Author Topic: Fertilizer Sector  (Read 141221 times)

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Offline bhuttog

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Re: Fertilizer Sector
« Reply #299 on: December 13, 2011, 03:02:05 PM »
any news in price increase by engro ??
Haven't increase any price yet

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Re: Fertilizer Sector
« Reply #299 on: December 13, 2011, 03:02:05 PM »

Offline Farzooq

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Re: Fertilizer Sector
« Reply #300 on: December 13, 2011, 03:34:50 PM »
any news in price increase by engro ??
Haven't increase any price yet

I guess they will do it on 1st jan now.
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Offline AGz

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Re: Fertilizer Sector
« Reply #301 on: December 14, 2011, 11:01:33 AM »
any news in price increase by engro ??
Haven't increase any price yet

I guess they will do it on 1st jan now.

Most likely cause this will  not only give them a chance to decide whether to forward or not to forward cess impact. Plus, a prices revises during first quarter normally. Hence, it will make possible to increase a good amount, comparatively.
Aurangzeb A. Durrani
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Offline malikk

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Re: Fertilizer Sector
« Reply #302 on: December 14, 2011, 01:28:16 PM »
any news in price increase by engro ??
Haven't increase any price yet

I guess they will do it on 1st jan now.


Farzooq bhai , any idea about the divident announcement of FFBL and how much ????  :skeptic:
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Offline imran.hafeez

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Re: Fertilizer Sector
« Reply #303 on: December 14, 2011, 01:32:51 PM »
Reason for increasing prices on 1st Jan are following:

They will be able to pass on Gas Cess and December production loss in one go

Had fertilizer sector increased prices in Dec and again in Jan, Govt would have come into action again.

This time, i feel govt will not interfere if price increase is not beyond Rs 200
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #304 on: December 15, 2011, 02:16:42 PM »
Given recent gas supply situation in the country, the
fertilizer sector has proven to be the most volatile
sector at the KSE. Despite gas curtailment, 2011 has
been a bountiful year for the fertilizer sector in terms
of profitability, particularly FFC which has
outperformed the market by 59% YTD. However,
with the persistent gas load shedding and the
approval of Gas Infrastructure Development Cess (GIDC) by
the National Assembly indicates tough times ahead for the
fertilizer sector. This is also highlighted from the price
performances of ENGRO, FFBL and FFC off late down 51%,
25% and 22% from their respective peak levels during 2011.
The question that arises is whether the recent price meltdown
has fully priced in the negatives or not? We believe the
implementation of GIDC and the equalization tax to pose
downside risks for FFC. Currently, our fair value for FFC is
Rs208, however, we recommend cautious stance on it due to
the uncertainties that may hurt FFC earnings moving forward.
Whereas for ENGRO we believe, most negatives are already
priced in at these levels, hence we reiterate our BUY stance
on the stock.

GIDC: The incremental cost pass-through
According to some sources, on account of GIDC the GoP has
decided to increase fertilizer feedstock gas prices by 193% to
Rs299/mmbtu from Rs102/mmbtu. The incremental cost
impact of GIDC and the extent that urea manufacturers are
able to pass it through to end consumers has emerged as a
key question. GIDC is likely to impact old urea plants only,
while ENGRO’s Enven and Fatima are expected to get
feedstock gas supplies at their previous subsidized rate
because of their agreement with GoP. Therefore, the
incremental cost impact on ENGRO due to GIDC will be
~50% compared to FFC.
FFC so far has been a major gainer of urea price hikes by
ENGRO. However, in this situation we believe ENGRO will
only raise urea prices to cover its incremental cost impact.
Whereas, FFC can see taking a brunt on its earnings as the
company will only be able to pass ~50% of the incremental
cost impact, because it won’t be in a position to justify price
raise by itself. Consequently, we foresee FFC’s 2012-14
earnings estimate will be revised downwards by 15-17% and
its target price will drop down to Rs192.

