Tellimer

Pakistan Fertilizers: April 2021 – Elevated offtake amid higher purchasing power

  • Urea offtake during April 2021 clocked in at c.309,000 tons, up 28% yoy but down 10% mom.
  • We expect that fertilizer offtake in CY21 will remain elevated due to higher commodity prices & better farmer economics
  • During the month, DAP prices increased by almost PKR100/bag; the present trend is particularly beneficial for FFBL

As per NFDC data, Urea offtake during April 2021 clocked in at c.309,000 tons, up 28% yoy but down 10% mom. The yoy surge in offtake was mainly led by better farmer economics and lower offtake SPLY as compared with the previous three years’ average of c.536,000 tons. On a cumulative basis, in 4MCY21, Urea offtake increased by 35% yoy to 1.7mn tons; the sales volumes of FFC/EFERT/FFBL increased by 7%/32%/106% yoy.

Urea ex-factory prices were flat mom at c.PKR1,672/bag but have increased by PKR68/bag yoy from PKR1,602/bag in April 2020; the increase is mainly due to inflationary pass-on, in our view.

Industry Urea inventory stood around 531,000 tons by the end of April, compared with c.298,000 tons at the beginning. Normal offtake amid elevated production due to resumption of operations of RLNG based plant has led to higher inventory levels, in our view.

DAP offtake in April reduced by 70% yoy and 68% qoq. This is attributed to pre-buying in the initial months of 2021 and off- season impact as well. DAP inventory stood at c.133,000 tons by the end of April, down 68% yoy. During the month, DAP prices increased by almost PKR100/bag to PKR5,380/bag; the present trend is particularly beneficial for FFBL.

We expect that Urea and DAP offtake during CY21 will remain elevated mainly due to higher commodity prices and better farmer economics. The expected announcement of subsidy on fertilizer products in FY22 Budget will also support the Fertilizer sector through higher demand.

Pakistan is a net importer of Phosphate based fertilizer (up to 60% of local demand) and presently FFBL is the only DAP producer in Pakistan. To narrow the gap with import-based fertilizers, FFC has shown intention to set up another DAP plant in Pakistan, and FFC is presently in talks with the government for an incentive package, in our view.

EFERT’s overhang around the concessionary gas arrangement is not yet resolved and if nothing materializes by the end of June 2021, the company will be charged the normal rate for the feed gas of the Enven plant. This is a key drag for the overall profitability of EFERT, and we have already incorporated this in our estimates.

We maintain our Marketweight stance on the sector, where the recent increase in DAP margins coupled with rise in other fertilizer products has lifted profitability sector-wide. We prefer FFC (TP PKR136/sh) and EFERT (TP PKR75/sh) in the space, as both stocks are offering attractive CY21 D/Y of 12% and 16%, respectively.


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