Urea off-take increased 2.5x Y/Y in Jan’21

Dear Clients,

Urea off-take increased 2.5x Y/Y in Jan’21 because of low base effect

As per the latest data released by NFDC, domestic urea sales increased 2.5x Y/Y to 649k tons in Jan21 due to low base effect. To recall, urea off-take decreased to 262k tons in Jan19 as the dealers built up significant urea inventory in Dec19 in anticipation of potential price hikes following a substantial increase in gas prices (the gas hike, however, never materialized). Sequentially, urea off-take decreased by 26% M/M.

EFERT recorded the highest urea off-take growth in Jan21: Company wise, EFERT recorded the highest growth in urea off-takes in Jan21, posting an increase of 4.7x Y/Y. This was followed by FFC that registered a growth of 3.0x Y/Y in Jan21 due to low base effect. In contrast, FFBL’s off-takes saw a substantial decrease as the plant was shut in Jan’21 for maintenance and resumed operations in Feb’21.

DAP off-take increased 88% Y/Y in Jan21: During the period under review, DAP sales increased by 88% Y/Y to 82k tons as opposed to 44k tons in the SPLY. Sequentially, the off-takes decreased by 60% due to lower imports by EFERT and FFC amid shortage of DAP international market. Additionally, plant shutdown of FFBL also resulted in lower DAP volumes for the company. Furthermore, industry volumes for CAN and NP depicted a volumetric growth of 189% Y/Y and 150% Y/Y, respectively, in Jan21.

Urea inventory closed at 99k tons in Jan21: To highlight, urea inventory closed at 99k as opposed to 390k tons in corresponding period last year. Meanwhile, DAP inventory clocked in at 106k tons, during the period under review.

Investment perspective: To highlight, DAP prices have increased to ~PkR 4,500/bag locally because of higher international DAP prices. We expect the DAP demand to come under pressure given the delay in materialization of DAP subsidy. We like FFC in Fertilizer space based on attractive dividend yield of 10% and stable cash flow generation. We have an Outperform stance on the stock and our target price stands at PKR125/sh that provides a decent upside of 15% from the last close.

Regards,
KASB Research

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