Agritech Limited

Agritech Limited (PSX: AGL) was incorporated in Pakistan in 1959 as Pak-American Fertilizers Limited. The company is engaged in the production and sale of urea and granulated single super phosphate fertilizer. The company’s products are sold under the brand name “Tara” in the fertilizer market.

Pattern of Shareholding

As of December 31, 2022, the company has a total of 392.430 million shares outstanding which are held by 3113 shareholders. The parent company of AGL holds 46.02 percent shares to become the largest shareholder. This is followed by general public holding 20.39 percent shares of AGL. Banks, DFIs and NBFIs have a stake of 18.92 percent in the company. Joint stock companies have a stake of 7.73 percent in AGL while investment companies account for 3.09 percent of the outstanding shares. NIT and ICP hold 1.02 percent shares of AGL. The remaining shares are held by other categories of shareholders having an under 1 percent stake in the company.

Historical Performance (2018-22)

Except for a drop in 2020, the topline of AGL is showing staggering growth in all the years under consideration. Despite that, the company is unable to post net profit in any of the year. In fact, in 2018 and 2020, the company was not able to post gross profit. Moreover, AGL posted operating profit only in 2019 and 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, AGL’s topline boasted a tremendous 169 percent year-on-year growth. The growth was an industry-wide phenomenon due to robust return on major crops which increased the purchasing power of farmers. The fertilizer production across the industry also grew by 10 percent during the year due to better gas supply. During 2019, AGL produced 338 KT of Urea which is 2.5 times of the production volume achieved by the company in 2018. The sales volume also grew from 101KT in 2018 to 320KT in 2019, registering a 2.16 times growth. The cost of sales also grew by 117 percent due to steep rise in the prices of raw and packing material as well as fuel and power. Yet, AGL was able to post a gross profit of Rs.1573.07 million in 2019 as against the gross loss of Rs.342.34 million in 2018. GP ratio for 2019 stood at 12.9 percent. High freight charges pushed the distribution cost up by 208 percent in 2019. Admin expense grew reasonably by 34 percent in 2019 which largely signifies market induced rise in salaries and wages, travelling and conveyance as well as utility charges. Other expense nosedived by around 100 percent during 2019 due to lesser provision against doubtful receivables. Conversely, other income multiplied by over 43 times in 2019 due to reversal of Late payment surcharge (LPS) and present value adjustment of GIDC in 2019. This greatly buttressed the operating results of AGL in 2019 and the company posted an operating profit of Rs.2329.41 million in 2019 as against an operating loss of Rs.1057.09 million in 2018. OP margin for 2019 hovered around 19 percent. However, the joy appeared to be momentary as 28 percent year-on-year hike in finance cost didn’t allow the impressive operating performance to cascade down, resulting in a net loss of Rs.652.78 million in 2019. The net loss, however, shrank by 80 percent. Loss per share stood at Rs.1.66 in 2019 as against Rs.8.52 in 2018. It is to be noted that AGL has a huge debt-to-equity ratio of 5.4 times as of December, 31, 2019, hence finance cost stands at 27 percent of its topline in 2019.

In 2020, the topline slid by 53 percent year-on-year. While COVID related lockdowns has had a great impact on urea off-take in 2020, another significant phenomenon which produced an industry-wide decline in urea off-take during 2020 was market price distortion as the government abolished GIDC for the fertilizer sector that resulted in price cuts by various producers. Moreover, cotton crop immensely declined during 2020, affecting farmers spending pattern. AGL sold 139 KT of Urea in 2020 which is around 57 percent lower than the last year’s volumes. As the plant remained operational for only 123 days in 2020; the cost of sales plunged by 35 percent year-on-year in 2020. However, low volume and reduced price resulted in a gross loss of Rs.1172.72 million in 2020. Lesser off-take also meant lesser freight charges which pushed the distribution expense down by 58 percent year-on-year in 2020. Admin expense inched up by 9 percent on account of higher legal and professional charges. Other expense and other income didn’t prove to be favorable during the year. Other income grew by 249 percent on account of higher provisioning against doubtful advances. Other income dwindled by 88 percent year-on-year in 2020 as the PV adjustment of GIDC and reversal of LPS was no longer available in 2020. AGL posted an operating loss of Rs.1541.38 million in 2020. Finance cost ticked down by 11 percent year-on-year and stood at 52 percent of the topline. This was due to low discount rate. Debt-to-equity ratio of AGL has mounted to 9.4 times as the equity is declining on the back of higher accumulated losses. The net loss surged by 558 percent to clock in at Rs.4296.90 million in 2020 with a loss per share of Rs.10.95.

