February 2020




By MUSHATQ GHUMMAN on March 1, 2020

Engro Fertilizers has expedited its efforts to get 25 MMCFD gas on permanent basis against reduction of urea prices by Rs 400 per bag, well informed sources told Business Recorder. For this purpose, a delegation of M/s Engro Fertilizers met with Prime Minister’s Advisor on Commerce, Industries and Production and Investment, Abdul Razak Dawood a couple of days ago and presented its wish list to him.

However, there is no official confirmation whether Dawood pledged to entertain the request of the company, as he has to seek the nod from Prime Minister Imran Khan who is also Minister-in-Charge of Ministry of Industries and Production.

Engro, in its letter to the Advisor appreciated reduction of GIDC on the fertilizer sector which has enabled significant reduction in urea prices and resultant improvement in crop yields. Engro Fertilizers welcomed the decision as according to the company’s claim it was the first company to have passed on the full impact of the reduction in GIDC to the farmers. The proportionate reduction in urea prices by respective companies, given their varying gas mixes, has created confusion in the market.

The company was of the view that in the current scenario, a large portion of desired benefit of the GIDC reduction is not flowing through farmers.

Engro conveyed to the Advisor that it was ready to reduce its price immediately by Rs 400 per bag, if the government facilitates with the following decisions to create a level playing field: (i) Engro fertilizers, despite being a fertilizer manufacturer, receives some of its gases for base plant on Petroleum Policy Pricing 2012. Alignment of pricing of this allocated gas for base plant to Fertilizer Policy 2001 would remove the competitive cost disadvantage that the company currently faces. The alignment would cost the government around Rs 2.5 billion post tax; and (ii) base plant of the company has the capacity to produce in excess of 200,000 tons of urea, utilizing the non-pipeline quality indigenous gas, at the best energy index in the industry of around 22 MMBTU/ ton.

Copyright Business Recorder, 2020




By ​ Our Correspondent Published: February 17, 2020

KARACHI: Engro Fertilisers Limited’s profit declined 3% to Rs16.9 billion in the year ended December 31, 2019 compared to earnings of Rs17.4 billion in 2018, according to a notice sent by the company to the Pakistan Stock Exchange on Monday.

Earnings per share (EPS) of the company came in at Rs12.64 in 2019 compared to Rs13.04 a year ago.

Alongside the result, the fertiliser manufacturer announced a final cash dividend of Rs2 per share, taking dividend for the full year to Rs13 per share.

Net sales of the company rose 11% from Rs109 billion in 2018 to Rs121 billion in 2019. Cost of sales increased from Rs73.9 billion in 2018 to Rs81.8 billion in the year under review, a rise of 10.7%.

The company reported gross profit of Rs39.5 billion in 2019, up 12% compared to Rs35.3 billion in 2018.

Engro Fertilisers reported a profit of Rs6.4 billion in the quarter ended December 31, 2019, which was 23% higher than Rs5.2 billion in the same quarter of 2018.

EPS of the company stood at Rs4.76 in the quarter under review compared to Rs3.87 in the same quarter of previous year.

“During the quarter, net sales of the company swelled 9% on a year-on-year basis due to a 12% increase in volumetric sales as customers stacked fertiliser owing to anticipated hike in urea prices,” said Topline Research analyst Sunny Kumar.

“Consolidated gross margins of the company increased by 4.9 percentage points year-on-year to 33.4% in the quarter owing to high retention prices of urea and lower proportion of DAP sales.”

He said other income soared 260% year-on-year to Rs699 million in the fourth quarter of 2019 owing to an increase in income from treasury bills (T-bills) and Pakistan Investment Bonds (PIBs).

Effective tax rate was calculated at 35% in the Oct-Dec quarter versus 26% in the same quarter of 2018.

The research house flagged decline in urea prices, poor crop season and unfavourable decision related to the gas infrastructure development cess (GIDC) as key risks to the earnings and valuation forecast.

During the day, Engro Fertilisers’ share price decreased Rs0.65 to Rs65.77 with trading in 1.9 million shares at the Pakistan Stock Exchange.



