AKD Quotidian about — Feb’13 Fertilizer Off take Update

Karachi, March 29, 2013 (PPI-OT): According to official statistics released by the National Fertilizer Development Centre (NFDC), urea off take for Feb13 stood at 419k tons, a sizable increase of 2.6xYoY, largely due to a low base effect, where last year off take was hit by low availability (severe gas curtailment) as well as higher urea imports. However, urea off take declined 19%MoM due to lower cultivation as the end of Rabi season approaches, with ENGRO recording the greatest decline of 31%MoM.

According to AKD Securities DAP off take in Feb93 witnessed a marked increase of 100%YoY, although remaining lower on an absolute basis at 23k tons, as compared to historical levels. Going forward, low urea imports coupled with improving farmer economics (higher cotton prices) should continue to drive fertilizer demand. Furthermore, IQCYI3 earnings will be substantially better than last year. At current price levels, ENGRO remains AKD Securities tops pick in the sector and recommend Buy with a TP of PkR2O7/share.

Feb’13 urea off take up by 162%YoY: Total urea off take in Feb’13 stood at 419k tons, an increase of 162%YoY, largely due to a low base effect. On a sequential basis however, urea off take recorded a decline of 19%MoM due to lower cultivation as the end of Rabi season approaches.

Among major urea players, ENGROs urea off take increased by a substantial 391%YoY supported by higher production from Enven, while FATIMA followed with an increase of 236%YoY. In terms of market share, FEC has maintained its leadership in 2MCY13 with a 42% share followed by ENGRO (22%), while imported urea off take accounted for 30% of total off take.

DAP’13 up by 100%YoY in Feb’13: Total DAP off take during Feb’13 witnessed a 100%YoY increase but declined by 57%MoM. The increase over the corresponding period last year came on the back of a low base effect, where FFBL had faced a plant shutdown during Feb’12. Moreover, FFBLs DAP off take remained low at ilk tons, a decline of 65%MoM, while its inventory level has jumped to 83k tons. Going forward, AKD Securities believes a downward revision in regional phosacid acid could prove to be a positive trigger for FFBL, further enhancing the DAP-Phosacid primary margins. in this regard, AKD Securities estimates FFBL’s profitability to increase in 2HCY13 where higher DAP primary margins along with a seasonal uptick in off take could result in improved profitability for the company.

Outlook: Despite healthy off take figures, the fertilizer sector (ex-ENGRO) has largely under performed in CY13TD, where price performance was dragged by concerns over urea price decline, given increased gas supply to ENVEN at concessionary rates.

However, gas supply at concessionary rates for ENGRO remains unresolved, while unproved fundamentals of the sector (higher off take, lower urea imports and improving agro economics) does merit a re-look. ENGRO remains AKD Securities tops pick in the sector with a TP of PkR2O7/share while AKD Securities believes upside triggers such as a reduction in phosacid prices could drive interest in FFBL, which provides an upside of 12% to AKD Securities TI’ of PkR42/share.