Author Topic: Fertilizer Sector  (Read 195403 times)

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Toshi

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Fertilizer Sector
« Reply #-1 on: January 30, 2010, 05:37:58 PM »
All about Fertilizer Sector.
« Last Edit: February 01, 2012, 09:59:19 PM by M&M »

Pakinvestorsguide

Fertilizer Sector
« Reply #-1 on: January 30, 2010, 05:37:58 PM »

Toshi

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Re: Fertilizer Sector
« on: January 30, 2010, 05:54:05 PM »
Fertilizer Sector, Monthly update

Fertilizer numbers for the month of Dec’09 have been released by National Fertilizer
Development Centre (NFDC). Total urea offtake during CY09 stood at 6.5mn tons
compared to 5.5mn tons during CY08 – a growth of 18.2%YoY. DAP sales rebounded
strongly during CY09 after a dismal CY08, posting a growth of 1.18x to stand at 1.7mn
tons. Currently, DAP prices stand at PkR2,400-PkR2,450 per bag in the local market
while urea prices stand at PkR750 per bag.At current levels, we maintain our ‘Overweight’
stance on the Fertilizer sector with Engro being our top pick.
Urea Sales – up 18.2%YoY during CY09: During CY09, urea sales increased by 18.2%YoY
to stand at 6.5mn tons. Better product availability due to timely imports has been the main
factor in increased urea sales. During the year, the Trading Corporation of Pakistan (TCP)
imported about 1.5mn tons, representing an increase of 2.5x compared to last year. NFDC
expects another 200k tons imported urea to arrive in the country during Jan’10, sufficient to
meet the country’s urea needs during the Rabi season. On a MoM basis, urea sales increased
by an astounding 82.2% while on a YoY basis, sales were up 60.2%YoY mainly due to
aggressive purchase of the product at dealer and farmer levels due to anticipation of price
hike in the new year.
DAP Sales – up 1.18xYoY during CY09: DAP sales rebounded strongly in CY09 after a
dismal CY08, recording sales at 1.7mn tons compared to just 774.5k tons in CY08. The
revitalized DAP demand came on the back of substantially reduced prices with ex-factory
prices averaging PkR1960.8 in CY09 compared to an average of PkR2,680 in CY08. .
In Dec’09, FFBL led the volumes in the market, selling 67.4k tons followed by Engro and Pak
American with volumes of 26.7k tons and 23.1k tons, respectively.

Urea and DAP offtake in full year CY09
(k tons)                                                Urea                      DAP
Opening inventory                                                62                                340
Imports                                                              1,533                            880
Domestic Production                                             5,046                            539
Total availability                                                  6,641                            1,759
Offtake                                                              6,479                            1,692
Write off/on                                                       30                                 1
Estimated Balance                                               132                               66

Source: NFDC
AKD Research

Toshi

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Re: Fertilizer Sector
« Reply #1 on: January 30, 2010, 05:56:37 PM »
Investment Perspective: At current levels, our top pick within the Fertilizer Sector remains
Engro Chemical which offers an upside of 43.4% to our target price of PkR275.4 per share.
With CY10F and CY11F dividend yields of 13.3%and 14.8%, respectively, we remain positive
on FFC as well. The scrip offers an upside of 21.5% to our target price of PkR128.6per share.
We have a ‘Reduce’ stance on FFBL with a target price of PkR28.5 per share.

Offline Farzooq

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Re: Fertilizer Sector
« Reply #2 on: February 02, 2010, 11:58:13 AM »
Government revises major crop targets for FY10 (DT)

On the back of Rabi water shortage (~40% lower than average rainfall), late sowing (wheat) and
prolonged stand-off between millers and the government on prices (sugar and rice), the
government has revised major crop targets for FY10E. Key is a reduction in wheat target from
25mn tons to 22.3mn tons on the back of expected poor crop in rain-fed (barani) areas which last
year contributed ~2mn tons of wheat. While cotton target has been increased (from 12.1mn bales
to 12.7mn bales) due to greater use of BT cotton and increased area under acreage, we believe
net impact of all revisions would be negative for (1) agri and hence GDP growth; (2) farm income
growth hence fertilizer (especially DAP) demand.