By RECORDER REPORT on February 19, 2020

The domestic fertilizer industry is said to be opposing supply of RLNG to two fertilizer plants at cheap rates, arguing that any such decision on the part of the government will inflict a financial loss of Rs 45 billion on the national exchequer.

According to industry sources, the government will have to bear a cash subsidy of around Rs 15 billion on the total annual production of Fatima (FFT) and Agritech (AGL) plants to ensure commercial viability. This additional burden on the national exchequer is likely to have a multiplier effect on the overall economy, which is already battling high inflation and low revenue collection.

In a letter to Prime Minister’s Advisor on Commerce, Industries and Production and Investment, Abdul Razak Dawood, FFT and AGL have requested the government to ensure RLNG supply to fertilizer plants at a subsidized rate, as last year. Their proposal also seeks permission to directly source RLNG cargoes from the international market through contracts for a two-year period.

“The urea produced by RLNG-based plants is even more expensive than the imported fertilizer. Industry figures clearly show that Pakistan does not need to run plants on subsidized RLNG or import urea as there are sufficient stocks to meet demand,” said one of stakeholders on condition of anonymity.

The total urea inventory currently stands at approximately 550,000 tons, with 400,000 tons at the manufacturers end and the remaining built in the channel due to record sale of around 6.2 million tons. With the agronomic demand stagnant at 5.8 million tons last year, in line with the five-year average, the production of 760,000 tons by RLNG-based plants only led to accumulation of inventory. Due to their operations, the government not only incurred an outflow of foreign currency of $ 200 million on LNG imports, but also suffered a fiscal hit of Rs 15 billion on subsidies.

Currently, both plants are closed as natural gas is not being supplied to them because the Ministry of Petroleum has diverted subsidized LNG away from the fertilizer manufacturers. As suggested by figures, domestic fertilizer industry argues that it would be logical to continue current policy as the fertilizer plants operating on indigenous gas are fully capable of catering to the domestic demand of 5.8 million tons without incurring any outflow of valuable foreign exchange.

Any new RLNG imports would lead to a gas over-supply situation in the system, which faces a pipeline capacity constraint and leakages especially in times of peak demand due to high pressure. The inherent bottleneck of distributing RLNG upcountry remains one of the biggest drawbacks of any additional RLNG.

Copyright Business Recorder, 2020



By RECORDER REPORT on February 20, 2020

The Sindh cabinet taking historic decisions approved a plan under which no flour mill would be declared as Procurement Reserve Center (PRC) because of the misappropriation cases.

The cabinet met here on Wednesday with Sindh Chief Minister Syed Murad Ali Shah in the chair.

It also decided to allot district-wise Bar-coded bags to be distributed among growers in Sindh.

The cabinet also decided that only those officers would be posted as center/godown in-charge against whom no case in under trial. The posted in-charge at godowns would continue till the end of procurement of wheat and shifting to safe places.

In order to ensure fair distribution of bardana among the growers, district-wise procurement target would be fixed on proportionate basis, means the share of the production of the respective district.

The provincial cabinet expressed serious reservations over the attitude of the federal government regarding the transfer of the Sindh IGP.

The law and order has gone to an extent where a sitting MPA and member of the Public Safety Commission, Shahnaz Ansari has been killed though she had sent an application for her security to the IG Police on Feb 12 and the IGP received it on Feb 13 and took two days to upload the request in his complaint system for SSP Naushehro Feroze and by the time she was killed. The cabinet expressed pleasure over the arrest of the main accused.

The cabinet also discussed the murder of journalist Aziz Memon in which the police have failed to arrest any accused so far.

The chief minister said that he had sent Education Minister Saeed Ghani to meet with the family members of Aziz Memon. Saeed met with his brother Hafiz Memon and on his [CM’s] behalf he offered him to register an FIR against the people whom he had any iota of doubt of being involved in the murder.

The chief minister directed the Home Secretary to coordinate with the police and the family of the deceased for transferring the inquiry from Naushehro Feroze to SSP Nawabshah.

