Tag Archives: Arif Habib

Morning Call about – Fertilizer profits down 41% in CY12, better CY13 expected! – Arif Habib Limited

Karachi, March 05, 2013 (PPI-OT): Though  an  awful  year  for  the  fertilizer  sector  came  to  an  end,  clouds  of  uncertainties still roam around the sector.

According to Arif Habib Limited  among many issues, with respect to the  fertilizer sector, gas remains on top. Companies on SNGPL’s network suffered the  most, with complete gas shutdown for almost 290 days. However, safe bet can be  made on the companies operating on the MARI’s network. Arif Habib Limited has done a yearly  financial performance analysis 2012 of Arif Habib Limited fertilizers universe.

Total  urea  off take  for  CY12  turned  down  12%  YoY  to  stand  at  5.2mn  tons,  however, Arif Habib Limited fertilizers sample’s sales rose 7% YoY. These incremental sales were  mainly on account of higher urea prices (+17% YoY in CY12) during the year. On  the other hand, gross margins of the sample plunged a massive 1300bps during  the year, from 50% in CY11 to 37% in CY12. This decline in gross margins was  mainly due to upsurge in feed stock and fuel stock prices by massive 207% YoY  and 17% YoY, respectively. This decline in gross margins translates net margins in  to 15% in CY12, from a high of 27% in CY11.

Arif Habib Research Fertilizer Universe (FFC, FFBL and ENGRO)

Financial Highlights(PKR mn) CY12 CY11 YoY
Total Off take (k tons)

5,237

5,918

-12%

Net Sales

152,860

142,442

7%

Gross Profit

57,320

71,197

-19%

GP Margin

37%

50%

Other Income

5,692

9,444

-40%

Finance Cost

13,524

9,518

42%

Profit before tax

33,538

56,212

-40%

Profit after tax

22,243

37,847

-41%

Net margins

15%

27%

Source Company Financials, Arif Habib Research

Better earnings in 4Q, supporting CY12 earnings

As  the  commencement  of  Rabi  season  in  the  last  quarter,  along  with  expected  increase in gas prices from Jan-13, urea off take during 4QCY12 was boosted up  by 55% QoQ (in the expectation of increase in urea prices as seen in Jun-12).

Company-wise profitability analysis 2012

FFC remained the top pick in Arif Habib Limited  fertilizers sector sample, as its off take remained  intact  at  2.4mn  tons  in  comparison  with  the  last  year.  FFC’s  bottom-line  was  marginally down 7% YoY to PKR 20.84bn in CY12.

On the other hand, FFBL faced complete shutdown of gas in 1QCY12, leading to  gross loss during the quarter. However, FFBL’s profitability jumped back, primarily  due to prospering primary margins on DAP (increase in local prices while decrease  in int’l prices). FFBL’s bottom-line plunged 60% YoY to 4.3bn in CY12; the reduction  was mainly due to the lower sale and production of urea.

ENGRO  was  the  key  victim  of  gas  curtailment  during  CY12;  with  its  new  plant  remained  un-operational  during  1HCY12  (arrangement  was  done  in  the  2HCY12  for diversion of gas to EnVen from base plant due to annual turnaround total  urea  off take  plunged  25%  YoY  to  0.9mn  tons  while  production  was  also  contracted by 22% YoY in CY12. Engro Fertilizer recorded net loss of PKR 2.9bn in  CY12, mainly owing to gas curtailment and immense finance cost burden.

PS (PKR) 4QCY12 QoQ CY12 YoY DivCY12 DivCY11
FFC

5.54

104%

16.38

-7%

15.50

20.00

FFBL

2.36

48%

4.64

-60%

4.50

10.00

ENGRO

0.04

-103%

(2.74)

-164%

6.00

Source: Company Accounts, Arif Habib Research

Outlook and Recommendation

As  long  term  gas  plan  is  on  the  cards,  for  the  plants  operating  on  the  SNGPL  network,  the  new  ray  of  hope  would  translate  its  favourable  impact  on  fertilizer  sector in  general,  and  ENGRO in  particular.  However,  some  ambiguities  are  still  there which includes 1) final sale price of gas, which includes tolling charge and  gas  sale  price.  2)  capital  expenditure  of  laying  the  pipe-line  from  Kunnar  Pasaki  Deep  to  Qadirpur,  which  would  eventually  add  up  to  the  SNGPL  network.  The  overall situation would be clear once the GSA would be signed between ENGRO  and OGDCL.

Currently, Arif Habib Limited has a ‘Hold’ stance on the three of Arif Habib Limited samples companies. However any update on the GSA would lead us to revise the earnings estimates and price

targets of Arif Habib Limited companies.