AKD Quotidian about — 1HCY13 Fertilizer Off takes update

Karachi, July 29, 2013 (PPI-OT): According to official statistics released by the National Fertilizer Development Centre (NFDC), urea Off take remained flat during IHCYI3 to stand at 2.7mn tons, mainly due to a higher base effect from lower imported urea sales in Jun’12. DAP Off take, on the other hand, surged to 423mn tons, a growth of 58%YoY.

According to AKD Securities among major players, ENGRO’s urea Off take witnessed a sizable growth of 57%YoY to 623k tons while FFBL’s DAP Off take was recorded at 256k tons, higher by 133%YoY. In Jun’13, urea demand revived to 567k tons (up by 17%MoM) while flAP Off take stood at 150k tons (up by 87%YoY).

Going forward, a potential gas price rationalization in Aug’13 poses downside risks across the industry (specifically FFC and FFBL) as pricing power of the major players is tested. AKD Securities expects ENGRO and FATIMA to remain in the limelight in this respect, while improved DAP dynamics are expected to lead to robust earnings growth for FFBL ~n 2HCY13.

IHCYI3 Review: Urea Off take during 1HCY13 stood flat at 2.7lmn tons mainly due to a high base effect (record 1O3mn tons off take during Jun’12 as a result of a sizable industry-wide inventory liquidation during that month).

Lower urea imports during 1HCY13 (down 73%YoY to just 239k tons) resulted in improved market shares for local players, particularly ENGRO, which witnessed a robust urea Off take growth of 57%YoY to 623k tons. Industry DAP off take, on the other hand, surged to 423k tons in 1 HCY1 3, a growth of 58%YoY led by improved demand and price incentives by FFBL (DAP Off take up by 133% to 256k tons) to counter supply side constraints in the urea business.

On a sequential basis, urea demand revived to 567k tons in Jun13, a growth of 17%MoM while DAP off take was higher by 87%MoM at 150k tons due to higher Off take for FFBL and added imports by DH Fertilizers (31k tons) during the month.

Fertilizer Off take 1HCY1F

(536 tons) 1HCY13 YoY Jun13 YoY MoM

Urea 2,707 -1% 567 -45% 17%
DAP 423 58% 150 56% 87%
Company Wise OCtaka
Urea
FF0 1187 5% 209 -60% -14%
FOBS 117 -16% 12 -80% -49%
EUCRO 623 57% 151 -32% 24%
FATIMA I53 -10% 43 -67% 42%
NTMS 520 -36% 119 77% 277%
DAP
FOBS 256 133% 76 72% 40%
EUCRO 80 -21% 24 57% 160%
Other Products
FATIMA (CAN) 226 22% 44 -46% -29%
504IMA)NU) 148 71% 32 5% 2%

Investment Perspective: While demand side dynamics are expected to remain favourable going forward, AKD Securities expects FATIMA and ENGRO to remain in the limelight as a potential gas price rationalization in Aug’13 leads to increase in feedstock prices.

AKD Securities also expects FFBL to post robust earnings growth in 2HCY13, where higher demand and considerable improvement in DAP primary margins are expected to lead growth. FATIMA provides an upside of 42% to AKD Securities TP of PkR36lshare while ENGRO and FFBL both provide upside of 26% to AKD Securities respective TPs of PkR2OBJshare and PkR53/share.

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