Law & order: The cabinet was told that the CPLC has released the figures of worsening law and order situation in Karachi. In December 2019 some 128 four wheelers were theft/snatched and after one month in January 2020 the figure rose to 191 vehicles which shows an increase of 64 percent.

The cabinet termed the worsening law and order situation in Sindh as the result of uncertainty the federal government has created by halting the transfer of IG Police. “This is unfortunate that the federal government despite agreement, in principle, is lingering the IGP’s transfer issue though it has changed five IGPs in Punjab,” the chief minister maintained.

E-stamping: The Board of Revenue told the cabinet that it was going to introduce e-stamping under which recovery would reach Rs10 billion annually. A software has been developed in-house by a team of automation of stamps & registration project. The model envisages issuance of e-stamp paper through designated banks on payment of cash throughout the province. At this the chief minister directed the SMBR to execute Service Level Agreement (SLA) with banks, particularly Sindh Bank.

Revenue Minister Makhdoom Mahboob Zaman said that the State Bank has agreed to allow National Bank to be the BoR’s collecting agent but was reluctant to declare Sindh Bank as collecting agent.

AT this the chief minister said the Bank of Punjab has already been declared as collecting agent then why not Sindh, he questioned and directed Secretary Finance to resolve the matter.

Keamari incident: The chief minister said MPA Liaqat Askani was the first person who informed him about the off-loading of a container at KPT which spread toxic gas. Askani had pointed out that people were facing breathing problems.

The chief minister directed the chief secretary to submit proposal to further strengthening the Provincial Disaster Management Authority to combat such incidents.

Copyright Business Recorder, 2020



Our Equities Correspondent February 22, 2020

KARACHI: Engro Corporation Ltd posted profit after tax (consolidated) at Rs30.2 billion for 2019, jumping by 27.12 per cent over Rs23.6bn the previous year.

Profit attributed to owners stood at Rs16.5bn and earnings per share at Rs28.69, up 27pc, from PAT at Rs12.7bn and EPS Rs22.06.

The board announced final cash dividend at Re1 per share taking the cumulative payout for the year to Rs24.

Consolidated revenue grew by 32pc for the latest year mainly driven by energy projects in Thar that came online during July 2019 and augmented by higher turnover of fertiliser and petrochemical businesses.

The company said in a statement that the growth in profitability was after accounting for a provision of Rs1.22bn relating to impairment of investment in FrieslandCampina Engro under the requirements of International Accounting Standard 36.

On a standalone basis, Engro posted net income of Rs14.3bn in 2019, as against Rs12.7bn for the previous year. “This increase is primarily attributed to higher dividends from subsidiaries as well as higher interest income on investable reserves”, the company said.

Kot Addu Power Company (Kacpo) reported second quarterly PAT at Rs6.694bn, higher by 87pc over Rs3.581bn in same period last year. This translated into EPS of Rs7.60 in 2QFY20, from Rs4.07.

Published in Dawn, February 22nd, 2020



By MUSHTAQ GHUMMAN on February 22, 2020

The Ministry of Industries and Production (MoI&P) is said to have again summoned local fertilizer players. The move aimed at forcing them to reduce urea prices by Rs 400 per bag, as the justification for an expected increase in gas prices has died down after the government decision not to raise gas prices till June 2020, well-informed sources told Business Recorder.

The domestic fertilizer industry has already pocketed huge profits by denying passing on the full impact of GIDC of Rs 400 per bag to the consumers.

Razak Dawood, sources said, is facing criticism from his cabinet colleagues in cabinet meetings for not twisting the arms of fertilizer manufacturers. According to sources, Dawood has already expressed his anger to Managing Director Fauji Fertilizer in this regard and summoned the CEO Engro on Monday to convey the cabinet’s ire.

The sources said the government is under immense pressure on the economic front as headline inflation touched a historic 10-year peak of 14.6% in January 2020. With the emergence of wheat and sugar crisis, it failed to keep a check on the prices of essential commodities and PM Imran Khan had to intervene to check the rising inflation.

