Engro Fertilizers, the Corporation’s highest profit making unit for many years, reported a loss for the second consecutive quarter on Friday due to lower sales.
The local giant’s subsidiary incurred a loss of Rs1.7 billion in the first half of 2012 compared with a profit of Rs2.2 billion in the same period a year ago, according to a statement released on its website.
Sui Northern Gas Pipelines-based fertiliser plants, both Engro and Dawood Hercules Fertilizers received gas for only 33 days of operations in the first six months of 2012.
The company’s urea sales fell 30% to 397,000 tons on a yearly basis due to gas supply issues, said BMA Capital analyst Farid Aliani. However, due to higher prices, the company’s revenue rose by 5% to Rs12.8 billion.
Although the government is bound to provide Enven with 100 million cubic feet per day (mmcfd) of gas through Sui Northern Gas Pipelines Limited (SNGPL), it has been diverting gas supplies to other sectors of the industry, which has led to recurring gas suspension for the fertiliser plant.
To resolve the issue, Engro has prepared a detailed proposal for the government that calls for an alternative non-network gas solution to end Enven’s gas curtailment problem.
Due to a new tax namely gas cess imposed on Engro’s old plant since January, the company’s gross margins plummeted by 19.76% to 35% in during the period under review, added Aliani.
Local fertiliser manufacturers came second best to their imported counterparts during the period under review as price of imported fertiliser stood much lower due to the partial payment made by the government for them in the form of subsidies.
Urea prices remained volatile in April to June 2012 as strategic decision to announce a price cut for May along with an announcement of reversal of Rs50 per bag in June helped the company the industry become slightly competitive in the local market. In the latest move, Fauji Fertilizer Company slashed urea prices by Rs70 to Rs1,650 per bag on Friday. Other companies are expected to follow suit and decrease prices.
Hefty financial charges, up by 132% on a yearly basis, primarily related to the new plant, dented the bottom-line by Rs5.7 billion. Since the new plant stayed shut for five out of six months financial charges could not be supplemented by top-line growth, pushing the company into losses.
Fauji Fertilizer Bin Qasim – another manufacturer on the Sui network profits announced earlier in the month plummeted 82% to Rs644 million in January to June 2012 compared with Rs3.5 billion in the same period a year ago. It’s sister firm Fauji Fertilizer Company was not hurt as the rest as its supplied gas on the Mari network and saw its net profit jump 26% to Rs10.34 billion in January to June 2012.
Published in The Express Tribune, August 11th, 2012.