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R e s e a r c h

P a k i s t a n

Summit Capital

(Formerly Atlas Capital Markets (Pvt.) Limited)

Update Pulse

March 2, 2011

Fertilizer Sector: Offtake dropped by 22% YoY…

Synopsis…

The National Fertilizer Development Center (NFDC) has revealed monthly production and offtake numbers for January 2011. As per the data, urea offtake recorded a decline of 28% YoY to 394k tons against 546k tons during the month of Jan’10 whereas DAP offtake also went down by 36% to 59k tons against 92k tons in Jan’10. On MoM, urea and DAP offtake declined by 37% and 35% respectively. The decline was mainly due to lower demand for Rabi season and higher offtake in Dec ’10 on account of anticipated inventory gains by dealers. Total production of fertilizer stood at 348k tons in Jan’ 11 which is 14% lower than Jan ’10 when total production was recorded at 405k tons due to gas curtailment for 45 days, consequently players suspended their operations.

Industry Fertilizer Offtake

(k tons)

Jan-10

Jan-11

YoY

UREA

546

394

-28%

DAP

92

59

-36%

All Fertilizers

692

540

-22%

Source: NFDC, Summit Research

Latest happenings in the sector…

Kharif season sowing would start from the first week of March ‘11 and for this to ensure the availability of the urea government has been in dialogues with local fertilizer producers and importers for the import of about 225k tons of urea. However, as per the news reports, TCP has finalized the deal with M/s Gavilon Fertilizer LLC USA for the import of 100k tons of urea at a price of $408 per ton (translating into local per bag price PKR1,750). In addition to this, the government has also entered into an agreement with SABIC for the supply 60k tons of urea. Supply from the SABIC is expected to start in a few days which would ensure availability of the urea to the

farmers

requirements.

Outlook and recommendations…

As the per the latest deal finalized by the GoP, urea will be imported at the price of US$408 per ton translating into local price per bag of PKR1,750. Whereas in the local market it is selling at a price of PKR1,020. We believe, local producers even after incorporating impact of US$80 per ton (PKR378 per bag) are selling urea at a discount of PKR352 per bag. This gap between prices of locally producers urea and imported urea ensures space for the further hike in local market.

crop

in

time

to

meet

with

their

Kharif

Our recommended scrips from the sector FFC and FFBL are currently trading at a price levels where our suggestion is to HOLD. Our DCF based target price for FFC and FFBL is PKR123 and PKR41 respectively.

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

Analyst:

Muhammad Sarfraz Abbasi Sarfraz.abbasi@atlascapital.com.pk (+92-21)-111-226-100 Ext 404

HOLD

Market Snapshot Index

Chg

%

KSE 30

11310.68

370.00

3.38

KSE 100

11608.43

319.20

2.83

KSE ALL

8069.24

214.00

2.72

Key Data

12M Avg. Volume (m) ENGRO

1.896

12M Avg. Volume (m) FFC

1.188

12M Avg. Volume (m) FFBL

3.576

12M Avg. Volume (m) DAWH

0.54

150%

125%

100%

75%

50%

12M relative performance vs KSE DAWH KSE-100 FFBL FFC ENGRO Feb-10 Mar-10 Apr-10 May-10 Jun-10
12M relative performance vs KSE
DAWH
KSE-100
FFBL
FFC
ENGRO
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11

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