JS Securities Limited – JS Research Beep

Karachi, January 03, 2018 (PPI-OT): Provisional Urea and DAP off-take numbers for Dec-2017; urea inventory likely to drop to 232k tons

As per our channel checks, domestic Urea sales in Dec-2017 are expected to clock at ~750k tons, down 16% YoY but up 24.5% MoM. This off-take attrition on a YoY basis can be attributed to last year’s high base of 897k tons due to availability of government subsidy.

As a result, cumulative Urea sales in 2017 are expected to clock in at around 5.9mn tons, up 9% YoY, beating 15-year historic CAGR of 2%. Primary reasons for upbeat sales are 1) bumper Wheat and Sugar crops, 2) optimal utilization of exports quota and 3) substantial subsidy on Urea along with various relief measures provided by the government to support agriculture sector.

Dissecting our company wise data, we highlight Fauji Fertilizer Limited (FFC) and Fauji Fertilizer Bin Qasim (FFBL) to outperform peers during the month, depicting off-take growth of 28% YoY and 126% YoY, respectively (see table for details).

Incorporating above data into our estimates, we believe inventory situation of the industry is likely to drop to 232k tons; down 54% MoM as compared to 506k tons. Going forward, we expect industry’s inventory position to ease further given extension in deadline to export remaining 40k tons and allowance of additional 35k tons exports to Sri Lanka.

DAP sales in Dec-2017 are expected to grow by 36% YoY to 211k tons taking cumulative sales to settle at 2.4mntons in 2017, up by 10% YoY. Company wise data depicts, FFC and FFBL to witness upbeat sales, growing by 12.6x YoY and 22% YoY to 30k tons and 67k tons, respectively. Meanwhile, DAP inventory position remains at comfortable levels of 169k tons; up 12%YoY.