financial highlights. So I think sales you see has been give or take around a 2 million tonne market levels for us and including program between [ phosphates ] and urea. And you see the phosphate number is quite low as compared to previous years. Revenue, again, as I mentioned, has been lower than last year because of the reasons quoted and EBITDA to follow and PAT. So again, this is just some sort of financial numbers. I'm sure you're all are aware of those because we've shared details already in previous years. Again, the snapshot of some financial balance sheet numbers. So -- and so I think I said the -- here to focus is the left -- extremely left graph, which is stock and trade. So there's an industry we were carrying higher inventories and Q3, especially was a very, very high inventory quarter at INR 62 billion. And so you -- the other graphs you see in terms of borrowings and financials, I think that sort of close look -- just sort of translated to all those borrowings. So we had -- because of the higher inventory levels in Q3 went for a medium-term loan so that the spike you see. And then the [ RF ] actually came down by the end of the quarter because of the higher sales dispersion with the last quarter. So again, I think it was more, I think, mostly, I would say, 80% to 85% out of 90%, I would say as expected in terms of the financing facilities we had planned and it went as per planned. So no major surprises for us to be exact. And then the ratios I'm sure of you all got compute many more issues as you want to. A brief update on [ markers ]. So we mentioned last year, we had opened certain outlets, 4 to be exact 3, 4 in Q4 of last year, 2024 again, its first full year. And [indiscernible], we've got good results and better than our expectations. So we generate around [ 390 million ] of revenue, 2,400 tonnes of sales, and we are onward of 1,300 farmers. So for [ merchants ] has been doing well. And so we want -- we continue to invest in this area, and we have more [ markets ] coming up this year as a plan and then gradually we'll wrap them up both. So this is doing good. On the contribution side, so I think as an industry, and again, as a nomination to [indiscernible], we have contributed around [ $33 million ] to National Exchequer. In terms of taxes, we use taxes breakup broke up into income tax and duties and sales tax. As an industry, until last year, we were at a 30% discount until December. But just if you see the note at the bottom. So as we speak, we are working -- operating around at a 60% discount to international markets because urea in Pakistan, international prices have gone sky high, around $700 to $800 per metric ton. So Pakistan were still at similar levels. And though we have sort of taken back most of our discount from January 1, the industry was operating at many discount. But now most discounts have already taken back still we operate at a 60% discount as compared to international prices. Last slide, the pressure enhancement facility, PEF. So I think the progress is doing well. So the total CapEx is $300 million of the entire industry. Scope 1, which was mainly piping infrastructure that has done. It is completed now. Phase 2 in terms of the compressor, so we have now compressors landing with us and the solution process has started. There are some compressors all the way. And so all of that will be done. And we were supposed to complete this by Q2 this year. There have been some delay, but it will now sort of move towards end of Q3, early part of Q4. That's how we see it. But there's no impact on any of the activities or any production facilities because those continue to operate as is and the compressors, which are being implemented and the piping has already helped us in terms of gas pressures. So there's no concern as we speak. And even the recent crisis of war also this particular compressors have not been in challenged because they come from a different route altogether. And so we are expecting the sort of cargoes to arrive on time. So that should not be the [ sure ] also. So perfect. So having said that, I think I'm done with the presentation, let me just stop sharing this. So this completes the presentation. So maybe we can open the floor for questions. And as I mentioned, we've got a team sitting with us and also our CEO, we can answer those.

I think we've got Mr. Zain with the question.

This is Zain from [indiscernible] management. [Foreign Language].

Zain, sorry, there's I think some noise at the back end, [Foreign Language], please I can't hear you well.

Am I audible?

Better. Thank you.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] I can see a lot of questions on chat, but I don't see anyone raising their hand here. So the team is responding over chat also.

Am I audible?

We can hear you.

Perfect. So first off, thank you so much for a great presentation. And I just have one really small question in regards to the month of March. What would the -- was the company offering any discounts for the month of March? And if so, at what rates would they being offered at? I believe, correct me if I'm wrong, for February, I believe they were between INR 100 to INR 150. But yes, I just want to get clarity on that.

