Report
Abdul Samad Khanani
EUR 4.08 For Business Accounts Only

Intermarket Pulse: Pakistan Fertilizer: Volumes & lower inventory to lead earnings growth

  • IMS Fertilizer Universe (including ENGRO) is expected to post 1QCY18 NPAT of PRs11.55bn, up 31% YoY, led by 44%/18% YoY growth in Urea/DAP offtakes, recovery in pricing discipline amid falling inventories and higher cash income on GIDC accumulation.
  • We expect EFERT to outperform the industry with 1Q NPAT expected to rise 93% YoY, while ENGRO/FFC profits are expected to grow 33%/20% YoY. FATIMA’s PBT is expected up 11% YoY but tax rate should normalize. FFBL would likely post a loss on standalone basis due to seasonality and lower other income; however, it may post marginal consolidated profits due to contribution from power subsidiary & other associates.
  • We currently have a Neutral stance on the sector, where our TPs for EFERT (TP: PRs70/sh) and FFC (TP: PRs92/sh) suggest downside. That said, better-than-expected results and change to a more favorable Urea pricing regime would make us more positive on the sector.
Underlyings
Engro

Engro Corporation is an agri based company. Co.'s core business is the manufacturing, purchasing and marketing of chemical fertilizers and seeds. Co. is engaged in the production of Urea fertilizer in Pakistan which is manufactured at Daharki and marketed under brand name Engro. Co. also maintains a seed business and is marketing imported hybrid and open pollinated seeds of maize and sunflower crop under the brand name of Bemisal. Co. has investments in joint ventures engaged in chemical terminal and storage, PVC resin manufacturing and marketing and Automation and Controls businesses.

Engro Fertilizers

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.

Fatima Fertilizer Co. Ltd.

Fatima Fertilizer Company Limited is a Pakistan-based fertilizer manufacturing company. The Company is engaged in manufacturing and marketing of Nitrogen, Phosphate and Potash fertilizers. It produces a range of fertilizers, including Sarsabz Calcium Ammonium Nitrate (CAN), Sarsabz Nitro Phosphate (NP), Nitrogen Phosphorous Potassium (NPK) and Sarsabz Urea. Its CAN is a granulated nitrogenous fertilizer. Sarsabz Urea can be applied in various forms and it can be spread in bulk alone or can also be mixed with other fertilizers before application. Its NP can be applied on various types of soils. The Company has a production base for Nitric Acid. The Company has annual production capacity of Urea 500,000, CAN 420,000, NP 244,000, Nitric Acid 500,000 and Ammonia 500,000. It also offers services and support to farmers from education on farming practices and research oriented agricultural practices.

Fauji Fertilizer Bin Qasim Ltd.

Fauji Fertilizer Bin Qasim Limited is a Pakistan-based holding company. The Company manufactures, purchases and markets fertilizers. It is involved in meat, dairy and coal based energy generation sectors. It has identified its potential business segments and has undertaken investments in the areas of food, financial, power sector and wind energy projects. Its products include Granular Urea, such as Sona Urea, and Di Ammonium Phosphate (DAP), such as Sona DAP. Sona Urea is a synthetic organic compound containing nitrogen in amide form available in the form of white solid prills. It is applied to soil and also suitable in solution form as spray application. Sona DAP contains nutrient element, phosphorous besides nitrogen available in flowing granular form Granules are stronger, harder and of uniform size. It is suitable for various crops and soils recommended for initial application. It produces over 791,260 metric tons (MT) of DAP and approximately 433,610 MT of Urea.

Fauji Fertilizer Co. Ltd.

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.

Provider
Intermarket Securities Limited
Intermarket Securities Limited

​Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.

Analysts
Abdul Samad Khanani

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