EFERT_Price hikes outweigh potential concessionary GSA end, (AKD Daily, Jun 22, 2021) - Corrected
AKD Daily
EFERT: Price hikes outweigh potential concessionary GSA end
- We revisit our investment case on Engro Fertilizers Ltd, incorporating (i) urea price of PkR1,675 per bag for CY21F onwards, (ii) non-concessionary gas rates from 3QCY21 onwards and, (iii) unwinding of discount on GIDC provision over CY21-24F.To recall, EFERT recorded GIDC re-measurement impact of PkR2.12bn in 4QCY20, as per IFRS 9, which is expected to be unwound over CY21-24F.
- On pricing front, EFERT announced urea prices hike of PKR50/bag w.e.f 11th Jan’21, taking the cumulative hike to PkR75/bag since Aug’20. Relaxation on disallowing 10% expense on sales to unregistered dealers and, price hike sustaining despite build up in inventory, has led us to incorporate urea price hike in our estimates.
- Despite higher gas price incorporated, healthy EBITDA generation over investment horizon ensures EFERT’s ability to maintain dividend yield north of 12%. At our revised TP of PkR69.1/sh, EFERT offers a total return of 13.8% at last close, implying a Neutral stance, where a downward revision in urea price is a downside risk.
AKD Research
Engro Fertilizers Limited is a Pakistan-based company, which is engaged in manufacturing, purchasing and marketing of fertilizers. The Company's brands include Engro Urea, Engro NP, Engro DAP, Zingro, Engro MOP, Engro SSP and Engro Zarkhez. Engro NP is the Company's fertilizer brand with Nitrogen and Phosphorous content in equal quantity. Engro DAP primarily contains Di-Ammonium Phosphate, and is imported by Engro EXIMP and marketed by the Company. Engro DAP is marketed in approximately 50 kilogram bags. Zingro is a micronutrient fertilizer, and is imported by Engro EXIMP and marketed by the Company. Engro Zarkhez has Nitrogen, Phosphorous and Potassium, and is primarily offered for sugar cane, fruit orchards, vegetables, potato and tobacco farming. Engro Envy is primarily offered to urban market for gardens, lawns, flower beds, fruit plants and ornamental plants. The Company is a subsidiary of Engro Corporation.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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