Crop FY09A FY10 revised target YoY growth target FY10 original target % revision
Wheat (mn tons) 23.42 22.30 -5% 25.00 -11%
Sugarcane (mn tons) 50.05 47.00 -6% 56.00 -16%
Cotton (mn bales) 11.82 12.70 7% 12.10 5%
Rice (mn tons) 6.95 6.70 -4% 6.37 5%
Source: Economic Survey of Pakistan, DT
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Offline Karuli

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Re: Fertilizer Sector
« Reply #3 on: February 02, 2010, 06:02:09 PM »

Offline Farzooq

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Re: Fertilizer Sector
« Reply #4 on: February 25, 2010, 11:24:56 AM »
Fertilizer: Silver Lining still there

   Urea offtake declined by 9% YoY to 546K tons; DAP offtakes increased by 109% YoY to 92K tons. Average retail prices for Urea increased by 12% YoY while DAP decreased by 13% YoY

   FFC, ENGRO and FFBL registered YoY increase in offtake despite the over all decrease witnessed for the industry

   We remain OVERWEIGHT on the sector, with our top pick being ENGRO with a DCF based fair value of PKR239/share
 
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Toshi

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Re: Fertilizer Sector
« Reply #5 on: March 06, 2010, 12:05:03 PM »
Fertiliser plant delay forces govt to import urea  



ISLAMABAD: A delay in the commissioning of a large fertiliser plant has compelled the government to immediately import about 400,000 metric tons of urea with an estimated official subsidy of about Rs600 per bag for the coming Kharif season.

Sources told Dawn on Friday that “a decision has been taken in principle” to import urea through the Trading Corporation of Pakistan (TCP) for distribution by the National Fertiliser Corporation (NFC).

The Economic Coordination Committee of the Cabinet which would meet on March 9 with Petroleum Minister Naveed Qamar in the chair is likely to approve the import plan prepared by the ministry of industries and production.

Pakistan needs over 3 million metric tons of urea for the Kharif season (April-Dec), but officials estimate local urea stock to be about 2.5 million metric tons. Retail price of local urea stands at about Rs770 per bag while imported urea would cost around Rs1,350 per bag, leaving a gap of Rs580 per bag that would be picked up by the government.

The sources said international urea prices hovered around $300 per metric ton and the government would import the commodity, possibly from Saudi Arabia and Qatar.

In a recent presentation, the fertiliser industry had informed the government that there would be no need for import if the Fatima Fertiliser started production according to the schedule.

The plant’s start-up has been delayed for three months due to technical reasons, the sources said.

A joint venture of the Fatima Group and Arif Habib Group, the plant when completed would produce 500,000 tons of urea, ammonia and nitric acid, besides 360,000 tons of nitro phosphate, 420,000 tons of calcium ammonium nitrate and 300,000 tons of nitrogen phosphorous potassium.

The industries ministry had earlier announced that Pakistan would not import urea and rather start exporting different fertilisers with the completion of the Fatima plant.

The ECC was expected to consider providing sovereign guarantees for a Rs17 billion project for deepening and widening of Port Qasim navigational channel, for which a consortium of Chinese Exim Bank and Fortis Bank has offered about $150 million buyer’s credit.

Mainly because of rising shipping needs and declining port capacity, the deepening and widening of the navigational channel has become crucial to attract larger ships, which could not dock at present.

The project, when completed would be able to handle ships with 14-metre draught.

Offline Karuli

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Re: Fertilizer Sector
« Reply #6 on: March 08, 2010, 11:32:33 AM »
A delay in the commissioning of a large fertiliser plant has compelled the government to immediately import about 400,000 metric tons of urea with an estimated official subsidy of about Rs600 per bag for the coming Kharif season.

Sources told Dawn on Friday that “a decision has been taken in principle” to import urea through the Trading Corporation of Pakistan (TCP) for distribution by the National Fertiliser Corporation (NFC).

The Economic Coordination Committee of the Cabinet which would meet on March 9 with Petroleum Minister Naveed Qamar in the chair is likely to approve the import plan prepared by the ministry of industries and production.

