Engro Fertilizers’ Profit Decline by 24% in 2022 Despite Q4 Growth

Engro Fertilizers Limited (PSX: EFERT) has reported a profit after tax (PAT) of Rs. 16 billion in the calendar year that ended on December 31, 2022 (CY22). According to the company’s financial results, the company’s profit declined by 24 percent year-on-year (YoY) from Rs. 21 billion reported in the same period last year (SPLY). Net sales during CY22 clocked in at Rs. 157 billion, up by 19 percent YoY from Rs. 132 billion recorded in CY21. During 4QCY22, PAT settled at Rs. 6.39 billion, up by 4 percent year-on-year (YoY) from Rs. 6.17 billion in 4QCY21. In 4QCY22, the EFERT’s gross margin arrived at 23 percent, while the selling and distribution expenses jacked up by 52 percent YoY. According to Ismail Iqbal Securities, the key earnings growth driver has been the tax reversal of Rs. 888 million in 4QCY22. This is likely due to the Sindh High Court’s ruling in the super tax case, which stated that the levy would not be applied retrospectively. To recall, a Super tax of 10 percent was applicable on 15 sectors for the tax year 2022 based on CY21/FY22 earnings. The finance cost of the company climbed 63 percent YoY to Rs. 2.62 billion during CY22 likely due to higher costs of doing business, and fertilizer production issues due to delays in letters of credit (LCs) for raw material imports. EFERT booked effective taxation at 40 percent in CY22. To recall, the company had an effective tax rate of 101 percent in 2QCY22 due to the Super Tax. EFERT posted earnings of Rs. 4.79 per share for 4QCY22, up by 4 percent compared to the SPLY. The earnings are above analyst estimates of Rs. 3.07 per share, where the deviation mainly came from higher than estimated other income and tax reversal of Rs. 888 million. The company announced a cash dividend of Rs. 5.00 per share for the quarter versus industry expectations of Rs. 2.5 per share, taking the annual dividend to Rs. 13.5 per share in CY22. EFERT’s scrip at the bourse closed at Rs. 85.59, up by 3.17 percent or Rs. 2.63 with a turnover of 4.47 million shares on Thursday.