Morning Call about Fertilizer Off take for Dec’13 Fertilizers – Arif Habib Limited

Karachi, January 10, 2014 (PPI-OT): FFBL, EFERT expected to record impressive earnings in CY13

As per latest fertilizer off take available with us, urea sales improved 19% MoM in Dec’13 to 653k tons, taking cumulative off take for CY13 to 5,874k ton, a jump of 12% YoY.

According to Arif Habib Limited, this growth is mainly attributable to better gas availability, particularly to Engro Fertilizer Limited (EFERT) in 2HCY13.

Company-wise urea off take analysis

Company-wise off take shows FFC and FFBL’s urea off take declined by a marginal 4% MoM to stand at 216k tons, while EFERT’s sales were down only by 3% MoM to 158k tons. Likewise, FATIMA’s sales dropped 7% MoM to 33k tons in Dec-13. NFML’s sales in the month of Dec-13 posted a solid growth of 82% MoM, clocking in at 203k tons.

Cumulatively, EFERT remained the outperformer during CY13, with a remarkable growth of 66% YoY in urea off take. This fabulous growth can be attributed to additional gas availability from Guddu in 2HCY13 coupled with rotational allocation from SNGPL in 1HCY13. In addition, FATIMA posted a modest growth of 2% YoY in CY13. On the other hand, FFC and FFBL’s urea off take recorded a meager decline of 2% YoY in CY13 mainly owing to sluggish FFBL’s urea off take (down 20% YoY).

NFML sales in CY13 remained stagnant at 1,071k tons (down 1% YoY). Currently, there is no massive pile-up inventory of urea with the local producers. They only managed to sell at their maximum operational capacities for the month. Closing inventory of urea available with the local producers, as of 31-Dec-13, stood at 20k tons while total urea closing inventory (both local and imported) was recorded at 284k tons.

Fertilizer off take (K tons)     Dec-13    Dec-12  YoY    Nov-13  MoM    CY13    CY12    YoY
Urea                               653       953  -31%      551   19%   5,874   5,237    12%
DAP                                185       126   46%      406  -55%   1,636   1,190    38%
CAN                                 65        79  -17%       33   97%     492     452     9%
NP                                  31        50  -38%       61  -49%     411     449    -8%
Company off take (K tons)         Dec-13        Dec-12      YoY      Nov-13      MoM     CY13   CY12   YoY
Urea
FFC and FFBL                       216           462     -53%         224      -4%    2,618  2,678   -2%
ENGRO                              158           277     -43%         163      -3%    1,560    938   66%
FATIMA                              33           106     -69%          35      -7%      346    338    2%
NFML                               203            91     123%         112      82%    1,071  1,081   -1%
DAP
FFBL                                92            78      18%         147     -37%      801    611   31%
ENGRO                               37            12     209%         111     -67%      401    295   36%
Source: AHL Research
DAP sales up 38% YoY in CY13

DAP’s sales plunged 55% MoM to stand at 185k tons in Dec-13 primarily due to high-base of last month, while during CY13, industry DAP sales jumped 38% YoY to 1,636k tons. FFBL managed to sell 92k tons of DAP in Dec-13, down 37% MoM, whereas company’s DAP sales for full-year CY13 posted remarkable growth of 31% YoY to 801k tons. ENGRO’s DAP sales followed the same trend with sales plunging 67% MoM to 37k tons in Dec-13. However, cumulatively in CY13, ENGRO’s DAP off take posted an impressive 36% YoY growth to 401k tons. DAP closing inventory as of 31-Dec-13 recorded at 100k tons (FFBL and ENGRO hold ~9k and 3k tons, respectively).

Gas price increase and impacts

As per Arif Habib Limited’s expectation of feed gas hike in the range of PKR 100/mmbtu to PKR 120/mmbtu, the feed stock prices surged by PKR 103/mmbtu while fuel stock was raised by PKR 50/mmbtu effective 1st Jan 14. As expected, FFC increased urea prices by PKR 153/bag and EFERT jacked up prices by 178/bag to nullify the impact.

Initial earnings estimates and recommendation

With these provisional off take figures, Arif Habib Limited expects FFC, FFBL and ENGRO to post EPS of PKR 3.68 (down 13% QoQ), PKR 2.61 (up 65% QoQ) and PKR 1.70 (up 15% QoQ), respectively, for 4QCY13, taking CY13 full year earnings to PKR 15.39 (down 6% YoY), PKR 6.14 (up 32% YoY) and PKR 4.0
(LPS of PKR 2.26 last year), respectively.

Scrips    4QCY13   3QCY13   QoQ   CY13   CY12   YoY  T.P  Upside
FFC         3.68     4.25  -13%  15.39  16.38   -6%  125      7%
FFBL        2.61     1.58   65%   6.14   4.64   32%   52     17%
EFERT       1.70     1.48   15%   4.00 (2.26)   n.m   35     23%
Source: AHL Research

Currently, Arif Habib Limited has a ‘Buy’ recommendation on FFBL and EFERT with Jun-14 price objectives at PKR 52/share and PKR 35/share, respectively while Arif Habib Limited maintains Arif Habib Limited’s ‘Hold’ recommendation for FFC with June-14 price objective at PKR 125/share.

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