February-11 Fertilizer numbers: Lower availability hampered offtake!

February-11 Urea/DAP ↓ 6%/1% YoY: Offtake of both Urea and DAP registered a decline of 6% YoY and 1% YoY respectively mainly on the back of lower availability due to gas curtailment and plant shutdown for players on Sui network. Cumulative Urea and DAP dispatches plunged by 18% YoY to 807k and 21% YoY to 128k tons respectively during 2MCY11.

Gas curtailment & excess demand keeps prices firm: Urea/DAP prices have surged 37%/24% YoY to PKR1,114/PKR3,211 per bag during Feb-11 primarily attributable to 1) Gas curtailment restricting supply and 2) Excess demand situation prevalent in the country. Despite lower volumes due to gas curtailment and plant shutdowns, we believe top-line will continue to post positive growth on the back of rising prices.

Future outlook – 1Q to be the best for FFC: We foresee a strong year ahead as agricultural activity will pick-up post flood devastation. As far as 1QCY11 financial results are concerned, FFC is most likely to be the best performer. While volumes may trim on YoY basis, earnings growth shall emanate from 1) Strong prices and margins of Urea 2) PKR3.5/share to be received as dividend from FFBL (earning impact of PKR1.77/share).

February-11 Urea/DAP ↓ 6%/1% YoY

During the month of February, volumetric sales of Urea and DAP witnessed a decline to 413k tons and 69k tons respectively, mainly on the back of lower availability due to gas curtailment and plant shutdown for players on Sui network. Cumulative Urea/DAP dispatches during 2MCY11 plunged by 18%/21% YoY to 807k/128k tons. With Kharif sowing season expected to start soon (Sugarcane sowing shall start from February; Rice and Cotton sowing to start from mid April), we anticipate fertilizer demand to pick up. Urea will witness a stable trend throughout the year, while in case of DAP, pre-Rabi season accumulation will come in 2H.

Gas curtailment & excess demand keeps prices firm

During the month of February, Urea prices have surged 37% YoY to PKR1,114/bag mainly attributable to 1) gas curtailment restricting supply and 2) excess demand situation prevalent in the country. Meanwhile, DAP prices have surged 24% YoY to PKR3,211/bag on the back of rising international commodity prices. Consequently, during 1QCY11, despite lower volumetric sales, we believe top-line will continue to post positive growth on the back of rising prices.

Investment Perspective – 1Q to be the best for FFC!

We foresee a strong year ahead as agricultural activity will pick-up post flood devastation. FFC is expected to be the top performer in the sector during the upcoming result season. While volumes may trim on YoY basis, earnings growth shall emanate from 1) Strong prices and margins of Urea and 2) PKR3.5/share to be received as dividend from FFBL (earning impact of PKR1.77/share).

Economic & Political News

Widening gap: Government faces PKR65bn shortfall in tax collection
Authorities are facing a PKR65bn shortfall in the 9MFY11. Provisional tax collection data shows that until March 26, the Federal Board of Revenue (FBR) managed to collect PKR975bn, while authorities were expecting to collect up to PKR25bn in the remaining five days of the month. Still, FBR will be PKR65bn short of the July-March target of PKR1,064bn
Turkey’s move to impose duty on textile: Pakistan to face USD200mn loss
Pakistan would suffer a USD200mn loss in terms of lower textile exports consequent to Turkey’s decision to impose 18% additional custom duty on imports from Pakistan.
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