GIDC: Sensitivity analysis of FFC
0% 50%
Base Case 2 08 2 08
Rs100/mmbtu 1 93 2 01
Rs150/mmbtu 1 84 1 96
Rs197/mmbtu 1 77 1 92
Source: JS Research

Fair Value (Rs) Incremental cost pass through
GIDC
Proposals to tackle the urea prices
The uncertainty pertaining to the fertilizer sector doesn’t end
here. Due to uproar by the farmers amid higher urea prices,
GoP is considering different proposals to tackle with the urea
price issue. Amongst them, includes the shifting of Engro’s
Enven plant from SNGP network to SSGC and equalization
tax which plans to tax those fertilizer producers facing lesser
gas curtailment. This measure is being undertaken to
compensate those manufacturers facing excessive gas
shortages. Consequently, it may result in urea prices to get
under control.

These issues have caused uneasiness amongst investors
and prompt them to rethink their investment case for FFC
which managed to report record level of 3Q2011 gross margin
of 58% i.e. abnormal compared to its average historical gross
margin of 38% from CY05-09. The resumption of gas supply
to ENGRO either through SSGC or any other mean on stable
basis may further hurt FFC’s earnings. Though at this point in
time it seems a distant probability keeping in mind gas has
again being suspended by SNGP to Enven plant despite
commitments from GoP, however, we can’t rule it out
completely. If that happens, ENGRO may have to reduce its
urea prices due to regulatory pressures, followed by others.
To recall, urea manufacturers have increased urea prices
worth Rs460/bag (including GST) during CY11. Moreover, the
equalization tax if implemented will further dampen FFC’s
earnings and won’t impact ENGRO’s earnings and it will be
maintained.

Recommendation
Considering the prevailing uncertainty in the fertilizer sector,
we believe the best is behind us. We believe the
implementation of GIDC and the equalization tax to pose
downside risks for FFC. Currently, our fair value for FFC is
Rs208, however, we recommend cautious stance on it due to
the uncertainties that may hurt FFC earnings moving forward.
Whereas for ENGRO we believe, most negatives are already
priced in at these levels, hence we reiterate our BUY stance
on the stock.

jsgcl
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Offline Ghayyas

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Re: Fertilizer Sector
« Reply #305 on: December 16, 2011, 11:50:18 AM »
Government wants the fertilizer manufacturers to bring down their prices.

http://www.dawn.com/2011/12/16/eccs-ban-on-import-of-cng-kits.html


Offline aliraza

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Re: Fertilizer Sector
« Reply #306 on: December 16, 2011, 09:37:42 PM »
senior it is true govt ban gas today all fertilizer plant trigger samaa tv news

Offline Farzooq

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Re: Fertilizer Sector
« Reply #307 on: December 17, 2011, 12:08:04 AM »

Urea rate starts rising again
 By: Usman Cheema | Published: December 16, 2011

ISLAMABAD - Prices of urea fertilizer after a dip has started increasing again as selling price of urea fell to Rs 1,500 per bag from more than Rs 2,000 and now again it is rising with the artificial shortage created by the traders.

As per market sources the price of urea fertilizer has again reached Rs 1,700 per bag that was Rs 1,500 few days back. The reason is that the farmers now need the product as its use begins with the first irrigation of wheat crop that is due within few days. As per experts this year the government might not be able to achieve wheat production target due to several reasons and one of them is lesser use of fertilizer DAP and urea both. DAP is supposed to be used before sowing of crop and the farmers used it fifty per cent due to inflationary prices of the product.

The price of DAP fertilizer is more than Rs 4,000 at the moment and it is also pertinent to mention here that distributors and importers still have its stock due to lesser sale. They due to this factor also tried to sell it forcefully to the growers by making it mandatory to buy one bag of DAP along with urea fertilizer.

That thing couldn’t help but it gave negative effects as the farmers also refused to buy urea fertilizer in the presence of this condition. While all this was happening, the government acted as a silent observer and did nothing during the whole time rather provincial and federal governments tried to put responsibility on each other.

As per sources Rs 1,700 for one bag of urea is unjustified price and the traders or the manufacturers were looting the farmers and were enjoying the benefit of loose control of the government.

