By: Hassan Bin Ghafoor
Taurus Securities Limited
As per media reports, Govt. is all set to raise gas prices from Jan’15, and has decided to charge a uniform gas tariff for CPPs, commercial and industrial sectors. It is pertinent to mention that ECC in Nov-14 had approved the increase in the gas tariff but Prime Minister Nawaz Sharif refused to increase rates probably because of the sit-in politics of the PTI.
Fertilizer: Our analysis suggests that, fertilizer players will have to increase the Urea price by PKR160/bag (after GST) in order to maintain their margins at current levels. FFC & FFBL are set to fare the worst if the govt. intervenes and restricts them in passing on the cost hike like it did in Jan-14 when GIDC was raised.
FFC’s earnings are expected to go down by PKR3.45/share, while FFBL’s EPS will suffer by PKR1.4/share in CY15 if they are unable to pass on the aforesaid cost hike. Impact on Efert and Fatima is lower since feed stock price is fixed (one plant for Efert), and only fuel stock gas prices will be raised. We project an impact of PKR1.3/share for Efert and PKR0.2/share for Fatima. However, FATIMA and EFERT will turn out to be major beneficiary if the Faujis are able to fully pass on their cost impact.
Cement: On cement sector front, cement players will have to raise the prices by a maximum of PKR10.2/bag (based on Lucky’s gas requirement). If the cement players remain unable to pass on the said price hike, LUCK, DGKC and MLCF are likely to have a negative EPS impact of PKR1.25,0.5 and 0.25 in FY15, respectively.
Textile: Among our textile universe, the captive power plants of NML and NCL will also suffer and the impact for FY15 turns out to be ~PKR1/share and PKR0.26/share, respectively.
As per our understanding, this gas tariff hike is for CY13-14 time period and a further gas tariff hike may also come into play later in CY15 due to UFG benchmark change for Sui companies.