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Analyst Briefing H1 2023

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EFERT Highlights

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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Half Yearl Profitabilit Anal sis y y y

EFERT has announced an interim dividend of PKR 3.0/share for Q2 2023. Cumulative PKR 6.50/share for H1 2023 v/s the PKR 5.50/share in H1 2022.

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12.0 9.00
7.87
8.00
10.0
7.00
8.0 6.00
5.38
5.00
6.0 4.05 4.09
4.00
3.34
4.0 3.00
2.00
2.0
1.00
7.2 4.5 10.5 5.4 5.5
0.0 0.00
H1 2019 H1 2020 H1 2021 H1 2022 H1 2023
PAT (PKR Bn) Earnings Per share
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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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Our rofitabilit throu h the uarters… p y g q

PAT PKR (Bn) 4.80 4.4 4.22 1.10 -0.98 Q2 2022 Q2 2022 Q1 2023 Q2 2023 Q2 2023 (Without Super Tax) (With Super Tax) (With Super Tax) (Without Super Tax)

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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En ro Urea Production & Sales g

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Production (KT) Sales (KT)
1,167
1,136
1,118 1,115
1,098
1,070
1,034
906 897
868
H1 2019 H1 2020 H1 2021 H1 2022 H1 2023 H1 2019 H1 2020 H1 2021 H1 2022 H1 2023
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Significant Updates

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Engro Fertilize rs Limited – Security Analyst Briefing H1 2023s Limited – 3Q 2021 BOD
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Finance Act 2023 Implications

1 Super Tax

2 Federal Excise Duty

3 Sales Tax on DAP

• ➢ The Govt through Finance Act 2023 (Act) has amended Section 4C Super Tax and enhanced the Super Tax rate to 10% from the previous 4%.

• ➢ The rate is applicable on FY 2022 and onwards.

• ➢ Through the Act 5% FED was imposed on all Fertilizers.

• ➢ The prices of all the products have been changed to reflect the imposition of FED.

• ➢The Act has also imposed 5% GST on DAP, this is applicable on both local and imported DAP.

• ➢The price of DAP has been changed to reflect the imposition of GST.

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Engro Fertilizers Limited – 9M 2021 BODSecurity Analyst Briefing H1 2023
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Urea rice increase & other u dates p p

PKR 175/bag i ncrease in Urea price (w.e.f. 1[st] July 2023)

• EFERT increased urea price by PKR 175/bag effective July 1st, 2023. (PKR 150/bag for FED and .

• PKR 25/bag dealer margin adjustment)

• As part of the Finance Act 2023, FED was imposed on all Fertilizers at the rate of 5%.

• Consequently, EFERT has started levying FED on all products in line with the industry.

Base Plant Outages

• During this quarter, the Base plant experienced a ~21-day outage due to secondary reformer maintenance.

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Industry & EFERT Business Performance

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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Urea & DAP Industry in H1 2023

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UREA - SALES' KT PHOSPHATES - SALES' KT
3,244 550
3,098
465
H1 2022 H1 2023 H1 2022 H1 2023
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Urea industry has declined by ~5%

Phosphates industry has declined by ~15%.

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01 Performance

Industr & Market Share – Urea H1 2023 y

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Industry: 3.24 MT Industry: 3.10 MT
5%
7%
3%
14%
11%
47%
46%
34% 33%
H1 2022 EFERT Fauji Fatima Agritech NFML H1 2023
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Engro Fertilize rs Limited – Security Analyst Briefing H1 2023s Limited – 3Q 2021 BOD
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Industry & Market Share – Phosphates H1 2023

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Industry: 550 KT Industry: 465 KT
4%
8%
8%
5%
70%
66%
21%
18%
H1 2022 H1 2023
EFert Fauji Fatima Private
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Support Required from Government

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Engro Fertilize rs Limited – Security Analyst Briefing H1 2023s Limited – 3Q 2021 BOD
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Support Required from Government

1 Sales Tax & Refunds

2 Subsidy Receivable

• ➢ Significant mismatch between higher input tax and lower output tax on fertilizers led to piling up of substantial sales tax refunds.