The wheat cultivation area has also been decreased this year and already this seems not possible to achieve wheat production target of 25 million tons in the country. If the fertilizer remains costlier for the growers they would not be able to use it as required thus causing yield of the crop even lower.

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Offline Farzooq

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Re: Fertilizer Sector
« Reply #308 on: December 17, 2011, 12:09:43 AM »
Four urea plants face closure


 Our Staff Reporter | Business | From the Newspaper
 Yesterday
LAHORE: The fertiliser sector believes that if policies of preferential treatment in supply of gas to certain industries continue, the four plants on the SNGPL network could ultimately face permanent closure meaning the loss of cumulative urea production capacity of up to 2.2 million tons.

The officials of the sector maintain that fertiliser plants on the SNGPL network were facing huge losses due to non-availability of gas despite repeated assurances from relevant quarters on the contrary.

According to the industry sources, currently four major fertiliser plants run on the SNGPL network and all of them have seen their production dropping by varying, but whooping degrees since January this year.

Dawood-Hercules has suffered by a production loss of over 50 per cent drop, Pakarab by 25 per cent, Agritech by 62 per cent and Engro by 60 per cent. Dawood Hercules Fertiliser Limited and Engro even are currently completely shut down due to gas supply being denied, whilst remaining two plants with less production capacity are currently running.

Dawood Hercules has suffered more than other units on the network, claimed its CEO, Rashid Lone. To date, it has been without gas for 180 days since January and fears that it will not get gas for the remainder of December.

The plant has produced only 200,000 tons this year as compared to 456,000 tons last year. The loss of production, which is more than 50 per cent as compared to last year, has not only contributed to an increase in urea prices but also forced the government to import urea, said Lone. So far, the government has imported 700,000 tons costing $378 million, including Rs21 billion as subsidy at the sale price of Rs1,500 per bag. This is a sizeable cost to the exchequer, he added.

Dawood Hercules Fertilisers, because of its location, has been the main source of urea for the last four decades to the farmers of central Punjab and Khyber Pakhtunkhwa. It has now been consistently struggling to get gas but efforts have been fruitless.

In the meeting held on November 15 with Minister for Petroleum and Natural Resources Asim Hussain and the secretary, it was decided that all four units would continue getting gas till the end November. The secretary also promised to have another meeting on November 29 to discuss supply of gas during December.

The sources in the industry claimed that four factories were promised supplies from mid to end November. But, the SNGPL, in clear violation of the directives, decided to curtail gas to fertiliser factories to 100 million cubic feet a day (mmcfd) instead of 170mmcfd on rotational basis, covering Engro-Agritech as one group and Pakarab-DH as second group.

The supply to each group was on 15-day rota basis. Accordingly, Engro and Agritech were scheduled to get gas supply till 15th December 2011 and Pakarab and DH were closed.

On December 3, Asim Hussain directed SNGPL to restore gas to the remaining two units Agritech and DH. Agritech got gas whereas DH Fertiliser is still without gas even today. Pakistan has an installed urea production capacity of 6.9 million tons against 6.3 million tons demand. The total annual urea production for year 2011 is estimated to be 5 million tons. The country is faced with an estimated urea shortage of 1.3 million tons in 2011 out of which government has only catered to import 700,000 tons.
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #309 on: December 17, 2011, 10:30:16 AM »
Urea prices likely to go up by Rs100-175 per 50kg bag
 our correspondent
 Saturday, December 17, 2011

LAHORE: Following yet another sudden curtailment of natural gas to Sui Northern Gas Pipelines Limited (SNGPL)-based fertiliser manufacturing plants, price of 50kg urea bag is expected to increase by Rs100-175, sources said on Friday.

Because of short supply of locally-manufactured urea there is a likelihood that imports are delayed and may not fully cater to the peak demand of the ongoing Rabi season, they said. They also said that the authorities of Sui Northern after facing high demand for natural gas from domestic sector, decided to suspend gas supplies of all the four plants on its network.