To control food inflation, in January, the government had announced a reduction of GIDC on fertilizer manufacturers’ to bring down the prices of urea by Rs 400/bag for the benefit of farmers. However, as the cost impact of GIDC varies for each fertilizer company due to their different gas mix, the urea prices did not come down as desired by the government.

After the government decision, Engro Fertilizers passed on the full impact of GIDC by reducing price by Rs 160/bag , while FFC brought down the price by PKR 300/bag as it awaits the Government’s decision on gas pricing before it can transfer the full impact of PKR 400/bag. As a result, the new rate of FFC urea is Rs 1, 740 per bag while that of Engro Fertilizers is at Rs 1,880 per bag.

However, there is considerable confusion in the market as urea dealers are not ready to incur a loss on their inventory of about PKR 4 billion. The total urea inventory currently stands at approximately 550,000 tons, with 400,000 tons at the manufacturers end and remaining built in the channel due to record sale of around 6.2 million tons.

According to market reports, urea dealers are buying at the lower rate and selling at higher rates as there is no mechanism to check market prices. As a result, the farmers have only benefited by PKR 19 billion through PKR 160 per kg reduction in urea prices.

Copyright Business Recorder, 2020




By SOHAIL SARFRAZ & ZAHEER ABBASI on February 10, 2020

After imposition of maximum penalty of Rs 75 million on Pakistan Flour Mills Association (PFMA), the Competition Commission of Pakistan (CCP) is analyzing data of sugar sector to ascertain whether sugar mills are involved in collusive practices or cartelization.

Sugar price has increased in the retail market by Rs 10 per/kg to Rs 80 per/kg.

In December 2019, the CCP imposed a penalty on PFMA for fixation of price of wheat flour by providing a platform to share commercially sensitive information among members and fixing the quantities of production of wheat flour. The PFMA filed an application with the Competition Appellate Tribunal against the order of the CCP.

Prime Minister Imran Khan has also directed the CCP to take action against sectors involved in cartelization and collusive practices. Sources in the CCP told Business Recorder that the CCP has started an exercise to check data pertaining to cost of sugar production to ascertain how much profit is being made by the sugar industry. The purpose of the exercise is to also determine whether collusive practices are taking place in sale purchase of sugar.

The CCP is also keeping a close watch on the activities of sugar mills and Pakistan Sugar Mills Association (PSMA) and if any anti-competitive activity is observed, the commission is empowered to take action under its mandate. The CCP is searching for hardcore proof of cartelization within the sugar sector. The CCP has also put in place a system of “informant reward” and “leniency” to help reach the root of cartels.

When asked about action, if any, against profiteers/hoarders involved in increase in price of tomatoes from Rs 40 to Rs 400 per kg during October-November 2019, sources stated that provincial law needs to be upgraded. After the 18th Constitutional Amendment, the powers to regulate and monitor prices rest with the provincial governments; and hence recommendations were made to the provincial governments through a ‘policy note’ by the CCP. At the provincial level there are different laws with regard to essential commodities, food stuffs, agriculture produce markets and godowns registration and different departments are dealing with them.

The CCP sources revealed that it had recommended that all provincial laws need to be upgraded and consolidated under one law, keeping in view the current conditions, with a clear responsibility for implementation under a single authority.

The CCP has taken action against the sugar cartel in the past. In October 2009, the CCP conducted an enquiry and raided the offices of Pakistan Sugar Mills Association, where it impounded evidence of cartelization.

After enquiry, the CCP bench concluded that PSMA was involved in collusive practices, and it suggested maximum penalty on the association for violating the competition law. However, the operation of the order was restrained by the Sindh High Court where PSMA had challenged the CCP’s enquiry.

In 2012, the CCP issued a policy note that the Punjab government should lift ban on the establishment and enhancement/expansion of existing sugar mills in Punjab. A CCP’s opinion in 2018 called for more competition in the sugar industry, review of the legislative framework, opening up the sector for more competition, and bringing efficiency on part of the millers.

