Fertilizer Sector 2MCY10 Review

Urea Off-take dwindled by 9%YoY


The National Fertilizer Development Centre (NFDC) has recently announced the fertilizer’s updates for the period of 2MCY10. The Urea off-take witnessed a decent decline of 9%YoY to 984k tons comparing to 1,076k tons during the same period last year mainly at the back of 17%YoY and 16%YoY decline in urea imports and local productions respectively during the period. Conversely, the sector owned the 9%YoY higher sales in terms of increase in urea prices which stood at PKR 814 per bag during the period comparing to PKR 747 per bag during the same period last year.

FFBL supported the Urea’s declining trend

During 2MFY10, Fauji Fertilizer Bin Qasim (FFBL) contributed the major decline of 52%YoY in its urea off-take comparing to the same period last year largely attributable to their plant turnaround while ENGRO witnessed the 2%YoY growth where Fauji Fertilizer Company (FFC) remained unchanged during the period.

DAP off-take showed 42%YoY growth

The DAP off-take remained growing during the period by depicting enormous growth of 42%YoY to 162k tons comparing to 114k tons during the same period last year. The DAP prices also showed a extensive increase of 22%YoY to PKR 2,589 per bag primary due to increase in Phos-acid prices which are currently around USD 610/ton comparing to USD 430/ton during 2HCY09.

ENGRO became the major beneficiary of DAP off-take surge

ENGRO showed the outshine performance during the period by posting 157%YoY growth during 2MFY10 to 41k tons comparing to 16k tons during the same period last year. Moreover, the 230%YoY growth was witnessed on cumulative basis by the company after posting sales of 71k tons during the period. FFBL sales remained deceptive during the period as the company posted the sales of 27k tons by posting 32%YoY reduction during the period mainly at the back of plant turnaround.

Looking Forward

I believe that the fertilizer sector will remain prominent due to the GoP support to agriculture sector by allowing the support prices and subsidized agricultural loans etc. Moreover, the current DAP prices have increased to PKR 2,600/bag due to increase in Phosphoric acid prices which may cause shrinkage to the DAP off-take. Currently, I maintain ‘buy’ stance for ENGRO scrip by considering its current trading at FY10E of 6.50x while ‘hold’ for FFC and FFBL by considering their current trading at 7.80x and 9.50x respectively where my target price for ENGRO, FFC, and FFBL is PKR 250, PKR 120 and PKR 38 per share respectively.