Strategy_ Proposed gas price hike raises alarm bells (AKD Daily, Dec 18, 2019)
The Oil & Gas Regulatory Authority (OGRA) has approved 29.3/31.6/135.6% increase in the prescribed gas prices for consumers (weighted avg.)/industries/fertilizers (feed) to meet estimated revenue requirement of PkR556bn for FY20.
The rate hike, if notified as determined by OGRA, will have a direct inflationary impact of 0.19% assuming full pass-on (0.02% in case of subsidy for lifeline consumers).
Sector-wise, OGRA has proposed highest increase for fertilizer sector (136/31% for feed/fuel gas price – PkR530/bag impact for FFC), where actual increase may potentially be lower. Build-up in inventory nonetheless, is a risk to complete cost inflation pass-on for Fertz.
Amongst Cement sector, LUCK stands as the only player being majorly affected. However in North, declining furnace oil (FO) prices allow a way out with cost of generation on FO standing at PkR10.9/kWh against PkR13.1/kWh on gas (post price increase), which will limit negative earnings impact.
·In Steel, ASTL and ISL would be adversely impacted with respective impact on the bottom-line of PkR0.51 per share and PkR0.92 per share, assuming zero pass-on.
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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