Pakistan Fertilizer_Profitability to remain elevated
AKD Daily
Pakistan Fertilizer: Profitability to remain elevated
- According to the data from Bloomberg, international urea prices are currently hovering around US$850/MT (landed cost of PkR10,300/bag), a whopping increase of ~171%YoY. Similarly, international DAP prices have reached to US$1,240/MT (landed cost of PkR13,200/bag), reflecting a rally of ~114%YoY.
- Although in January this year the early signs of normalization had just started to kick in, the war in Ukraine by Russia has triggered another spell of shortages. Russia is by far the largest exporter of urea and 4th largest exporter of DAP and the disruptions of those shipments due to sanctions has sent the prices flying even higher.
- Contrary to this, Phosphoric acid prices are currently at US$1,530/MT, an increase of ~92%YoY which translates primary DAP margin to US$536/MT, highest since CY08. This bodes well for FFBL, the sole DAP manufacturer in the country.
- Additionally, with hike of PkR150/bag on urea by all players in March and further PkR100/bag hike by EFERT on 21st April, our outlook on fertilizer sector remains positive as we estimate ~12.7%YoY increase in profitability. Consequently, fertilizer sector offers dividend yield of ~13.2% (EFERT – 18.4%, FFC – 14%, FATIMA – 10%).
- Incorporating the additional PkR100/bag hike for EFERT, our new EPS estimates for CY22/23 now stand at PkR16.56/18.25. This is 9.7%/11.9% higher than our previous estimates of PkR15.1/16.3. Hence, we revise our TP on EFERT to PkR116/sh (previously PkR103/sh), reiterating our Buy stance with upside of 19% and DY of 18.5% at last close.
AKD Research
Fauji Fertilizer is engaged in the manufacturing, purchasing and marketing of fertilizers including the investment in other fertilizer manufacturing operations. As of Dec 31 2004, Co. had a design capacity of 2,455,000 tonnes for urea production and 445,000 tonnes for DAP production.
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