In 2021, the topline of AGL again recovered and posted an uptick of 77 percent. Increase in the support price of wheat crop triggered strong urea demand. Moreover, the introduction of hybrid seed varieties of rice and maize that had higher urea requirement per acre also resulted in a boost in urea sales across the industry. This coupled with uninterrupted gas supply also facilitated the fertilizer sector to operate at an optimum level and meet the growing demand. AGL sold 230 KT of urea in 2021 which was 65 percent higher than the last year’s sales volume. Higher prices of raw and packaging material as well as greater capacity utilization of 206 days resulted in cost of sales growing by 41 percent year-on-year in 2021. Yet, AGL was able to post a gross profit of Rs.409.52 million in 2021 with a GP margin of 4.1 percent. Distribution cost ascended by 58 percent year-on-year in 2021 on account of higher freight charges. Admin expense magnified by 14 percent on the back of inflation which particularly pushed up the salaries and wages expense, IT consultancy charges as well as legal and professional fee. Other expense shrank by 92 percent during 2021 as no provision against doubtful receivables is booked during the year. Other income also plummeted by 45 percent in 2021 due to lesser liabilities written back as well as lesser profit on P&L bank balance. AGL posted an operating loss of Rs.212.48 million in 2021 which was 86 percent lower than the last year’s figure. Finance cost ticked down by 5 percent year-on-year in 2021 and stood at 28 percent of its topline due to low discount rate. Debt-to-equity ratio further climbed to 16.9 times in 2021 due to loss accumulation which ate up AGL’s equity. The net loss of Rs.2681.24 reported in 2021 was 38 percent less than the net loss posted in 2021. AGL’s loss per share stood at Rs.6.83 in 2021.

The topline continued its growth journey with a 77 percent escalation in 2022. This was on the back of better farm economics that boosted the industry wide sales to an unprecedented level of 6616 KT in 2022. AGL touts 2022 as the best year since 2010 due to better gas supply which enabled it to operate for the longest period of 351 days. The company was able to sell 351 KT urea in 2022, 53 percent higher than 2021. The cost of sales inclined by 57 percent year-on-year in 2022, yet gross profit mounted by 418 percent in 2022 with a GP margin of 12.3 percent. Higher sales volume resulted in an 81 percent surge in distribution expense in 2022. Increase in advertisement budget was also one of the factors which pushed the distribution expense up. Admin expense also grew by 30 percent due to higher salaries, travelling and conveyance expense, utilities as well as fee and subscription. Other expense enlarged by around 82 times due to loss on the disposal of property, plant and equipment. Other income didn’t post any significant rise during 2022. After two successive years, AGL posted an operating profit of Rs.1068.99 million in 2022. However, radical increase of 53 percent in AGL’s finance cost on the back of record high discount rate coupled with increased borrowings, resulted in a net loss of Rs.2953.33 million in 2022 with a loss per share of Rs.7.53. In 2022, debt-to-equity ratio slid to 5.8 times as equity grew on account of surplus on the revaluation of property, plant and equipment.

Recent Performance (1QCY23)

AGL’s net sales dropped by 74 percent in 1QCY23 on the back of curtailment of gas supply to the fertilizer sector. On the demand front, devastating floods affected the output of Rabi crop in Sindh which resulted in tamed demand from that region. The company sold mere 5 KT during 1QCY23 as against 87 KT during the same period last year. Despite a plunge in the cost of sales, AGL posted a gross loss of Rs.551.27 million during the period under review as against the gross profit of Rs.86.95 million in 1QCY22. Distribution cost shrank on account of lesser sales while administrative expense posted a 35 percent year-on-year hike in 1QCY23. Other income also slipped by 57 percent during the period. Consequently, operating loss magnified by 459 percent in 1QCY23. Finance cost showed no respite and grew by 53 percent year-on-year in 1QCY23 which inflated the net loss by 107 percent to clock in at Rs.1912.86 million with a loss per share of Rs.4.87 as against Rs.2.36 during 1QCY22.

Future Outlook

The demand outlook for the urea sector is strong on the back of better returns to the farmers on all the major crops. Conversion to hybrid seed varieties will also provide growth impetus to the urea demand. Significant depreciation of Pak Rupee has rendered the urea imports nearly impossible which is also a good omen for the local urea producers. However, gas curtailment appears to be the biggest concern for AGL which rendered the company incapable of servicing its debt in the past years too. The piling up of accrued markup is further increasing the debt burden of the company. The company is in the process of undertaking a rehabilitation scheme by issuing preference shares and restructures its overdue long-term debt. However, the future performance of the company will be contingent upon the restoration of gas supplies.