These plants with an estimated urea production capacity of 2.2 million tons are now closed for an indefinite period, the sources said. The fertiliser companies are currently selling a 50kg bag at around Rs1,480 inclusive of the general sales tax (GST). Local manufacturing plants have refrained from increasing price of fertiliser primarily because they were provided gas lately by Sui Northern on the directives of the prime minister, the sources said, adding that the intervention by the federal government was aimed at encouraging production of the local urea to overcome fertiliser shortage in the ongoing Rabi season.

Gas supply to local fertiliser plants even also resulted in price decrease in the market as augmented supplies limits trend of hoarding.

Now, when gas is once again not available for urea production and supply has started decreasing in the market with every passing day, the hoarding and black marketing tends to increase once again, the sources said.

Although fertiliser manufacturers say that they have no plan to increase urea prices immediately, one can ultimately expect a price increase of urea if non-supply of gas continues further, they said.

The fertiliser industry reduced the per bag urea price to Rs1,480 from the previous Rs1,580 about a month back after the government had assured the fertilizer sector that in order to meet the urea demand for the Rabi season, it would continue to supply gas till December 31.

But in sheer contrast to the commitment given to the fertiliser sector, two out of four fertiliser plants on SNGPL network were shutdown abruptly with the start of December and the gas supply of remaining two were now also stopped, the sources said.

The price of 50kg urea bag had touched the highest official price of Rs1,900 per bag this year due to successive cuts in gas supplies, which is used as a raw material for urea manufacturing.

Later, the government’s better and timely action brought the price down to Rs1,480 per bag. However, the sources said, this latest sudden decision to discontinue gas supply has raised the chances of a price hike in the coming days.

On the other hand, farmers said that they had already started to feel the burnt, as dealers, on the account of less production, had already started fleecing them.

With improved supply of the locally-produced urea in the market, black marketing and hoarding can be controlled substantially and it would be a win-win situation for the farmers who are facing urea shortage, the sources said.

Meanwhile, all major farmer organisations of Punjab, including Farmers Associates Pakistan (FAP), Agri Forum Pakistan (AFP) and Kissan Board Pakistan (KBP) have criticised the government for suspending gas supply to the fertiliser plants, saying that this act will badly affect the wheat crop.

They also feared that this would lead to further price hike of fertiliser in the market that would badly hit the farming community.

Dr Tariq Bucha, President, FAP, said that despite spending millions of dollars on urea import, the government is unable to manage smooth and timely supply of urea to the farmers on reasonable prices.

He recalled that the government has imported around 1.45 million tons urea this year, which is highest-ever import of urea in the country in a single year. Despite this, he said, fertiliser shortage could not be bridged.

Ibrahim Mughal, Chairman, AFP, said that in an agrarian economy, the government should not undermine the importance of the farming sector.

Various anti-farmer steps, including urea shortfall, would result in serious dent in the productivity of various key crops, he added.

Sarfaraz Khan, Senior Vice President, KBP, said that the government should focus on domestic urea production, which is cheap and can easily be made available to the farmers against the imported urea, which cost heavily to the national exchequer in the shape of huge subsidy and foreign exchange.
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Offline Poker Face

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Re: Fertilizer Sector
« Reply #310 on: December 19, 2011, 04:56:02 PM »
If fertilizer manufacturers increase their price by Rs. 50/- bag after every 2 months, then they can make increase of Rs. 300/- bag in 12 month time and Govt may not object at Rs. 50 increase.
Govt objected when they increased it by Rs. 400 in a single go just 2 months after they increased by Rs. 176
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #311 on: December 20, 2011, 09:37:19 AM »
Cess to push up urea cost by Rs250-300
 Munawar Hasan
 Tuesday, December 20, 2011

LAHORE: Urea price will jump Rs250 to Rs300 per 50kg-bag from January 1, 2012, following the imposition of Gas Infrastructure Development Cess (GIDC) on fertiliser firms, as feedstock cost will go up, said a top industry official on Monday.

National Assembly and Senate have passed the Gas Infrastructure Development Cess Bill 2011 which is likely to be signed by the president in the next few days.

The Cess will be charged from January 1, 2012. The National Assembly approved two money bills to allow the government to collect Rs38.39 billion every fiscal year by imposing GIDC and Petroleum Levy.