Pakistan needs over 3 million metric tons of urea for the Kharif season (April-Dec), but officials estimate local urea stock to be about 2.5 million metric tons. Retail price of local urea stands at about Rs770 per bag while imported urea would cost around Rs1,350 per bag, leaving a gap of Rs580 per bag that would be picked up by the government.

The sources said international urea prices hovered around $300 per metric ton and the government would import the commodity, possibly from Saudi Arabia and Qatar.

In a recent presentation, the fertiliser industry had informed the government that there would be no need for import if the Fatima Fertiliser started production according to the schedule.

The plant’s start-up has been delayed for three months due to technical reasons, the sources said.

A joint venture of the Fatima Group and Arif Habib Group, the plant when completed would produce 500,000 tons of urea, ammonia and nitric acid, besides 360,000 tons of nitro phosphate, 420,000 tons of calcium ammonium nitrate and 300,000 tons of nitrogen phosphorous potassium.

The industries ministry had earlier announced that Pakistan would not import urea and rather start exporting different fertilisers with the completion of the Fatima plant.

The ECC was expected to consider providing sovereign guarantees for a Rs17 billion project for deepening and widening of Port Qasim navigational channel, for which a consortium of Chinese Exim Bank and Fortis Bank has offered about $150 million buyer’s credit.

Mainly because of rising shipping needs and declining port capacity, the deepening and widening of the navigational channel has become crucial to attract larger ships, which could not dock at present.

The project, when completed would be able to handle ships with 14-metre draught

Offline Karuli

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Re: Fertilizer Sector
« Reply #7 on: March 08, 2010, 02:56:44 PM »

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Re: Fertilizer Sector
« Reply #8 on: March 10, 2010, 08:47:51 PM »
ECC okays 0.4m tonnes of urea import \ Daily Times
ISLAMABAD (March 10 2010): Economic Coordination Committee (ECC) of the Cabinet on Tuesday approved the import of 0.4 million tonnes of urea for remaining Rabi and Kharif season 2009-10.
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #9 on: March 11, 2010, 09:04:54 AM »
Feed gas supply to fertiliser plants: abolition of subsidy on the cards
 
ZAFAR BHUTTA
ISLAMABAD (March 11 2010): The government is considering to abolish cross subsidy on supply of feed gas to fertilizer manufacturers and to devise a mechanism of direct subsidy on urea to the farmers, Business Recorder has learnt. The Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on Tuesday approved the recommendations of the ECC subcommittee to review the cross subsidy on feed gas for fertilizer plants under Fertilizer Policy 2001.

"A proposal to give direct subsidy on urea to farmers is being considered," sources said. The government may switch to direct subsidy on urea to farmers due to reported misuse of cross subsidy on feed gas by fertilizer manufacturers. The current cross subsidy on feed gas is aimed at ensuring supply of fertilizer to farmers at economical rates but the price of fertilisers escalate during the peak season, which is beyond the reach of farmers.

Sources said that under Fertiliser Policy 2001, the government was providing cross subsidy up to Rs 276 per MMBTU on feed gas for fertiliser plants. The burden of subsidy is being borne by other consumers such as power, captive power plants and general industry including textile.

"The government wants to rationalise the cross subsidy mechanism since the general industry, particularly export-oriented, has been requesting it," sources said, adding that the enhanced cost of production due to additional burden of cross subsidy had made it difficult for them to compete in the international market.

Sources said that general industry had also suggested direct subsidy to fertiliser consumers. At the time of promulgation of Fertiliser Policy 2001, there was abundance of gas in the country, "but now there is a widening gap between demand and supply and therefore, Fertiliser Policy 2001 needs to be reviewed," sources added.

The ECC discussed post-'Balancing, Modernisation and Replacement' (BMR) concession for feed gas for Pak-American Fertiliser Limited and allocation of 16 mmcfd gas from SNGPL system for expansion in fertiliser production by Pak Arab Fertilisers Limited. The ECC approved recommendations of its subcommittee regarding deadline for signing Gas Sales Agreement (GSA) as given in Fertiliser Policy 2001, under clause 2.1.4 to be extended to June 30, 2012.

