AKD Quotidian about — Urea and DAP offtake falls for second consecutive year in 2011

Karachi: In terms of 2011 is likely to be a record year for fertilizer manufacturers’ profitability, however as for offtake, both urea and DAP sales fell for a second year in succession.

According to AKD Securities, Urea offtake in CY11 was down 3%YoY to 5.9mn tons while DAP sales were down 16%YoY to 1.1mn tons. Gas curtailment (production down 5%YoY to 4.9mn tons), delay in imports as well as higher prices (+72%Y0Y to average at PKR 1,479/bag) were the chief factors leading to the urea offtake de-growth. As for DAP, surging prices (+48%YoY to average at PKR 3,984/bag) coupled with lower farmer purchasing power (steep fall in cotton prices as well as increase in other input costs) contributed to the fall in DAP offtake, in AKD Securities’ view. While, CAN offtake in CY11 rose by 38%YoY to 676k tons following capacity addition of FATIMA fertilizer, however NP sales were disappointing and fell by 3%YoY to 335k tons, despite capacity additions from FATIMA. For Dec’11, urea sales were up by 55%MoM despite lower urea production (-15%MoM to 369k tons) owing to surge in imported urea offtake (+8.8xMoM to 279k tons). DAP sales in Dec’11 were down by 29%MoM to 114k tons.

FATIMA offtake rebounds in Dec’11: FATIMA posted strong recovery in Dec11, with total product sales rising by 41%MoM to 122k tons. Sales growth was underpinned by strong rebound in NP sales (up 3.5x MoM to 28k tons). Thanks to the strong sales growth in Dec11, total product offtake for FATIMA in 4QCY11 was up sequentially by 13%QoQ to 257k tons, which coupled with improved margins (spike in urea prices) bodes well for 4QCY11 earnings.

LUCK: 1HFY12 Result Preview
Lucky Cement Limited (LUCK) is scheduled to announce its 1HFY12 financial results later today. AKD Securities expects the company to report NPAT of PkR3.11bn (EPS: PkR9.61) in the review period against NPAT of PkR1.46bn (EPS: PkR4.52) in 1HFY11, translating into a growth of 113%YoY. Earnings growth is expected to come mainly from a higher topline on the back of increase in both local volumes (~11%YoY) and local cement prices (up 24%YoY). Consequently, the company is expected to report gross margin of 40% in 1HFY12 against 33% in 1HFY11. Operating Margin is also expected to increase to 26% in 1HFY12 from 17% last year.

On a sequential basis, LUCK is expected to report NPAT growth of 6%QoQ in 2QFY12 to PkR1.60bn (EPS: PkR4.95) on the back of high cement prices and local volumes. Going forward, with the TDF plant commencing in Jan’12, AKD Securities expects considerable margin expansion in 2HFY12 where lower coal costs should add to increased profitability for the rest of the fiscal year. While sea-exports may remain low, LUCK should also gain from increased exports to India and Afghanistan where export price to the latter has increased from US$50/ton. AKD Securities maintains AKD Securities’ optimistic outlook on the local cement sector and reiterate AKD Securities’ a Buy to AKD Securities’ target price of PKR 113/share.