Equity Analysis /
Pakistan

Fertilizer: Nov’22: Urea offtake up despite production challenges

  • Urea sales in Nov’22 witnessed a recovery in sales, increasing by 2% YoY to c.583,000 tons.

  • DAP offtake increased to c.236,000 tons, up 8% YoY. This takes 11MCY21 offtake to c.1.0mn tons, down 41% YoY

  • Going forward in CY23, Urea offtake will likely remain above 6.1mn tons, similar to the last few years average.

Intermarket Securities
27 December 2022

According to NFDC, Urea sales in Nov’22 witnessed a recovery in sales, increasing by 2% YoY to c.583,000 tons (the slump in Oct’22 was 16% YoY).  Sequentially, Urea offtake recovered by 36% MoM owing to i) higher contribution being generated from FATIMA, and ii) seasonality factor. Urea offtake for 11MCY22 stands at c.5.8mn tons, similar to last year, where offtake of AGL and FATIMA rose by 76% and 28% YoY, while that of Fauji group and EFERT declined by 2%/19%, respectively. We remain Overweight on the sector owed to handsome payouts and sustainable earnings, which stand out in the current difficult environment.

  • Urea ex-factory prices remained unchanged during the month at PKR2,155/bag. However, dealer premium in the local market remained elevated during the month. 

  • Industry urea inventory level stood at c.313,000 tons in Nov’22, down from c.449,000 tons in the previous month, while up from c.98,000 tons in Nov’21. MoM decline in inventory is due to maintenance shutdown of EFERT’s Enven plant and elevated offtake during the month.

  • DAP offtake increased to c.236,000 tons, up 8% YoY and 3.3x MoM. This takes 11MCY21 offtake to c.1.0mn tons, down 41% YoY, owing to the spike in international DAP prices, PKR slippage and recent floods. The market share of Fauji group has reduced to 54% in 11MCY21 from 59% in SPLY.

  • DAP inventory level increased to c.562,000 tons in Nov’22, up from c.492,000 tons in the last month and c.245,000 tons in Nov’21. Overall depressed offtake amid elevated international DAP prices and floods, coupled with higher inventory being carried by dealers during the year, led to an abnormal inventory pile up. About 50% of the inventory is being held by FFBL, and this is the reason FFBL has shut down it’s DAP plant and brought forward planned maintenance to January 2023.

  • Going forward in CY23, Urea offtake will likely remain above 6.1mn tons, similar to the last few years average. However, DAP offtake will remain a key challenge for the industry given higher inventory being held by dealers and elevated international DAP prices.

In addition, better gas availability should ensure elevated production levels for the industry in CY23. Further urea price hikes may be on the cards due to an expected rise in gas prices, and pricing power reinforces our liking for the sector. FFC remains our top pick in the fertilizer space with a forward dividend yield of 18% and a TP of PKR 120/share.