Pakistan Fertilizers: The latest fertilizer offtake numbers released by the National Fertilizer Development Centre (NFDC) depict a substantial decline in urea volumes to 340k tons, down 59%MoM/48%YoY. The decline in Jan’16 sales can be traced to unusually high urea offtake in Dec’15 on account of an aggressive sales strategy adopted by the industry to offload inventories supported by price discounts. DAP off‐take also declined by 42%MoM/65%YoY to 77k tons on account of tapering euphoria with regards to subsidized volumes in lieu of GoP subsidy announcement. Amongst fertilizer manufacturers, Engro Fertilizers Limited (EFERT) witnessed the lowest YoY decline in urea off‐take in Jan’16 to 138k tons, down 25%YoY. Fauji Fertilizer Company (FFC), the largest urea manufacturer in the country also witnessed a sharp fall in sales volumes to 152k tons, down 27%YoY. While the fertilizer industry is currently operating in an uncertain operating environment, declining urea imports amid a reversal in international urea prices and narrowing price discounts at home will likely improve the situation for domestic manufacturers, going forward. At current levels, we prefer EFERT amongst the fertilizer manufacturers due to i) its relative resilience against increase in gas prices, ii) cheap valuations (P/E: 7.2x) and iii) possible upside from continued dual plant operations. At our target price of PKR98/sh, the scrip offers a total return of 45%, as of last close – Outperform.
Engro Fertilizers Limited: Urea off‐take for the month of Jan’16 declined to 138k tons, down 60%MoM/25%YoY, compared to 346k tons and 184k tons in Dec’15 and Jan’15, respectively. On the phosphate front, DAP off‐take for EFERT remained robust in Jan’16, witnessing an increase of 2.6xMoM/87%YoY to 39k tons.
Fauji Fertilizer Company Limited: The Company witnessed a decline of 52%MoM/27%YoY in urea off‐take, settling at 152k tons for the month. The company has been struggling to maintain sales levels as indicated by piling up of inventory levels, currently at ~170k tons.
Fauji Fertilizer Bin Qasim Limited: DAP off‐take for the company witnessed a sharp fall of 77%MoM/83%YoY in Jan’16, clocking in at 12k tons. The drop in sales can mainly be attributed to i) tapering demand amid end of euphoria post subsidy announcement by the GoP and ii) higher priced DAP being offered by FFBL compared to imported counterparts.
By: BMA Capital Management Limited