LAHORE: The urea offtake increased 24 percent year-over-year (YoY) in July to 574,000 tonnes but declined 51 percent month-over-month (MoM), according to the data released by the National Fertilizer Development Centre (NFDC). The sequential decline in offtake is as a result of high base effect.
The farmers had delayed their purchase decision in May this year in the anticipation of subsidy on urea. Moreover, the budgetary announcements included punitive action for selling urea to unregistered dealers (initially with effect from July 2020) which resulted in pre-buying in June this year.
According to Senior Research Analyst at AKD Securities Limited Ailia Naeem, the increase was witnessed across the board on YoY basis, except for Fauji Fertilizer Company Limited (FFC) which had urea offtake down 37 percent YoY. Engro Fertilizers Limited (EFERT) led the growth accounting for approximately 60 percent of the month’s urea offtake.
Ailia maintained that with EFERT’s [Engro Fertilizers] inventory having normalised to approximately 120,000 tonnes vs. hitting a high of 600,000 tonnes during the year, the company was quick to increase urea price by Rs25 per bag in early August, to make up for a comparatively higher decline of Rs400 per bag in urea price as compared to Rs160 per bag cost reduction benefit post GIDC [Gas Infrastructure Development Cess] elimination.
The senior research analyst added that the price hike may result in normalization of EFERT’s offtake in coming months. On cumulative basis, the urea offtake remained flattish YoY, clocking in at 3.2 million MT for 7MCY20.
She said that dismal offtake in the month of July this year has made FFC to lag on cumulative basis, whereas Fatima Fertilizer Company Limited (FATIMA) and Fauji Fertilizer Bin Qasim Limited (FFBL) led the pack.
She further shared that the seasonality effect results in higher DAP offtake: DAP offtake for July increased 41 percent to 247,000 MT, due to onset of Rabi season. On cumulative basis, FFBL remained at the forefront, with DAP offtake up 18 percent YoY in 7MCY20.
On the recent GIDC decision by the Supreme Court, Ailia predicted that FFC, EFERT, FATIMA and FFBL may be able to pay approximately 70 percent, 45 percent, 30 percent and 20 percent overdue GIDC payables through existing short term investments and cashflow.
She added that AKD Securities highlight FFC as the top pick in Fertilizer sector due to: (i) best liquidity situation as aforementioned and (ii) healthy EBITDA generation, which will enable the company to sustain its D/Y north of 11 percent in CY20. She opined that the worst affected Fertilizer players include FFBL, with food subsidiaries already causing a drain on company’s liquidity. Engro Fertilizer and Fatima Fertilizer may be adversely affected if GIDC is also collected on concessionary gas.