So Zohaib, you understand that we are the highest gas producer. We have the highest gas cost in the industry as Engro. So our urea always has been more expensive than our competition. It was always expensive around PKR 150, give or take, throughout. So we were offering discounts last year. But since January this year, most of the industry players, including us, have taken back our discounts, but we still operate at PKR 150 discount as Engro And some of the products one of our competition. So now we're actually in line with the industry prices. But we, as Engro operating a discount because our normal price is higher because of the higher gas price. But as you speak, yes, you're right, we are offering PKR 10 discount. And we are in the situation. We will keep on inquiries closely, and we intend to take it back soon.

This is Anees Ahmed from BMA Capital. I have 3 questions, sir. Number one, what is the retail margin in fourth quarter? And question number two, what was discount offered in fourth quarter? And question number three, price difference between triple super postpaid and [ DFB ]?

I think I'll just try and respond to the discount part and the bucket that I think the team can give you the details of the message. The discounts to fleet around -- around PKR 350 give or take, in December. And now they are down to PKR 150 from effective January 1. So number hedge up discounts for [indiscernible] I think the team can respond to the numbers over chat.

Got it. So I have a few multiple questions, very short questions. First, just some [indiscernible] in the DAF international prices to have a bought increase [indiscernible]. The industry's only player which makes DAFs as it was [ FFBL ], which is now an [ FFC ], and more than -- a little more than 50% of the demand is catered by the imported players which have -- which includes you through imports. So are DAF key inventory because of that, there is an arbitrage for the dealers gave the DAF key prices increase over year to purchase prebuying [indiscernible]. So can you comment on that, that do you have a DAF inventory left after this price increase? And then I can just ask you 2 more questions, if that is okay.

About DAF inventory here, it can definitely is quite a low inventory. We don't have much DAF inventory as we speak. And you're right, Karim, the local producers to Pakistan [Foreign Language]. As an industry, we're working towards it. And that's also been discussed at the government official level. How can we sort of make sure that we can import DAF and ensure availability. So that's something which is work in progress.

So can I assume that the whole industry's inventory which the players had [Foreign Language]?

[Foreign Language]

[Foreign Language] EFERT has also given the loans to its companies, the group companies, if I'm not wrong, and [indiscernible] and EPCL. [Foreign Language] So was that the need that the EFERT was financing the head office or [ EPCLB ] is in the part of -- they are in the negotiation with [ Lote Chemical ] to sell the company. So is it the part of deal there that they require some cash for their operations?

I think I don't know if you attended our AGM or not.

I'm not in the AGM.

[Foreign Language] not giving out loans this is just an approval, which we are taking, and this is approval, which is in reciprocity, right? So you have approval to give out loans in case [ Corp ] requires or EPCL requires, so we are able to give them loans. And vice versa is we required on from [ 20 ] or [ retail ] required loan, we can take them from them also. [Foreign Language] So the idea is not to give out loans, the idea is to have an option available with us in case it's needed, we can draw on the facility, [Foreign Language] we have not drawn on the facility because [indiscernible] local market running finance, long-term financing, [Foreign Language]. So the idea is to just have the flexibility, system available cash [Foreign Language] group company requirement that we can fund that company. And that's primarily [Foreign Language]. It's not a longer-term thing. [Foreign Language] is key. I think the last time we used some funding from corp was, I think, 2024 December [Foreign Language] that's it. So it's not double. So it's not something [Foreign Language]. In case if needed, we just keep them out as a bridging facility for a short term, it's not a longer term.

Sir, I want to ask your current debt equity stands at 137%. Or you continuously need borrowing for your working capital requirements. So how will it play in future like up key requirement because other debt key. So you don't seem like to have future plans for expansions or anything like your competitors, for example, [ Patna Fertilizer, FFC ] they are growing, they are expanding, they are going into airlines and so many things. So [indiscernible], like how will you get rid of this step like it's a lot 137%.

