EUR 4.42 For Business Accounts Only

Intermarket Pulse: Pakistan Fertilizer: Subdued dynamics overshadowing budgetary positives

• In continuation of its pro-agri policies, the GoP has continued currently available fertilizer subsidies for FY18. This time around, the government has changed the mechanism of subsidy disbursement by adjusting the sales tax rates according to the cash subsidy.

• Urea prices are set to continue at a cap of PkR1,400/bag, whereas GST rates per bag are fixed at PkR100/98/167 for DAP, CAN and NP respectively. This should help local manufacturers in smoothening the cash flow cycle except for Urea producers.

• Despite consistent policies, we believe reduction in cash subsidy allocation for Urea to PkR11.6bn would have negative implications, as the industry is still over-supplied (inventory at Apr’17: 1.67mn) and complete pass-on of PkR51/bag would be difficult due to different cost structures. Among the players, we highlight that EFERT is offering total return of 32% to our Dec’17 TP of PkR66.6/sh (fwd D/Y: 11%).