The Ministry of Food and Agriculture said that urea shortage had been projected till 2012 onward and the country required to have new fertiliser plants and BMR concession on feed gas for existing plants to expand operations. The Ministry of Industry recommended to allocate gas for fertiliser sector on priority basis as urea shortage will continue till 2012 onwards.

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Offline Karuli

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Re: Fertilizer Sector
« Reply #10 on: March 11, 2010, 11:34:49 AM »

Offline Farzooq

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Re: Fertilizer Sector
« Reply #11 on: March 15, 2010, 11:49:47 AM »
Fertilizer: Urea Prices up by PkR30/bag; Look at FFC 

As per industry sources, Engro has increased urea price by PkR30 per bag, taking transfer price to PkR780 per bag, citing inflationary pressures. In this regard, we expect other fertilizer manufacturers to follow suit as well. In our view, delay in Fatima Fertilizer's urea plant commissioning has likely provided a reason for hiking prices where manufacturers are pouncing to take advantage of the demand-supply mismatch till arrival of Engro's 1.3mn tons capacity in 2HCY10. That said, the price increase will bode well for manufacturers where we see a positive impact of PkR1.50/share, PkR1.05/share and PkR0.21/share on the bottomlines of Engro, FFC and FFBL, respectively. At current levels, Engro remains our top pick within the Fertilizer sector with a target price of PkR250.3 per share. In the short term, however, we recommend FFC to investors on the back of probable robust 1QCY10 result (urea sales as well as good 4Q FFBL dividend) and payout expected in excess of PkR4 per share.
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #12 on: March 22, 2010, 11:21:48 AM »
Fertilizer: Better Price and Demand Projections Leading to Upwards Revisions in our Estimates
   Delays in Fatima Fertilizer’s urea capacity is expected to bode well for existing fertilizer producers, which coupled with higher urea prices, should provide bottomline growth for FFC

   Our EPS estimates for FFC have been revised upwards by 6-16% while fair value for the stock has been revised upwards by 12% to PKR120/share

   Phos acid prices have significantly rallied and currently stand at USD610/ton compared to USD420/ton during December 2009; as a result DAP prices have increased to PKR2,600/bag an increase of 30% over last years average

   EPS estimates for FFBL have been revised upwards as well, with CY10 EPS forecast now standing at PKR4.3 while fair value has been revised upwards by 3% to PKR35/share

   Potential upside to fair value for FFC and FFBL now stand at 12%, resulting in our ADD stance on the two stocks while our top pick from the sector continues to be ENGRO which reflects potential upside of 28% to our SoTP fair value of PKR239/share
 
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Offline Karuli

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Re: Fertilizer Sector
« Reply #13 on: April 12, 2010, 06:11:32 PM »
Import of 50,000 tons of urea: TCP awards tender to Dubai-based supplier
KARACHI (April 11, 2010): The Trading Corporation of Pakistan (TCP) on Saturday awarded the second urea import tender of 50,000 tons to a Dubai-base supplier at a lowest price of $304.40 per ton. In pursuance of the Economic Co-ordination Committee (ECC) of the Cabinet decision to import 100,000 tons urea to meet the requirement of Kharif 2010, TCP opened second urea import tender on Saturday for the purchase of 500,000 tons of urea

Toshi

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Re: Fertilizer Sector
« Reply #14 on: April 16, 2010, 02:51:23 PM »
Harvesting Return
FFBL and FFC have outperformed the KSE-100 Index by a staggering 150% and 121% respectively from Jan09, on account of i) low base effect, ii)improvement in economic indicators, iii) easing interest rate and iv) revived fertilizer offtakes following easing international prices. Higher Urea and DAP prices and resultantly higher margins, are expected to boost the Fertilizer sector profits through CY10. Despite the massive spike in stock prices, we believe there is still sizeable upside potential in terms of total stock returns.

Topline support to come from high fertilizer prices
Urea and DAP prices have been on an uptrend since the beginning of CY10. Urea prices have been raised by a cumulative PKR 50 per bag YTD to currently stand at PKR 780 per bag. We expect a further price revision in July coming on the back of increased gas prices. For the full year, we expect average Urea prices to be up 12% YoY at PKR 784 per bag. After following a falling trend through 1H CY09, DAP prices picked up in the latter part of the year and more strongly so in CY10. Local DAP prices have already seen three price revisions YTD and are up 21% YTD at PKR 2,560 per bag, inline with the international price trend.