[Foreign Language] You're right, they are growing, but they're not growing in the fertilizer space. They're doing at the [indiscernible] and [ angles ] conglomerate. So if we want to invest in those areas, we'll use our respective organization and not every fertilizer. So that's the first answer to your question. There is a heavy level of debt. [Foreign Language] And as an industry, this will be passed on. It's clear. So we're just waiting for the right time to come, but this will be passed on. So you get a particular financing impact to your CapEx some current, you pass on [indiscernible]. So -- but again, I think from a balance sheet angle and from -- in terms of [indiscernible] strength and in terms of comfort, I don't think we're at any level [Foreign Language] Yes, right, it appears to be a higher level of debt. But again, that's our [Foreign Language] during the year, debt will go high also, but it will come down also. So it's a cycle that the first half of the year, industry does build up inventory by second half of the year, it has sort of dips and then goes to very low level by the end of the year. But then we'll continue to operate on that. So I don't think it's a very event of concern for us.

Sorry, actually, many last time [indiscernible], couldn't continue the question. Sir, I have 2 more questions. First was recently recorded government changes key on the utilization of GIDC proceeds. So it seems likely that government intends to have the GIDC payments which was on your -- and the fertilizer company's accounts. So what's your opinion on that? And if that happens in this year, do you think it would be like 8 quarterly installments in a year or 2, basically, [indiscernible]? And my second question would be a very, very short question that you may have answered. Should we assume that urea because of last December's exuberant sales would be around 5.5, 5.6 considering the current diesel prices, which has already have a tool on the farmers in terms of sowing season. [Foreign Language] cost of production increased demand of urea throughout the year, assuming or considering January and February should be 5.5 million to 5.6 million tonnes. So this was my second question. And lastly, are you -- at this 800,000 key inventory urea [indiscernible] and we have seen the industry to operate at 100,000 or 200,000 inventory [Foreign Language] Have you asked the government to at least let you export at least a minimum of 300,000 tonnes of urea in equal share of your fertilizer market share to local companies. I think you have been the proponent of export and since that it is very opportune you can trigger import [Foreign Language] excess inventory per urea. So there might be a case for you guys to -- or the fertilizer players to export some of the inventory without impairing the strategic level of inventory that you carry?

[Foreign Language] I think, which has not been approved as yet. So -- but yes, it is something which is -- we understand it's happening. We can read also about it. but I think it's still pending the final stages of approval before they can move forward is. That's the first thing. [Foreign Language].

No, I'm not saying anything.

[Foreign Language] Because I'm sure I understand the fact that GIDC is not a small amount for -- not for the fertilizer distribution but also for Pakistan and other sectors. It's quite a sizable amount. So I'm sure if it goes in that direction, ultimately, so there will be some sort of mechanism to it. I'm not too sure of book there. I think it's early to predict that. [Foreign Language] you're saying 5.5 million tonnes, key demand for the entire year?

Demand, yes.

[Foreign Language]. So the demand has not been below 6.3, 6.4 million tonnes on an average per year. Bad years, good year last year, we said 6.7, that was one of the highest years. But if you look at those years, it's not been below that because Pakistan may take in certain demand the [Foreign Language].

My thought process was, sorry, to just clarify this question. And I understand what you're trying to say. And I [ calculate ] 3 million turnkey on an average demand [indiscernible], but the December was the highest ever demand in the history that we have in terms of data or [Foreign Language] So if we are still assuming a 6.3 million tonnes of demand in 2026, that means that we are assuming an innate implied discount, significant discount in the fourth quarter to have that demand because farmer economics can [Foreign Language], right?

[Foreign Language] I think the number you're quoting at 5 and 5.5, that's a very low number. I think let's do the maths first. [Foreign Language] I won't even answer for that maybe because it's anybody's guess from there [Foreign Language] So I don't see a reason [indiscernible], there will be another need for discount. They can discount last year, [Foreign Language] so I don't think it makes sense by any means.

Okay. And my last question was related to the exports of current inventory, if that is a possibility.

