Urea offtake during September-12 declined by an 18% MoM – AHL Research
The National Fertilizer Development Centre (NFDC) has released fertilizer production and offtake figures for the month of September-12.
Urea sales down by 18% MoM
Urea offtake during September-12 declined by an 18% MoM to 264 kTons, while on a YoY basis, this figure was lower by 50%. This was mainly on account of aggressive off take from dealers in June-12, who went on a urea buying spree in apprehension of a price hike in July-12. In addition to this, heavy rainfall, particularly in the plains of Punjab, (the highest fertilizer consuming province) also put a drag of urea sales during September-12. On 9MCY12 basis, urea sales suffered a drop of 12% YoY to 3,723 kTons. FFC turned out to be the outperformer during 9MCY12, with a 10% YoY drop in sales compared to industry, which ranged between 34-42%. Meanwhile, average urea retail price in September-12 was recorded at PKR 1,684/bag, which is 2% lower than the average price in Aug-12. This price decrease can be attributed to lower off take because of excess supply and availability of excessive urea in the market. September-12 closing inventory of local producers stood at 356 kTons, while total urea closing inventory (both local and imported) was recorded at 684 kTons. Going forward, we believe that October-12 offtake would be better due to expected increase in the demand of urea as commencement of Rabi sowing season.
DAP sales surge by 289% MoM
DAP sales in September-12 increase enormously by 289% MoM and 68% YoY to 208 kTons. While, 9MCY12 DAP sales plunge by 13% YoY to stand at 632 kTons. FFBL sales in the month witnessed splendid growth of 11x MoM to stand at 188 kTons. The increase in DAP sales is mainly attributed to pre-announced price increase by FFBL from 1 October 2012. Average DAP prices during September-12 were recorded at PKR 3,820/bag. September-12 closing inventory of DAP stood at 227 kTons (of which 77 kTons are of FFBL)
Sales of imported urea drop in September-12
The National Fertilizer Marketing Limited (NFML) managed to sell 33 kTons in September-12, depicting a decrease of 16% MoM. Sales of imported urea during 9MCY12 stood at 948 kTons and represents 25% of total urea sold in the country. NFML’s closing stock at the end of September-12 was recorded at 327 kTons. We expect NFML’s inventory to rise further on account of 1) tender to import 200 kTons of urea which will be finalized in few days with the assistance of Saudi Fund for Development (SFD) credit facility 2) Another tender for import of an equivalent amount is being planned by the Government, which will be finalized after taking all stakeholders on board.
We maintain ‘buy’ on FFC
Offering an upside potential of 15% to our DCF based Dec-12 target price of PKR 136.3/share from last closing price of PKR 115.4/share, we maintain our buy stance on the scrip. The stock is trading at CY12E PER and dividend yield of 7.6x and 12%, respectively.