Volumetric growth to slow to 2%
Fertilizer demand revived in CY09 on the back of lower average prices and reached its highest ever levels, with Urea offtake at 6.5mn MT, registering 17% YoY growth. Similarly, DAP volumetric sales increased by 124% YoY at 1.69mn MT in CY09. Going forward, we believe that momentum in offtake will undergo a correction in CY10 due to the high base effect, with growth in Urea sales slowing down to 2% YoY. Despite higher DAP offtake in 1Q CY10, volumetric sales for the full year are expected to record negligible growth at 1.7mn MT.

Margin Magic
Not withstanding slowdown in offtake, fertilizer margins have been snowballing since the beginning of CY10, and are expected to peak in 1H CY10. Urea manufacturers continue to boast pricing power ability as evident from the recent price increase of PKR 30 per bag. That combined with uptick in DAP prices and resultantly higher primary margins for traders and FFBL alike, is expected to boost the Fertilizer sector profits through CY10.

High dividend yields take total stock returns to an excess of 20%
With average CY10E Dividend Yields in the range of 12%, FFBL and FFC are amongst the highest dividend yielding stocks in the IGI Universe. We believe that at current prices, upside potential combined with dividend yields makes total stock returns attractive. The Sector is trading at a PE of 8.8x based on CY10 earnings, which is at a discount of 4% to its 3yr historical average PE of 9.13x. We maintain a bullish stance on the sector with a BUY rating on FFC and FFBL.

IGI Research

Offline Farzooq

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Re: Fertilizer Sector
« Reply #15 on: May 10, 2010, 10:32:52 AM »
FFC & FFBL: downward revision in earnings estimate

Despite decent results during 1Q2010, performance
of the fertilizer stocks has been marred by the
ongoing gas curtailment issue. In light of the same,
we have tweaked our full year (2010) earning
estimates for the two Fauji group companies as well.
We have adjusted down, Fauji Fertilizer Company’s
(FFC) earnings a little, due to lower margins on urea
during 1Q2010, which came in at 42% (our initial estimate
was 46%). A 20% gas curtailment followed by a price hike of
Rs75 per bag coupled with revision in primary margins are the
main reasons for adjustments in FFBL’s (Fauji Fertilizer Bin
Qasim Limited) earnings. We now expect the FFC to post
profits of Rs9.35bn (EPS: Rs13. vs. Rs9.51bn (EPS:
Rs14.0) and FFBL of Rs3.23bn (EPS: Rs3.46) vs. Rs3.87bn
(EPS: Rs4.15) earlier and maintain a ‘Hold’ on both the
scrips.

FFC: lower margins to dent earnings
Our revision in FFC’s full year (2010) earnings estimate has
come not because of the gas cut back issue, but owing to the
lower margins during 1Q2010 which we initially estimated to
be around 46%. Higher cost of goods sold mainly driven by
increased repair & maintenance expense (up 119%YoY) and
salaries & wages (up 64%YoY), led to margins being
squeezed to 42% during the quarter under review. Moreover,
in light of the gas curtailment issue (FFC currently being
supplied 7% less gas) we have revised our production
efficiencies and product pricing (urea prices up Rs75 per bag)
which technically offset any cost imbalances. Furthermore,
with FFC already receiving Rs2.75 per share as dividends
from its investment in FFBL, we do not foresee any major
change and maintain our full year dividend expectation of
Rs3.75 per share from the company.
Our full year (2010) earnings estimate has been revised to
Rs9.35bn (EPS: Rs13.78) compared to Rs9.51bn (EPS:
Rs14.0) earlier. The scrip currently trades at a 2011F PE and
dividend yield of 8.2x and 11.9% and maintain our ‘Hold’
stance on the scrip.

