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Pakistan Fertilizer: GIDC Resolution on Cards; FFC to benefit the most

• As per our channel checks, Govt. is in negotiation with fertilizer players for the resolution of Gas Infrastructure Development Cess (GIDC). Last year Govt. waived 50% of outstanding amount of CNG stations and same development could come across for fertilizer sector. To note, currently fertilizer players are accruing Rs300/mmbtu on feed and Rs150/mmbtu on Fuel. This translates into per bag cost of Rs380-400/bag.
• All fertilizer manufacturers are accruing GIDC amount on fuel. On Feed, FFC and FFBL are accruing GIDC on full production, while EFERT is accruing it  on only base plant (35% of its total production).
• If this development (50% reduction in outstanding amount and recurring GIDC rates) materializes than FFC would be most beneficiary with one time gain of Rs10.2/share followed by FFBL (Rs5.6), EFERT (Rs3.1 /share) and FATIMA (Rs0.6/share).
• However, recurring benefit depends on price of urea. It would be too early to comment who will retain benefit of this development, as Govt’s motto is to reduce input costs of farmers, in which case we cannot rule out reduction in urea prices. If Industry retains benefit of this development (Rs190-200/bag) then FFC’s recurring earnings will rise by Rs4.4/share (or 30-35% of PAT). While EFERT and FFBL will get benefit by Rs1.4/share and Rs2.4/share respectively in their bottom line.
• Further, to release outstanding amount to Govt. Fertilizer players have to reduce their short term investments (on which they are earning other income) or borrow from Banks. In either case, there will be some opportunity cost on settlement of GIDC in terms of lower other income or higher finance cost.