Key Takeaways
- Engro Fertilizers expects strong seasonal demand to reduce elevated urea inventories.
- The company has no plans to offer price discounts despite higher stock levels.
- Urea sales rose by 18 percent in the second quarter of 2026.
Engro Fertilizers (PSX: EFERT) is maintaining its stance on urea prices, expecting strong seasonal demand to reduce elevated inventories during the second half of 2026. The company's corporate briefing session for Q2 2026 indicated that despite higher stock levels compared to a year earlier, it has no plans to offer price discounts.
Engro Fertilizers attributes this decision to favorable farmer economics and healthy crop conditions, which are expected to improve demand. The company is positioning itself to regain market share while maintaining a Rs. 150 per bag premium over competitors. This pricing strategy aims to clear inventories through higher sales volumes without reducing prices.
Industry urea sales rose by 7 percent during the first half of 2026 and by 18 percent in the second quarter, supported by favorable farmer economics. However, Engro Fertilizers' own market share declined due to planned pricing actions taken to offset higher gas costs. The company remains optimistic about stronger demand in the second half with its existing inventory.
Engro Fertilizers reported first-half revenue of Rs. 70.9 billion, down 12 percent year over year, while net profit fell by 16 percent to Rs. 7.1 billion as lower fertilizer sales offset pricing gains. The company maintained a gross margin of around 33 percent despite weaker volumes and declared a second interim cash dividend of Rs. 1.75 per share, taking the total first-half payout to Rs. 3.75 per share.
The company's inventory levels stood at 719,000 tons of urea at the end of Q2, up from 562,000 tons a year earlier, while DAP inventory increased to 53,000 tons from 23,000 tons. Management attributed higher inventory levels to elevated fertilizer prices and expects DAP demand to remain subdued due to high international sulphur prices.
Engro Fertilizers is currently sourcing DAP from Morocco and is in discussions for a direct gas supply agreement with Mari Petroleum after the expiry of its SNGPL contract in 2027. The company added that any progress on the government's gas pricing uniformity policy would be shared as developments emerge.
Despite lower revenue, Engro Fertilizers expects higher debt levels to normalize by the end of 2026 as post Rabi season sales improve cash flows and reduce outstanding borrowings. The company also recorded a one-time gain of Rs. 1.8 billion during the second quarter related to the Sindh Infrastructure Development Cess.
