Morning Call about Fertilizer Data Chemicals – Arif Habib Limited : AsiaNet-Pakistan

Morning Call about Fertilizer Data Chemicals – Arif Habib Limited

[ 0 ] July 31, 2012 | | Share:

Karachi, July 31, 2012 (PPI-OT): Record Jun-12 urea offtake helps prevent decline in 1HCY12 sales

The National Fertilizer Development Centre (NFDC) has released fertilizer production and offtake figures for the month of Jun-12.

Urea sales surge by 173% MoM in Jun-12; 1HCY12 offtake remains stable Urea offtake during Jun-12 rose by 173% MoM to a record 1,029 kilotons.

According to Arif Habib Limited, on a YoY basis, this figure is higher by 109%. The surge in urea sales during the month can largely be attributed to pre-buying by dealers fearing (erroneously) another price hike by manufacturers amidst reports of an increase in gas infrastructure development cess, and must therefore not be treated as a recurring trend. The phenomenal Jun-12 sales helped the industry in an otherwise lacklustre year (due to the availability of imported urea at subsidized prices by the government), and half yearly sales stood at 2,747 kilotons, a 3% rise over the corresponding period last year. Meanwhile, average urea retail price in Jun-12 was recorded at PKR 1,707/bag, which is 21% higher than the average price in Jun-11. This price increase is attributable to gas curtailments of urea manufacturers and imposition of Cess in CY12. Jun-12 closing inventory of local producers stood at 221 kilotons, a significant improvement over May-12’s figure of 814 kilotons. Total urea closing inventory (both local and imported) was recorded at 406 kilotons. The following is a company-wise breakup of urea offtake:

Company-wise Urea Offtake

• Fauji Fertilizer Company Limited (FFC) witnessed the smallest decline in offtake amongst major urea manufacturers. The company’s sales in 1HCY12 stood at 1,134 kilotons, a marginal 3% YoY decline. In Jun-12, FFC witnessed a major 158% MoM and 157% YoY jump in sales volumes to 526 kilotons. Reports suggest that the company has pre orders in excess of 100 kilotons for Jul-12, while market rumours also point to a substantial offtake by the Trading Corporation of Pakistan (TCP) in Jun-12 – a claim which gains credence in the face of an extraordinary rise in the company’s trade debts in 2QCY12.

 

• ENGRO Corporation’s Jun-12 sales improved by 247% MoM to 223 kilotons, which is also higher by 85% YoY. 1HCY12 offtake registered a 30% YoY decline to 397 kilotons – a desolate reminder of the gas curtailments facing the company.

 

•  Fertilizer Company Limited’s (FATIMA) Jun-12 offtake improved by 86x MoM as the company rode the wave of urea pre-buying by dealers. The figure is higher by 237% YoY as the company’s plant had not commenced commercial operations in the corresponding period last year. 1HCY12 was a difficult period for FATIMA as the company struggled to compete with imported urea made available at subsidized prices by GoP – a feat difficult to achieve for a an infant company. 1HCY12 offtake stood at 170 kilotons, a 23% YoY decline.

• National Fertilizer Marketing Limited (NFML) sold 67 kilotons of (imported) urea in Jun-12, a 40% MoM rise. 1HCY12 imported urea offtake advanced by 185% YoY to 863 kilotons.

Higher 2QCY12 DAP sales limit 1HCY12 decline to 14%

DAP sales in Jun-12 shot up by 269% MoM to 96 kilotons. This figure is higher by 41% YoY and takes DAP sales in 2QCY12 to 182 kilotons, to respectable 19% YoY improvement. The higher quarterly sales helped the industry overcome subpar 1QCY12 sales (down by 46% YoY), and limit 1HCY12 sales decline to 14% YoY. The industry had a tough time maintaining sales volume during the period under review due to a 9% increase in average DAP retail price during 1HCY12. In 1HCY12, Fauji Fertilizer Bin Qasim (FFBL), the country’s sole DAP producer, suffered a 25% YoY contraction in offtake to 155 kilotons. DAP prices during Jun-12 were recorded at PKR 3,820/bag. May-12 closing inventory of DAP stood at 264 kilotons (of which 158 kilotons are held by FFBL)

Fertilizer offtake (Ktons) Jun-12 Jun-11 YoY May-12 MoM 1HCY12 1HCY11 YoY
Urea

1,029

492

109%

377

173%

2,747

2,679

3%

DAP

96

68

41%

26

269%

269

314

-14%

Company offtake (Ktons) Jun-12 Jun-11 YoY May-12 MoM 1HCY12 1HCY11 YoY
FFC

526

205

157%

204

158%

1,134

1,174

-3%

FFBL

30

49

-39%

52

-42%

170

220

-23%

ENGRO

223

120

85%

64

247%

397

570

-30%

FATIMA

128

38

237%

1

498%

170

220

-23%

DAP                
FFBL

45

45

0%

17

165%

155

205

-25%

ENGRO

22

23

-5%

4

442%

101

97

4%

Average Price (PKR /bag) Jun-12 May-12 MoM          
Urea

1,707

1,740

-2%

         
DAP

3,820

3,872

-1%

         
Source: NFDC                

FFC remains Arif Habib Limited’s top pick

Offering an upside potential of 23% to Arif Habib Limited’s DCF based Dec-12 target price of PKR 144.9/share from last closing price of PKR 117.3/share, Arif Habib Limited maintains Arif Habib Limited’s outperform stance on the scrip. The stock is trading at CY12E PER and dividend yield of 7.0x and 13.6%, respectively.

Category: Brokerage

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