Karachi, February 03, 2023 (PPI-OT): Fertilizers: Jan-2023E Urea sales to report 3% YoY growth
As per provisional data, Urea sales in Jan-2023 are expected to clock in at 617k tons, up 3% YoY. Similarly, DAP offtake for Jan-2023 is expected to clock in at ~99k tons vs. 113k tons in SPLY depicting a decline of 12% YoY.
FFBL posted the lowest Urea offtake numbers as its plant was offline for annual turnaround amid gas shortages, imported Urea by government took over to meet local demand.
The outgoing month also witnessed a Urea price increase of Rs190/bag by fertilizer manufacturers to pass on inflationary pressures, after a gap of six months.
We reiterate our Overweight stance on the Fertilizer sector given stable margins and cash-rich position supporting higher stable dividends. Our top picks FFC and EFERT offer an average CY23E D/Y of around 19%.
Jan-2023: Imports to help sustain urea sales
As per latest provisional data, Urea sales during Jan-2023 are expected to clock in at 617k tons, up 3% YoY. While major local players likely faced lower or negative growth, government imported Urea sales are expected to help meet demand during Jan-2023, from Dec-end inventory in hand. FFBL posted the lowest offtake numbers as its plant was offline for annual turnaround amid gas shortages. Closing inventory is expected around 242k tons for Jan-2023, broadly likely to be contributed by state-owned National Fertilizer Marketing Limited (NFML).
DAP offtake to decline by 12% YoY
DAP off-take for Jan-2023 is expected to clock in at ~99k tons depicting a 12% YoY decrease. FFBL, sole manufacturer of the product, is expected to post offtake of 53k tons during Jan-2023. FFC and EFERT on the other hand, are expected to post DAP sales volume of 9k tons and 22k tons during the same period, respectively.
Prices for Urea increased during Jan-2023
Recent increase in inflation and devaluation of the rupee has had an effect on the sector’s manufacturing costs. Fertilizer manufacturers responded by increasing the price of urea by Rs190/bag during the outgoing month taking prices to ~Rs2,440/bag (Granular @ Rs2,585/bag). We expect an increase in gas prices in the near future amid IMF’s recommendation to contract energy subsidies. To recall, fertilizer sector companies under Fertilizer policy 2001 receive feed gas (~30% of cost) at Rs302/mmbtu (excluding tax), vis-à-vis industrial gas rate of Rs1,087/mmbtu. We, however, believe the fertilizer sector would be able to pass on the impact of any cost increase to farmers owing to the sector’s solid pricing power.
Sustainable yields on offer
We reiterate our Overweight stance on the sector as it is anticipated to continue to report a steady revenue stream in the future. The sector’s cash-rich position also points toward sustainable pay-outs going forward, with FFC and EFERT offering a CY23 average D/Y of about 19%.