Sources said the government aims to collect Rs34 billion a year under this cess. The stated objective of this cess is to generate funds for meeting expenditures of several infrastructure projects, including Iran-Pakistan (IP) Pipeline, Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline, LNG import and LPG supply enhancement.

A top manager of a fertiliser plant said on the condition of anonymity that with imposition of this cess, the price of gas for fertiliser sector would increase from existing Rs102 per mmbtu to Rs299 per mmbtu, showing a whopping increase of Rs197 per mmbtu, or about 200 percent.

To a query, he said that feedstock price was just Rs57 per mmbtu in 2001. Fertiliser sector would be left with no option, but to enhance price of fertiliser and pass on this financial impact to the end users, he said. The price hike in feed gas cost would vary from manufacturer to manufacturer, he added.

Fertiliser plants use 80 percent of gas as feedstock and 20 percent as fuel. To a question, the official said that the subsidy on feedstock would be significantly reduced by factoring in this planned price hike.

An official of another fertiliser manufacturing plant said the government has also increased the prices of fuel gas for fertiliser plants by Rs15 from current Rs433 to Rs448 per mmbtu, putting additional financial burden on fertiliser manufactures.

The cess will be imposed on fertiliser firms, CNG stations, industrial sector, Mari Gas Company, Pakistan Petroleum and independent power producers. Fertiliser sector will yield Rs11.1 billion, CNG stations Rs1.87 billion, industries Rs4.62 billion, IPPs Rs5.88 billion, Mari Gas Company Rs430 million and Pakistan Petroleum Rs460 million.

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Offline M&M

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Re: Fertilizer Sector
« Reply #312 on: December 20, 2011, 11:59:25 AM »
If fertilizer manufacturers increase their price by Rs. 50/- bag after every 2 months, then they can make increase of Rs. 300/- bag in 12 month time and Govt may not object at Rs. 50 increase.
Govt objected when they increased it by Rs. 400 in a single go just 2 months after they increased by Rs. 176
yar govt bhi to aik saath 200% increase kerdeti hey na subkuch .. phir fert. waale kerte hey to govt ko mirchi lag jaati hey
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Offline bhuttog

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Re: Fertilizer Sector
« Reply #313 on: December 21, 2011, 05:56:33 PM »
Price of Engro Urea has increased by 100 Rs. Now booking price will be1580 & Farmer price will be 1600(inclusive of tax).

Offline Farzooq

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Re: Fertilizer Sector
« Reply #314 on: December 21, 2011, 06:03:49 PM »
Price of Engro Urea has increased by 100 Rs. Now booking price will be1580 & Farmer price will be 1600(inclusive of tax).

 :thanks:
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #315 on: December 22, 2011, 12:01:11 PM »
Loss coverage for one, pure profit for another
After two successive price decreases on the back of promised gas supply to Engro, the
company has yet again raised the price of its urea (Rs100/bag) citing same old reason of
gas curtailment. This increase is expected to aid Engro into recovering its production
losses due to plant closure from 8th Dec-11 till date, while duration for the current gas
winter outage is expected to last till mid of Mar-12. As per our expectations, the said
increase is going to help ENGRO recover CY12 earnings by Rs5.7/sh on the basis of our
production assumption for EnVen (450k tons). Once again, this is going to be beneficial for
FFC as it is not nearly facing as much of gas curtailment as is being faced by ENGRO. Hence,
any price increase by ENGRO (owing to gas curtailment) translates into incremental profits
for FFC. Post this price increase, a boost of Rs4.9/sh is expected in full year CY12 earnings of
FFC. Similarly, FFBL's CY12 earnings are expected to be jacked up by Rs0.9/sh.

