Efert IPO-concessionary gas may provide further upside – FS Research
By: Syed Sanakhawan,
92 21 5612290- 94 Ext 339
Foundation Securities (Pvt) Limited
We recommend investors to subscribe to Engro Fertilizer’s IPO scheduled for 16th and 17th Dec’13. Recent positive news flow suggests increased possibility of concessionary gas pricing and likely exemption of the fertilizer sector from gas price increase from Jan 1st 2014 should address concerns on margin. We value Efert at PKR29.2/sh as our base-case and see upside of 30% (TP of PKR36.9/sh) from IPO price in case Efert is given concessionary gas for its new plant.
Positive policy backdrop for fertilizer industry: We opine that fertilizer sector will receive favorable policy backdrop from the government in light of the relative importance of the sector and also from the perspective of achieving rather ambitious wheat production target of 25mn tons in Rabi season 2013/14, please refer to our report titled ‘Agriculture support policy undeterred’ dated 29th Aug’13. We reiterate our view that the govt. is taking into account farmer community’s interest suggested by increase in support price for wheat in Punjab and tentative decline in urea price if concessionary gas pricing is approved.
Increased possibility of concessionary gas pricing: We, in our report titled “Possibility of concessionary gas pricing increased; timing uncertain” dated 9th Dec’13, provided a plausible mechanism and odds of supply of concessionary gas pricing to Efert. Important stakeholders; ministry of Finance, ministry of Petroleum and lately Mari Petroleum has agreed to the scheme contingent on it being immune from financial burden. Approval from SNGPL board and OGRA is still awaited before the final decision by ECC.