Pakistan Fertilizer_Urea offtake up due to low base effect, (AKD Daily, Feb 24, 2021)
AKD Daily
Pakistan Fertilizer: Urea offtake up due to low base effect
- As per the NFDC data released, urea offtake increased 148% YoY to 648K tons (low base effect), but posted a decline of 26% MoM in Jan’21. Company wise, FFC and EFERT witnessed an uptick of 2.01xYoY and 3.66xYoY, respectively. The urea inventory build-up witnessed in previous months continue to taper off to ~99K tons, vs. last 3 months average of ~550K tons.
- DAP offtake, on the other hand, also posted incline on YoY basis, but declined by a more significant 60% MoM to 82K tons in Jan’21. Sequential decline can be attributed to seasonality factor as well as unavailability of DAP in international markets and low local inventory. FFBL’s offtake declined 79%MoM due to annual plant maintenance. Meanwhile, EFERT was the only player posting increase in DAP offtake on both MoM and YoY basis.
- Local DAP prices have increased by ~PkR1,000/bag CYTD, where supply side shock may sustain DAP prices at these levels in 1HCY20, in our view. Local urea prices are also on a similar trajectory (up c. PkR75/bag FYTD) and can increase further to pass on the adverse impact of possible budgetary measure w.r.t income tax (PkR45-50/bag for EFERT and FFC on annual basis).
- Amid this backdrop, we continue to like FFC with sufficient EBITDA generation to continue dividend yield north of 10%. Meanwhile, attractive payout scenario from EFERT is marred by potential end of concessionary gas agreement in Jul’21, which could lead to negative earnings impact of ~PkR1.5/sh for CY21 and ~PkR3.0/sh CY22F onwards.
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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