GDS to greet fertilizer manufacturers in CY12
As per news reports, Ministry of Petroleum is expected to impose GDS on fertilizer
manufacturers, which is said to be around Rs195/mmbtu for fertilizer sector. It is still unclear
whether the said tax is to be imposed on new plants (Fatima and EnVen) or not, and we
could not get the clear picture upon our discussions with different urea manufacturers as
the actual notification regarding the GDS is yet to be received by the manufacturers.
However, general understanding is, if a law is passed, it in most cases applies on every
entity that comes into that particular bracket on which the law has been imposed. We
have done two different sensitivities in this regard to see GDS impact on ENGRO's both
plants. In both cases we expect the company to pass on the incremental impact of GDS
imposition on to the end consumer. In first case, with our production assumption for EnVen,
we expect ENGRO to pass on Rs266/bag (exclusive of tax). The impact is expected to be
minimized by ~28% to Rs191/bag if we exclude EnVen from GDS. While, for FFC and FFBL the
impact of GDS is expected to be around Rs241/bag and Rs322/bag (exclusive of tax for
both), magnified for FFBL because it has less efficient urea manufacturing plant as compared
to other two companies. This may spell into different urea prices for different companies.

Outlook and recommendation - Faujis still better-off
Keeping in mind the gas supply situation in winters, we expect gov't to start placing orders
for further imports, as Rabi harvesting starts from March. Gas supply is expected to remain
erratic for EnVen till mid of Mar-12, while still dicey from then onwards, and this same fate is
being shared by other manufacturers on SNGP network. At current levels, we have a 'Buy'
call on FFC, FFBL and ENGRO, with their respective Jun-12 TPs of Rs240, Rs70 and Rs190.

ENGRO’S COMPLETE GDS PASS-ON AND
CY12 EARNINGS IMPACT ON FAUJIS
Rs/sh Per bag FFC^ FFBL*
With GDS on Engro’s both Plants
266 1.37 (0.60)
260 1.07 (0.66)
252 0.63 (0.74)
With GDS on Engro’s old plant only
191 (2.83) (1.40)
171 (3.95) (1.61)
142 (5.62) (1.92)
Source: InvestCap Rsearch Estimates
*Expected decline in CY12 base-case earnings due to
insufficient price pass-on for FFBL’s less efficient plant.
For breakeven, FFBL needs as much as Rs322/bag (extax)
increase in urea price on account of GDS
^FFC is more efficient than FFBL, therefore, Engro’s
pass-on of the said tax is expected to provide
incremental benefit to FFC’s earnings
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Offline Poker Face

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Re: Fertilizer Sector
« Reply #316 on: December 22, 2011, 12:09:51 PM »
my assumpion of 300-350 bag impact was inclusive of tax
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #317 on: December 22, 2011, 01:33:14 PM »


AKD Research - Off the Analyst's Desk
December 22, 2011
ENGRO raised urea prices by PkR100/bag
ENGRO yesterday raised urea prices by PkR100/bag, reversing last month’s PkR100/bag decline. Urea price now stands at PkR1,580/bag (PkR1362/bag ex-GST). As has been the case in the past, other manufacturers are also expected to follow ENGRO’s price increase. We estimate that ENGRO will have the highest annualized EPS impact (PkR4.15) assuming 40% utilization for ENVEN followed by FFC (PkR3.35), FFBL (PkR0.59) and FATIMA (PkR0.40). As for FATIMA , in case we assume zero utilization for CAN, EPS impact will reduce to PkR0.28.

EPS impact of PkR100/bag urea price hike
ENGRO with Enven @40%            4.15
ENGRO w/o Enven            2.64
FFC            3.35
FFBL             0.59
FATIMA            0.40
 
Source: AKD Research
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Offline Farzooq

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Re: Fertilizer Sector
« Reply #318 on: December 22, 2011, 10:41:55 PM »
Fertilizer sector battling for gas: Ismail Iqbal Securities

By: Yasir Yousuf, Senior Research Analyst, Ismail Iqbal Securities
 
Fertilizer sector is now days battling with various issues to keep the business going in an ideal manner. The sector has enjoyed phenomenal profitability in CY11 with all time high earnings of major key players. Shareholders enjoyed price appreciation and high dividend payouts till 9M11 (barring Engro Corp.). High urea and DAP margins are the major triggers that kept the sector in limelight.
 