[Foreign Language] It is an opportunity for a lot of ForEx also for the government. So you're right. But I think the discussions, I think, gradually.

[Foreign Language]

[Foreign Language] But I think ballpark average, I think the team could put on the chart also for people to understand. So watching the team will put on the chart and respond to this. But it will be -- it can be a huge range. I think. Any other question, anyone? Again, if we have no further questions. So before we end, I think Ali see us also on the call. Ali, do you want to say something?

Thanks, Imran. No, I think you've covered the questions very well. There are a lot of questions that I see on the chart. So hopefully, the team is going to respond to them. Some of them are pretty straightforward like when does a contract with [ SNG ] Bill expire. I think that's public knowledge. Whereby some of the other questions are like how much margin do we make on DAP, et cetera. So maybe I can address a couple of them because there are a lot of questions. But on something like when the contract expires, I think that's in March next year, and that's the only one that we have left. Otherwise, we are -- we have contracts with [ Mali ]. And in terms of the DAP margins, it's a weighted average DAP margin depending on how -- when you bought, what cargo and the main thing, I think, around DAP, I think that's the question was rightly asked by one of the analysts was that 50% of the supply comes from FFC, whereby the remaining is all independent. At the moment, nobody can bring any DAP into the country. So whatever DAP is that it's enough in the down season, which is now, and hopefully, the straight for [ Mood's ] opens up so that with the heavy application of DAP happens, which is at the latter end of the year, we have enough we, as a country, have enough DAP. At the moment, our inventory is between 30 kt plus, 30 to 40 kt, let's say. And the industry DAP inventory is around 300-odd, maybe it's gone down a bit when I last got those numbers. So anyway, I just thought I would address some of these, which were there. I think you've covered the overall sentiment of the market where -- and maybe I can just clarify or reiterate that the reason why prices are not at least going to be going up in certain other countries compared to Pakistan is because 95% of our gas is indigenous that comes from the likes of [ Mali ] and SNGPL. So there's very little reliance on [ RLNG ] the gas is of low BTU, meaning low heating value, and it can only be used for this sector. So the chances of it getting diverted to other sectors is also minimal, number one. And that represents the majority of our cost in terms of urea. In terms of the farmer, I think there were some questions around what impact does it have of the overall increase in energy costs, be it diesel be it urea. And I think Imran, like you rightly pointed out, it all depends on if you own the land, if you rent the land, if you have borrowings or you are investing your own money or is it through the RT system but the cost of urea and diesel is minimal, I would say, less than 10% of the wallet size of the farmer. So even if prices were to go up, and they were unable to pass them on, which is highly unlikely, so long as the support price for wheat, for example, stays healthy and in excess of 3,500 per month there should be no reduction in the demand because I think that was one of the things implied that the demand would reduce from 6.4, 6.3 to below 6. And unlike you rightly pointed out, it's a central commodity and it will be required. So long as the support price is supporting it for the end product that is wheat or cotton that comes out. So yes, I think it's very good questions asked by everybody. Thank you for keeping us on our toes and specifically around the food security of the country, Engro and the other manufacturers are ensuring that all the plants are running so that there is ample supply of urea and of DAP in the current market, so that the farmer does not suffer in any way and therefore, does not pass on any incremental food inflation, et cetera. So we're trying to make sure that as responsible manufacturers, we ensure that the plants are getting what they need with respect to maintenance, with respect to capital investments, so that they stay running and all the inputs that are required are available for us. So I'll stop there and thank the audience for a very interactive session. Thank you to Imran and the finance team and all the various people at Engro that have helped in putting this session together. And we'll continue to provide feedback on all the specific questions that were asked in the chat as well. And I believe this is a recorded session and will be available together with the Q&A on our website. So thank you all once again.

Perfect. Thank you Ali for that. And so thank you, everyone, for your questions, and we hope to be able to answer your questions. And so we'll be seeing you soon, maybe in the next 3 weeks with our quarter 1 briefing. So thank you very well for joining.