The profitability of Pakistan’s fertilizer sector is expected to decline by 16% year-on-year in the first quarter of calendar year 2025 (1QCY25), largely due to a sharp fall in product offtakes. According to a report by AKD Research, the sector’s performance was weighed down by weak demand across key nutrients, with urea sales dropping 40%, DAP falling 48%, CAN down 21%, and NP decreasing by 29% compared to the same period last year.
The drop in offtakes is attributed to two main factors: advance buying in December 2024 spurred by seasonal discounts and interest-free loans under the Punjab Kisan Scheme, and a delayed procurement cycle for the Kharif season.
While gross margins across the sector improved due to the absence of high-cost imported urea, this was not sufficient to counterbalance the revenue decline. Net profit after tax for the AKD Fertilizer Universe is projected at PkR 25.97 billion, compared to PkR 30.98 billion in 1QCY24.
Fauji Fertilizer Company (FFC) is expected to lead the sector with a 46% year-on-year jump in earnings, reaching PkR 15.3 billion (EPS: PkR 10.8), up from PkR 10.5 billion (EPS: PkR 7.4) a year earlier.
The increase is also reflected on a sequential basis, with earnings rising 8% from the previous quarter. FFC’s performance is being bolstered by a 5x increase in DAP offtakes following its merger with FFBL, and by a significant improvement in gross margins to 35.9% from 29.6% in the same period last year.
The company’s other income is projected to grow 17% year-on-year, while finance costs may rise 35% to PkR 2 billion due to higher borrowings. An interim dividend of PkR 8.0 per share is expected, marking a 63% increase over last year’s payout.
In contrast, Engro Fertilizers (EFERT) is projected to post a steep 65% year-on-year decline in earnings, falling to PkR 2.7 billion (EPS: PkR 2.1) from PkR 7.8 billion (EPS: PkR 5.8) in the same period last year.
The decline is even more severe on a quarterly basis, with earnings plunging 73%. EFERT’s revenue is expected to fall by 60%, driven by a 58% drop in urea sales and a 71% decline in DAP offtakes. Despite an improvement in gross margins to 29.3% from 23.3%, other income is forecast to drop by 85%, while finance costs are expected to jump more than eightfold.
This increase is attributed to higher working capital needs, a build-up in inventory, and capital expenditure related to the company’s Pressure Enhancement Facility. EFERT is expected to announce a dividend of PkR 2.0 per share, representing a 75% drop from last year.
Fatima Fertilizer’s earnings are expected to contract more moderately, falling 6% year-on-year to PkR 7.9 billion (EPS: PkR 3.8) from PkR 8.4 billion (EPS: PkR 4.0) in the same period of 2024.
However, sequentially, the earnings show a sharper 42% decline. The company experienced a 10% drop in urea sales, a 21% decline in CAN, and a 23% fall in NP offtakes. Overall revenue is projected to fall 22%, while gross margins are expected to decrease to 35.6% from 41.5%.
This margin compression is attributed to a lower contribution from the company’s base plant, which benefits from lower gas prices. Fatima is not expected to declare any dividend for the quarter, following a payout of PkR 4.3 per share in the previous quarter.
While FFC is set to lead the sector in dividend distribution, EFERT’s payout is forecast to be significantly lower, and Fatima is unlikely to announce any dividend. Overall, the sector’s dividend payout is expected to decline by 20% year-on-year due to EFERT’s sharp earnings contraction.
Despite the weak quarter, AKD maintains a ‘BUY’ rating on all four major fertilizer stocks—FFC, EFERT, FATIMA, and ENGROH. FFC carries a December 2025 target price of PkR 583 per share, EFERT at PkR 242, FATIMA at PkR 103, and ENGROH at PkR 301. The brokerage expects a recovery in offtakes in the coming quarters, with improved fundamentals likely to restore investor confidence in the medium term.
Sector-wide, gross margins are projected at 34.4%, up from 28.9% a year ago, despite a sharp revenue contraction from PkR 244.75 billion to PkR 144.18 billion. Cost of goods sold (COGS) is expected to decline 46% to PkR 94.53 billion. Operating expenses have also fallen 34%, while finance costs have risen 46%. On a sequential basis, net profits are down 32% from the previous quarter.
Although the sector is experiencing a slowdown, margin recovery and potential demand rebound provide a cautiously optimistic outlook for investors heading into the rest of the year. AKD’s ‘overweight’ stance on the sector reflects a belief that the worst may be behind for Pakistan’s fertilizer companies.
