EnVen resumes production after $50m overhaul

Analyst says no link between plant's return and govt's decision to import urea

KARACHI:

Pakistan's largest fertiliser manufacturing plant, Engro's EnVen, has resumed production after a 55-day turnaround costing $50 million, coinciding with the ongoing wheat sowing season. The plant, with an installed production capacity of 1.3 million tonnes, returns to operation, but this will not offset the expensive import of urea as the government has approved importing 100,000 tonnes to maintain stocks during the winter crop production season.

Speaking to The Express Tribune after a corporate briefing held by Engro Corporation, Optimus Capital Management's (OCM) analyst, Areeba Nasir, stated that there is no link between EnVen's return to production and the government's decision to import urea. Engro Fertiliser is also initiating a project to enhance gas production at a Mari field to sustain gas pressure necessary for chemical production.

The Pressure Enhancement Project (PEF), estimated at $300 million, aims to ensure a sustainable gas supply for Engro Fertiliser, Fatima Fertiliser (FATIMA), and Fauji Fertiliser Company (FFC) over the next five years, said Nasir. The lengthy overhaul of EnVen led to lower production and sales for the company in the second quarter of 2024, ending June 30, 2024, consequently reducing its profit margins.

The turnaround at the EnVen plant was successfully completed at a cost of approximately $50 million, with 30-40% allocated to operating expenditure and the remainder to capital expenditure (CAPEX). No further turnarounds are anticipated for the base plant. The management disclosed that the PEF's total cost is $300 million, with Phase-I 85% completed and the remaining expected by December 2024. Procurement of compressors for Phase-II is in progress, she added.

Due to gas price disparities, 60% of the fertiliser sector is paying a higher rate of Rs1,597/MMBTU, while the remaining 40%, including FFC and FATIMA, receive gas at a discounted rate. Discussions for gas price unification are ongoing, but no concrete decision has been made.

As of the June-24 quarter, local urea traded at a 28% discount to international urea. The landed cost of international urea was estimated at Rs6,298/bag, while the local dealer transfer price was Rs4,549/bag.

During the second quarter of 2024, gross margins declined to 18%, down from 30% in the same quarter the previous year and down 5 percentage points from the previous quarter. The management attributed the contracted gross margins primarily to reduced production due to the EnVen Plant turnaround and lower offtakes resulting from poor farm economics. Additionally, a decline in DAP prices at the end of the quarter led to lower DAP margins compared to the first quarter of 2024.

Topline Research's analyst, Tanweer Ahmed, noted that Engro Fertiliser management sees potential in their premium product, zinc urea, and plans to invest further in it. The company sold its logistics business during the year, which had minimal impact on earnings.

The company's production in the second quarter of 2024 was 361,000 tonnes, compared to 539,000 tonnes in the same quarter of 2023, a decrease of 33% due to the EnVen plant turnaround. The company's market share in urea declined by 8% to 26% in the quarter compared to 36% in the previous quarter. However, DAP market share improved by 3% to 17% in the second quarter compared to 14% in the first quarter of 2024.

The company posted consolidated quarterly profits of Rs1.7 billion (Earnings Per Share: Rs1.25) in the second quarter, up 57% year-on-year but down 79% quarter-on-quarter.