Engro Fertilizers unveils digital expansion amid market challenges

Engro Fertilizers Limited (EFERT) outlined its digital transformation and market strategy in its latest corporate briefing session, held following the release of its fourth-quarter 2024 (4Q2024) financial results. While the company reported strong sales, profitability took a hit due to rising costs and aggressive discounting.

AI-enabled Expansion and Retail Growth

In a bid to modernize its supply chain, EFERT launched a digital platform, ugAi, which provides farmers with AI-enabled services to book inventory directly from the company at standardized rates. Currently operational in Sindh, the company plans to expand ugAi to other provinces. Additionally, EFERT inaugurated four retail stores branded Engro Markaz in the last quarter of 2024 to ensure smoother product distribution.

Operational Developments and Regulatory Challenges

The company is progressing on its pressure enhancement facility at Mari Gas Field, with 90% of phase one completed and expected to wrap up by the second quarter of 2025 (2Q2025). Work on phase two has also commenced, with completion slated for the end of 2025. EFERT’s share of the capital expenditure (CapEx) stands at $100 million, with 20% allocated to phase one and 80% for phase two.

Meanwhile, EFERT remains in discussions with the government regarding gas pricing disparities. Recent regulatory changes increased gas prices from PKR 580 per million British thermal units (MMBTU) to PKR 1,597 per MMBTU for companies reliant on Sui Northern Gas Pipelines Limited (SNGPL). However, competitors such as Fauji Fertilizer Company (FFC) and Fatima Fertilizer continue to receive gas at a lower rate, creating an uneven competitive landscape.

Market Performance and Strategy Shifts

Despite efforts to enhance accessibility, EFERT’s urea market share declined by 4% to 31% in 2024, largely due to a 13% decline in urea sales. This drop was attributed to EFERT’s urea prices being PKR 200 per bag higher than competitors. In response, the company introduced a PKR 100 per bag discount in the fourth quarter to stimulate demand—a measure that was phased out starting January 2025.

Conversely, EFERT’s diammonium phosphate (DAP) market share improved slightly, rising to 19% in 2024 from 18% in 2023. The management also reaffirmed the potential of its premium product, Zabardast Urea, despite weaker farm economics limiting its sales in 2024.

Financial Performance: Sales Surge, Earnings Pressured

For the fourth quarter of 2024, EFERT posted a profit of PKR 10.2 billion, bringing full-year earnings to PKR 28.2 billion—an 8% increase from PKR 26.1 billion in 2023. The company announced a cash dividend of PKR 8 per share for the quarter, bringing total dividend payouts for the year to PKR 21.5 per share, exceeding its net earnings.

Despite higher sales volumes, profitability was squeezed by soaring selling and distribution expenses, which surged to PKR 9.8 billion in 4Q2024, an increase of 102% compared to the same period last year. This increase was driven by elevated urea offtakes and a one-time discount of PKR 140 per bag. While this strategy successfully reduced inventory, it weighed on margins, with the gross margin for 4Q2024 slipping to 35% from 38.7% in the same period last year. Full-year margins also declined to 28% in 2024 from 32% in 2023.

Looking ahead, EFERT management does not foresee major operational disruptions in 2025 beyond routine maintenance. The company aims to leverage its digital initiatives and retail expansions to stabilize its market position while stakeholders closely monitor its ability to sustain profitability in a challenging regulatory environment.