AKD Quotidian about – Apr’13 Fertilizer off take update

Karachi, May 28, 2013 (PPI-OT): Official statistics released by the National Fertilizer Development Centre (NFDC) depict a strong growth of 23%YoY and 32%YoY in urea and DAP off take in 4MCYI3 to 1.66mn tons 193k tons respectively.

According to AKD Securities higher urea demand as a result of better crop prices resulted in significant growth for local players, particularly ENGRO (+217%YoY to 348k tons) and FFBL (+202%YoY to 81k tons) while imported urea accounted for 22% of total market share. DAP off take during the period was spurred by higher availability as a result of increased gas supply to FFBL. In Apr’13, FFC outshined peers with urea production at a 2-year high of 213k tons.

Sequentially, continued harvesting kept fertilizer demand subdued during the month while a seasonal uptick going forward should result in revived sales, in AKD Securities views. Moreover, with favourable DAP dynamics and stability in urea prices going forward, AKD Securities views any regulatory developments viz gas supply and thrifts amid impending energy sector reforms to drive sentiment in the fertilizer sector. ENGRO remains AKD Securities tops pick in the sector with a TP of PkR2O8/share while AKD Securities highlights a downtrend in phosacid prices to result in robust bottom-line growth for FFBL going forward.

4MCYIZ review: Urea off take during 4MCY13 witnessed a strong growth of 23%YoY to 1 .6Gmn tons, where all local players recorded sizable volumetric growth amid stable prices and enhanced gas supply. DAP off take also witnessed a sizable of flake growth of 32%YoY to 193k tons, depicting a revival in agriculture dynamics after a relatively dismal CY12. On a sequential basis, however, off take of urea and DAP remained subdued Largely due to continued harvesting of major crops where a seasonal uptick from Jun13 onwards should result in revived sales, in AKD Securities views.

On the supply side, urea production was down by 6%MoM during Apr’13 where ENGRO and FFBL recorded the highest decline while FFCs production hit a 2-year high of 213k tons. On the flip side, dwindling urea imports led NFML’s market share during 4MCYI3 to record at 22%, a hefty decline of 30ppt YoY.

Energy sector reforms: The incoming governments resolve to improve the country’s energy situation has raised concerns over an otherwise positive outlook for the fertilizer sector, which accounts for -17% of the country’s natural gas consumption. In this regard, while AKD Securities attaches low probability to further gas curtailment to fertilizer plants in the near-term, any rationalization of tariffs will likely result in margin contraction for selected manufacturers.

That said, with fiscal constraints restricting an influx of imported urea, favourable phosphate dynamics and strong projected demand, AKD Securities believes the positives outweigh any potential negative triggers, at the moment.

Investment Perspective: ENGRO remains AKD Securities tops pick in the sector with a target price of PkR2O8/share providing a strong upside of 44%. Moreover, AKD Securities expects investor interest to continue in FFBL where the downward revision in 2QCY1 2 phosacid contract price has cemented a continued positive outlook on DAP-phosacid PMs, despite gas supply concerns clouding a stellar CY1 3 outlook for the company. At current level, FFBL provides an attractive CY1 3F D/Y of 14%.

Leave a Reply