• ➢ To avoid further piling up of refunds, Government through Finance Act 2022, exempted fertilizers from sales tax effective July 01, 2022. This means that input GST now becomes a cost (previously claimable) and output GST can no longer be levied.

• ➢ The industry is facing a challenge in recovering outstanding subsidy receivable from the Government.

• ➢ Industry subsidy receivable – Rs. 19.2 Bn.

• ➢ EFERT subsidy receivable as of Jun 2023 – Rs. 6.5 Bn, outstanding since 2018 (represent gross amount before any accounting adjustment).

• ➢ The exemption has therefore resulted in increase in price of the fertilizer products.

• ➢ However, the industry is still facing challenge in recovering outstanding sales tax refunds from the Government.

• ➢ Sales tax refund for the Industry is PKR 71 Bn. as of June 2023 whereas EFERT’s share is PKR 12.2 Bn.

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Other Items For Discussion

S. No Topic 1. Fertilizer Industry’s contribution towards the Nation 2. Spend on Urea is a minor cost out of total farmer expense

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Fertilizer Industry’s contribution towards the Nation

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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International Urea Prices at a Premium of 41%

FOB Price* USD 260/T

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As of June 30, 2023

CFR Price USD 273/T

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Landed Equivalent MRP PKR 5,090/Bag

Engro Urea MRP PKR 2,994/Bag

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Domestic Discount on Urea 41%

*Data Source: CRU weekly report average ~PKR 285.04 FX rate

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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International Urea Prices at a Premium of 50% (Spot)

FOB Price* USD 322/T

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As of July 20, 2023

CFR Price USD 335/T

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Landed Equivalent MRP PKR 6,372/Bag

Engro Urea MRP PKR 3,169/Bag

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Domestic Discount on Urea 50%

*Data Source: CRU weekly report average ~PKR 283.82 FX rate

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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Fertilizer industry has shielded the farmers from international urea price rise

10,000

8,333 8,000

Urea Prices - Local & International

9,153

8,459 8,087 7,908 7,719

Even after a substantial movement in international prices, local urea is significantly cheaper

6,000

6,793

6,058 6,078 5,540 4,780

6,886 6,247 5,741

4,000

3,044 2,894 2,894 2,894

2,150 2,150 2,150 2,150 2,150 2,150 1,800 2,000

2,340 2,340 2,340

Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Spot

International urea price - Landed equivalent Local urea DTP

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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As a result, fertilizer sector has passed over 4X benefit to farmers

Farmer Benefit and Subsidy 2010 – H1 2023 (PKR Bn)

~2,300

~510

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Gas subsidy by GoP net of tax Benefit passed on by Fertilizer Industry

Gas price benefit of over 4X has been passed on to the farmers in the form of lower urea prices

Assumption: As per NFDC methodology, 25% incidentals plus other charges on CFR

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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Industry provides significant import substitution and benefit to farmers

Annualized Import Substitution enabled by Fertilizer sector based on Spot based on Spot international prices international prices ~ ~ USD PKR 2.2 420 Billion Billion*

Annualized benefit to domestic farmers based on Spot international prices

~USD 17/bag

~PKR 3,203/bag

International Spot price of USD 335/ton (CFR) assumed with expected local annual production of 6.6MT. *Delta between international price & local urea prices as of July 20[th] , 2023, multiplied by expected annual production of 6.6MT.

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Spend on Urea is a minor proportion of the total farmer expense

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Engro Fertilizers Limited – Security Analyst Briefing H1 2023
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Farm Household S end and Share of Urea p

Spend on Urea is a minor cost out of total household spend.

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Fertilizer,
Spend on 19.6%
Farm, 33% Spend on
Other Urea, 48.4%
Other
Other
fertilizers,
Spend, 67%
Inputs, 51.6%
80.4%
3.2%
33% 6.5%
of farmers
of total of total
wallet is
spend is on spend on
spent on
farm inputs fertilizers Urea
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• Spend on farm and fertilizers is taken from Farm Account Study 2016-17 by Punjab Economic Res Institute, Govt of Punjab

• • Urea share is calculated on current prices of Fertilizers and offtake from NFDC monthly reports

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Thank you

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