AKD Securities Limited – Off the Analyst’s Desk (20-01-2020)

Karachi, January 20, 2020 (PPI-OT): Impact of GIDC removal

As per the news sources, ECC has approved the removal of GIDC for the fertilizer sector, translating into PKR400/bag in terms of urea price. Assuming the fertilizer players will pass on the positive impact to farmers by reducing urea price, it will result in a positive impact for FFBL (due to cost saving in DAP business), negative for EFERT but neutral for FFC (Scenario A).

However, we also present sensitivity analysis by incorporating the recently proposed gas price hike. As per our calculations, the 136/32% feed/fuel gas price hike will translate into PKR530/bag impact for FFC. Reducing GIDC translates into PKR370/bag, as per our estimates, bringing down the impact of gas price hike to PKR160/bag. Assuming the Fertilizer players do not pass-on the excess PKR160/bag impact (Scenario B), this will have negative earnings implications for FFC, FFBL and EFERT. If the fertilizer players will pass-on the differential between GIDC removal and revised gas prices to end consumers (Scenario C), it will keep FFC’s bottom-line intact, with slight negative implications for FFBL, as DAP prices will remain the same.

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