FFBL: gas curtailment to dampen 2010 earnings
FFBL is the one of the three major fertilizer companies which
has been hit most by this gas load management program.
Due to its gas supply coming from the Sui networks, the
quantum of gas reduction being curtailed for FFBL currently
stands at 20%, which even with the recent raise in urea prices
will not offset resulting production cuts and inefficiencies of
the plant. Consequently, the company is likely to take a hit of
Rs0.36 per share. Moreover, given the recent surge in
phosacid prices to US$775 per ton, up 29%YTD, we have
also revised our primary margin estimates for the current year
to US$260 per ton from US$278 per ton earlier. Hence, we
expect the company to post earnings of Rs3.23bn (EPS:
Rs3.46) compared to profits of Rs3.87bn (EPS: Rs4.15)
earlier.
The scrip currently trades at a 2011F PE and dividend yield of
8.7x and 10.6x% respectively and we main our ‘Hold’ stance
on the scrip.

New Old ?%
Fauji Fertilizer Company
PAT (Rs mn) 9,350 9,517 -2%
EPS (Rs) 13.78 14.03
Target Price 132 135
Fauji Fertilizer Bin Qasim
PAT (Rs mn) 3,235 3,873 -16%
EPS (Rs) 3.46 4.15
Target Price 32 35
Source: JS Research

Outlook: ‘Market-weight’ maintained
The stark price differential between domestic and
international urea prices (US$157 per ton) remains a major
comforting factor for fertilizer manufacturers, because its
enables them to raise prices further if need be. Further, the
companies long term objectives of investing in the highly
attractive power sector, remains a major trigger going
forward. Hence, we maintain our ‘Market-weight’ stance on
the sector with a ‘Buy’ call on Engro while recommending
‘Hold’ for FFC and FFBL.
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #16 on: May 21, 2010, 11:19:54 AM »
Urea: Alternate gas strategy to boost prod.

Latest newsflow suggests that the government and fertilizer producers are in the process of deciding upon an alternate solution for gas curtailment to the producers and compensation on account of the same.

The proposal suggests restoration of 12% Mari gas curtailment to urea producers (Engro & FFC) while producers on Sui network are to be compensated accordingly.

This would likely result in an uptick in domestic production and correspondingly lower imports (to 0.25mn tons for Kharif vs 0.40mn earlier).

We view the development, an indication of the strong bargaining power of Pak urea producers' vis-à-vis the government, as positive for the sector. We remain Buyers of both Engro (PO: PRs265/sh) and FFC (PO: PRs117/sh).
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #17 on: June 11, 2010, 12:03:48 PM »
Impact of FY11 Budgetary measures on Fertilizer Sector
The austerity measures announced in the FY11 Budget, such as increase in FED on natural gas, are expected to have a neutral impact on Fertilizer sector companies. No mention was made with regards to subsidy on imported fertilizers. According to our calculations, even if ENGRO's new plant comes online on time (Sep10), there will still be a shortage of Urea in the 1H FY11 of approximately 250k MT. Should, the government import any urea, we believe that it will have to be subsidized to be sold at local prices. An import of 250k MT of urea will require a subsidy to the tune of PKR3.5bn. Furthermore, the budgetary measures of provision for tax credit on BMR and enlistment will be key positives for ENGRO. Also,  some of the relief measures highlighted in the Customs and Sales Tax bills are also expected to bode well for Engro Corp, mainly via its 100% owned subsidiary, Engro Foods.

Outlook
With prices of the IGI Fertilizer scrips down 9-10% from the peaks in Apr10, we believe that risks associated with gas curtailment have been more than priced in. The decline in output of manufacturers will continue to be compensated for in terms of higher Urea prices. Overall, we do not foresee any impact on our bottomline estimates. Thus, we maintain our positive outlook on the sector and reiterate our BUY on FFC and FFBL.

IGI Research
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Re: Fertilizer Sector
« Reply #18 on: September 12, 2010, 12:52:57 PM »
Fertilizer consumers are farmer community. What is the future outlook of Fertilizer sector post floods especially ENGRO, FFC and FFBL? Also I have certain queries in this sector.
1. FFBL plant is established in Karachi and most of its product is consumed in Sindh while FFC in Punjab?
2. DAWH major consumption areas are Lahore, Gujranwala, Shiekhupura, Sialkot?
3. AGRITECH is mostly consumed in Mianwali, Sargodha and adjoining areas?

Thanks
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