Pakistan Fertilizer: Leniency in GIDC payment, (AKD Daily, Sep 15, 2020)
AKD Daily
Pakistan Fertilizer: Leniency in GIDC payment
- The fertilizer players have reportedly approached the government, requesting recovery of outstanding GIDC dues (PkR109bn on non-concessionary gas) in 10 years instead of 2 years, as per the recent Supreme Court decision, indicating urea price hike (PkR500/bag) in case of dismissal of request.
- To recall, the recent Supreme Court decision should result in an outflow in the range of PkR6-60bn from the Fertilizer players, where netting off the GIDC payables by available cash and short term investments imply a net cashflow burden of PkR3-20bn for Fertilizer players.
- Amid the aforementioned background, our numbers suggest a 48 months extension for GIDC payment should be sufficient for the players worst hit by the GIDC decision (FFBL’s per annum CFO is PkR3bn vs. per annum GIDC payment of approx. PkR9bn). A potential outcome of the ongoing discussions could be a 12 to 24 months extension along with a PkR100-200/bag urea price hike.
- Amid, this scenario, we highlight FFC as our top pick due to: (i) best liquidity situation with short term investments and cash sufficient to meet 70% of GIDC payables, and (ii) healthy EBITDA generation, which will enable the company to sustain its D/Y north of 10% in CY20/21F (TP: PkR127/sh; total return 26%).
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