As we know country is going through worst phase of gas shortage and efficient allocation is not possible to all the beneficiaries of it. Hue and cry from CNG association, Textile and other sectors to remove subsidy from fertilizer sector on gas (raw material for urea) drew governments’ attention, as a result govt. has levied GIDS (Gas Infrastructure Development Surcharge). The major hit would be borne by fertilizer sector with increase in feed gas price from Rs102/ mmbtu to Rs299/ mmbtu (~200% increase/ Rs197/ mmbtu hike).
 
Impact on key stocks
 
FFC: Fauji Fertilizer has been one of the best stocks that performed both in terms of dividend payout and price appreciation. With increase in feed gas price the impact of Rs230/ bag would be passed on to end users, fortunately Engro raised urea price by Rs100/ bag the same would be followed by FFC too.
 
Interesting thing to note here is that currently urea prices are up by Rs560/ bag YoY basis (Rs1020/ bag Jan’11) consequently FFC’s earnings would register growth (+3% YoY) in CY12 versus CY11. Growth in bottom line would be limited by depressed earnings expected from FFBL consequently dividend payout to FFC would fall by 40% YoY in CY12e. We have ‘BUY’ stance on the stock with Jun-12 TP of Rs230/ share, offers CY12e dividend yield of 16.40% and trading at CY12e P/E of 6.10x.
 
 
 
FFBL: The company’s gas provider is SSGC and the company has witnessed gas outage/curtailment (averaged at 70% for CY11). As per news flow FFBL’s plant would be shut down from Dec 22, 2011 till end of Feb’12. Post resumption of gas flow in March’12 we believe company to face curtailment in CY12 as well consequently urea production would be 450k tons for the year. But the major revenue and profitability contribution comes from DAP offtake and it’s very tricky to forecast the primary margins for CY12. International DAP prices peaked to US$ ~ 660/ ton in CY11 from there on it has dipped to US$ ~ 600/ ton on Dec’14, 2011, where as phosacid still trading above US$ 1050/ ton thus primary margins at current price level stands at US$ 117/ ton. Importers of DAP in Pakistan are still selling it at 3400/ bag (ex GST) or US$ 755/ ton due to higher import cost and imposition of GST inventory flow is slower compared to CY10.
 
We believe primary margins for CY12 to average at US$ 180/ ton consequently FFBL’s earning to witness a big cut in the coming year. We have already recommended Sell stance in our previous report when the stock was hovering around Rs ~53/ share. Our Jun-12 TP for the stock is Rs42/ share.
 
ENGRO: Engro is unfortunately one of the worst business world story in Pakistan’s history just due to unavailability of consistent gas supply to its new project EnVen. Initially the plant came online a bit late as per scheduled date and subsequently was engulfed with gas outages for most of the days post COD in CY11. The new plant never received optimum gas supply since its COD in order to operate at higher efficiency. Currently the plant is waiting for gas to run its affairs, as per news flow SNGPL network fertilizer plants to come online in Feb/ Mar’12. We have estimated 180 production days for new plant in CY12, conversely old plant is on Mari network and immune to gas outage thus would continue its production in full flow as it did in CY11. The recent GIDC cess would not be imposed on EnVen and company would benefit from high urea prices by paying US$ 0.7/ mbbtu (Rs63/ mmbtu) versus Rs299/ mmbtu to entire industry barring Fatima. Despite all these rough phases we have estimated growth in its earnings by ~40% and expect company to register (EPS: 23.92) for CY12e. Currently stock is available at very low CY12e P/E of 3.93x and offers CY12e dividend yield of 6.30%. We have revised down our Jun-12 TP to Rs196/ share and offers upside of 108%.
 
FATIMA: Fatima is the only fertilizer company immune from all woes like gas outage and hike in feed gas prices. The company is getting gas at US$ 0.7/ mmbtu and it receives gas from Mari network. The stock has outperformed among its peers and moved up from 52wk low of Rs9.16/ share to Rs22.82/ to date. We have ‘BUY’ stance for the stock with Jun-12TP of Rs28.25/ share, offers upside of 23.8% and trading at CY12e P/E of 4.66x.
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