Copyright Business Recorder, 2020



By MUSHTAQ GHUMMAN on February 14, 2020

Competition Commission of Pakistan (CCP) is likely to issue show cause notices to fertilizer companies for not providing required information as per the law, well-informed sources told Business Recorder.

The government had directed CCP to conduct cost audit of fertilizer companies as prices were not being revised down despite availability of cheaper gas.

The issue of fertilizer prices came under scrutiny in the last two consecutive meetings of the federal cabinet wherein most of the cabinet members criticised the fertilizer companies for not reducing urea price. Prime Minister Adviser on Commerce, Industries and Production and Investment, Abdul Razak Dawood also came under fire for not implementing the Cabinet decision.

In one of the meetings, Minister for Planning, Development and Special Initiative, who served M/s Engro as CEO criticised the company for not passing on the impact of reduction in GIDC.

On January 28, 2020, the Cabinet directed Industries and Production to ensure that the benefit of the reduction of GIDC on gas consumed by the fertilizer manufactures is passed onto the farmers without delay.

Prime Minister Imran Khan viewed with concern the failure of CCP to effectively play its roles in checking collusive practices. The members of the Cabinet inquired as to when would the impact of reduction of GIDC on gas consumed by fertilizer industry translate into lowering of fertilizer prices. Special Assistant to the Prime Minister on Petroleum, Nadeem Babar stated that necessary notification of GIDC reduction has been issued.

It was explained that the rate of GIDC has been reduced to Rs 5/MMBTU which should lower the price of urea by Rs 400 per bag. It was also noted that while FFC, the major shareholder in the fertilizer sector, had agreed to decrease the prices, Fatima Fertilizer and Engro Fertilizers did not agree to reduce the prices of their urea since GIDC is not chargeable on their new plants.

On February 1, 2020, M/s Engro also announced to reduce prices of urea by Rs 160 per bag despite the fact that the company is exempted from GIDC under 2011 policy.

The sources said, CCP is also conducting cost audit of fertilizer companies as they are earning billions per annum but the companies are not providing requisite information and now the Commission is expected to issue an Order 36 to seek information and in case the fertilizer companies avoid sharing information, CCP can initiate legal action against them.

Copyright Business Recorder, 2020




By ​ Our Correspondent Published: February 5, 2020

KARACHI: Engro Polymer and Chemicals Limited (EPCL) reported a 25% dip in profits for the year 2019 to Rs3.7 billion against Rs4.9 billion recorded in the previous year.

Earnings per share (EPS) of the company stood at Rs4.07 in 2019 compared to Rs6.21 in 2018. The company announced a cash dividend for the year ended December 31, at Rs0.20 per share that is 2%, which is in addition to interim cash dividend already paid at Rs0.60 per share that is 6%.

Topline Research Director Atif Zafar said that the company’s bottom-line was on a downward trajectory but its profitability outlook is better as their profit margins are on the higher side. Last year, the company had higher earnings due to some reduction tax while this year it has paid relatively higher taxes.

The net revenue of the company clocked-in at Rs37.8 billion in 2019 against Rs35.3 billion in the same period of the previous year. The company recorded a gross profit of Rs8 billion in 2019, up 5.3%, compared to RS 7.6 billion in 2018.

Essentially, in the third quarter of 2019, the company declared a decline in profits in order to meet the International Financial Reporting Standards (IFRS). The company re-evaluated its assets and liabilities under IFRS regulations.

“If we look at the core operations of the company, it has performed well,” said Zafar.

Finance cost surged massively to Rs1.8 billion in the period under review from Rs605 million in the corresponding period.

Recently, PVC price in the international market declined which could have affected the profitability of the company but the analyst said that ethylene’s – raw material for PVC – price decreased so the company’s profits were not affected. Engro Polymer’s plant expansion plan of PVC plant of 100,000 MT is going to be completed by the end of this year, according to an industry source. The new capacity will reach more than 290,000 MT.

Published in The Express Tribune, February 5th, 2020.