Pakistan Fertilizer Sector Profits Likely to Fall 20% YoY in 3Q2025; Market Weight Maintained

Fertilizer manufacturers in Pakistan are expected to witness a 20% year-on-year (YoY) decline in profits during the third quarter of 2025 (3Q2025), as per Topline Securities’ latest report. The dip is attributed to lower other income and higher selling costs, though urea offtake surged significantly during the period.

Despite strong demand recovery, the fertilizer industry faced pricing pressures as manufacturers, including Engro Fertilizers (EFERT), offered discounts to maintain market share. This came amid softer urea prices and a sharp drop in dividend income from Fauji Fertilizer Company (FFC), weighing on sector profitability.

Topline’s report projects sector earnings to decline 14% quarter-on-quarter (QoQ) due to reduced other income and higher taxation compared to 2Q2025. Gross margins are expected to average 33.3% in 3Q2025, down from 35.1% a year earlier. However, on a sequential basis, margins slightly improved owing to higher urea sales.

Urea offtake rose 21% YoY to 1.85 million tons, while DAP offtake fell 19% YoY. The average urea price dropped 7% YoY to Rs4,404 per bag, while DAP prices increased 15% YoY to Rs13,453 per bag. The sector’s effective tax rate is projected at 39%, up from 37% last year.

Company-Wise Earnings Outlook (3Q2025)

“As fertilizer demand remains healthy, pricing pressures and reduced dividend flows are key profit drags this quarter,” said Asad Ali, Analyst at Topline Securities. “We maintain our Market Weight stance on the sector.”

Engro Fertilizers’ aggressive discount strategy (~Rs210 per bag) helped boost urea sales by 37% QoQ, while FFC’s lower dividend income curtailed earnings. Sector finance costs also eased by 4% YoY, supported by declining borrowing levels.

Despite near-term margin pressures, the fertilizer sector continues to benefit from strong agricultural demand, government support, and rising DAP prices. Analysts expect recovery in coming quarters, particularly if urea pricing stabilizes and global input costs ease.