Fertilizer Profits May Drop 32% YoY in 1Q2025: Topline

Staff Report

Topline Research has expected the earnings of the Topline Fertilizer universe to decrease by 32% YoY and 55% QoQ in 1Q2025, mainly due to a decline in Urea and DAP offtakes amid weak farm economics and water shortage.

Urea offtake is expected to drop by 40% YoY and 45% QoQ to 1.1mn tons in 1Q2025. Similarly, DAP offtakes are expected to decline by 50% YoY and 79% QoQ to 144k tons in 1Q2025.Sazgar Engineering Expected Earnings

Average Urea prices during 1Q2025 are expected to fall by 4% YoY and 1% QoQ to Rs4,520 per bag, as Engro Fertilizers announced a discount of Rs100/bag during the quarter to capture market share. Likewise, DAP prices have decreased by 4% YoY and increased by 1% QoQ to average around Rs12,038 per bag.

Gross margins for the sector are expected to settle at 32.74% in 1Q2025, compared to 24.21% in 1Q2024 and 28.14% in 4Q2024. The increase in gross margins is attributed to the absence of imported urea and one-off adjustments made during the merger of FFBL with FFC.

The sector’s finance cost in 1Q2025 is expected to rise by 16% YoY but fall by 18% QoQ to Rs3.1bn, mainly due to increased borrowings on a YoY basis.

The effective tax rate for the sector is projected to be 39% in 1Q2025, compared to 41% in 1Q2024. In absolute terms, the sector’s tax expense is expected to total Rs9.7bn in 1Q2025.

We maintain our Market-Weight stance on the Pakistan Fertilizer sector.

Engro Fertilizers (EFERT):
EFERT is expected to report consolidated earnings of Rs1.33/share, down 77% YoY in 1Q2025 compared to Rs5.72/share in 1Q2024. The decline in earnings is attributed to a 58%/71% YoY drop in Urea and DAP offtakes. Gross margins are projected to reach around 29.5% in 1Q2025, compared to 23.3% in 1Q2024, due to the absence of costly imported urea and no change in gas prices during the quarter.

Sequentially, we expect earnings to drop by 85% QoQ due to a significant downturn in Urea and DAP offtakes by 63% and 78%. However, on a QoQ basis, gross margins are likely to decline by 540 basis points, as the company continues the Rs100/bag discount during 1Q2025.

Along with the results, we expect the company to announce the first interim cash dividend of Rs1.3/share.

Fauji Fertilizer Company (FFC):
FFC is expected to report unconsolidated earnings of Rs9.46/share, down 9% YoY in 1Q2025, amid a 34%/53% YoY decline in Urea/DAP offtakes. The company’s finance cost is projected to reach Rs2.08bn in 1Q2025, down 17% YoY due to lower interest rates.

On a QoQ basis, we anticipate earnings to decrease by 39%, due to a 36%/77% decrease in Urea/DAP offtakes, along with an 8% QoQ decline in other income, owing to the absence of dividend income from associates and subsidiaries. Gross margins are expected to reach 34.2% in 1Q2025, compared to 25.4% in 4Q2024, following some one-off adjustments made in the aftermath of the FFBL merger.

Along with the results, we expect the company to announce a cash dividend of Rs7.5/share in 1Q2025.