IGI Securities Limited – Day Break

Karachi, November 28, 2017 (PPI-OT): Fertilizer – Oct-17: Urea and DAP sales kick in at 375ktons and 387ktons

As per the latest available NFDC data for the month of Oct-17, urea offtake rebounded by 109%MoM to 375ktons (excluding exports of 108ktons) on the back of seasonal demand, improving slightly by +4% on yearly basis.

For DAP, monthly sales remained flat, ticking by +2%MoM to 387k tons. The cumulative sales for the 10MCY17 stands at 1.7mtons (+23%YoY).

We expect urea and DAP offtake to sustain at these levels with latter having more demand during the Rabi season in addition to government announcing subsidy of PKR150/bag for the farmers.

We have a “BUY” call on EFERT, based on our Dec-17 target price of PKR 87/share, offering +31% upside from its last closing. The company is currently trading at CY17E P/E of 8.47x and offers a dividend yield of 10.6%.

Urea sales surging by 109%MoM to 375ktons

As per the latest available NFDC data for the month of Oct-17, urea offtake rebounded by +109%MoM to 375ktons (excluding exports of 108ktons) on the back of seasonal demand, improving slightly by +4% on yearly basis. Company wise, FFC topped at being the leading off taker, reporting sales of 187ktons (+4xMoM), followed by EFERT, attaining sales of 125ktons (+95%MoM). Overall sales for the 10MCY17 climbs by +19%YoY to 4.5mtons.

While demand for DAP seems to normalize at 387ktons by 1%MoM For DAP, monthly sales remained flat, ticking by +2%MoM to 387k tons. On individual basis, FFBL has a major share in the offtake, clocking in at 146ktons by +73%MoM, followed by FFC down by 50%MoM to 83ktons with EFERT chasing by +40%MoM to 77ktons. The cumulative sales for the 10MCY17 stands at 1.7mtons (+23%YoY).

Outlook

We expect urea and DAP offtakes to sustain at these levels with latter having more demand during the Rabi season in addition to government announcing subsidy of PKR150/bag for the farmers. For urea on export front, according to our channel checks nothing conclusive has been reached in the extension of the deadline (Dec-17) and hence we expect urea exports to shelve for a period. With regards to production, initiation of LNG supply will keep the production outflow smooth during the winter season, thereby keeping capacity utilization at optimal levels.

Recommendation

We have a “BUY” call on EFERT, based on our Dec-17 target price of PKR 87/share, offering +31% upside from its last closing. The company is currently trading at CY17E P/E of 8.47x and offers a dividend yield of 10.6%.

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