Pakistan, January 19, 2024 : In CY23, urea offtakes remain flat to clock in at 6.64mn tons vs. 6.61mn tons in SPLY. Whereas, DAP offtakes clocked in at 1.56mn tons witnessing an increase of 30% YoY.
Fertilizer prices experienced several hikes during the quarter in anticipation of increase in gas tariff. To highlight, gas prices surged to PKR580/mmbtu for feed and PKR1580/mmbtu for fuel wef from Oct,23 for MARI and Nov’23 for SSGCL & SNGPL, compared to the previous rates of PKR302/mmbtu and PKR1,023/mmbtu for feed and fuel, respectively, for fertilizer players on the MARI network. Meanwhile, players on SSGCL and SNGPL were receiving gas at PKR510/mmbtu and PKR1,500/mmbtu for feed and fuel, respectively.
The unification of gas prices has narrowed the disparity in urea MRP which was prevailing for last few months. We preview EFERT, FFC and FFBL to post EPS of PKR7.3, PKR7.0 and PKR4.9 in 4QCY23, respectively.
FERT PA: Lower urea offtakes to dent margins
EFERT is expected to post consolidated PAT of PKR9.8bn (EPS: PKR7.33) in 4QCY23 up by 53%/2% YoY/QoQ amid better product prices and higher offtakes. EFERT’s urea offtakes clock in at 600kt in 4QCY23 up by 45% YoY whereas on QoQ basis urea offtakes declined by 13%. The impact of this decline was offset by significant increase in DAP offtakes leading to topline growth of 60%/11% YoY/QoQ to clock in at PKR73.7bn during 4QFY23.
We expect gross margins to clock in at 28.4%, down by ~330bps QoQ amid decline in urea offtakes. In 4QCY23, finance cost is expected to remain muted QoQ to clock in at PKR0.5bn. Along with the result, we expect EFERT to announce cash dividend of PKR7.0/sh, taking CY23 DPS to PKR19.5.
FFC PA: EPS to clock in at PKR7.00 in 4QCY2
FFC is expected to post PAT of PKR8.9bn (EPS: PKR7.00) in 4QCY23 up by 71% YoY while declined by 3% QoQ amid decline in urea offtakes which clock in at 594kt, down by 10% QoQ. In 4QCY23, company’s revenue is expected to clock in at PKR43.6bn.
We expects company’s gross margins to increase by ~700bps QoQ to clock in at 38% amid hike in urea prices and possible one-off provision for anticipated gas price hike in last quarter. To highlight, we have not incorporated any reversal of this provision during the quarter. Along with the result, company is expected to announce cash dividend of PKR5.5/sh.
FFBL PA: Higher DAP margins to augment profitability
FFBL is expected to post PAT of PKR6.4bn (EPS: PKR4.93) in 4QCY23 up by 10x/20% YoY/QoQ. The turnaround in profitability is mainly attributable to significant increase in DAP & UREA prices. During 4QCY23, FFBL’s DAP and urea offtakes clocked in at 227kt and 83kt, respectively.
Company’s revenue is expected to clock in at PKR57.0bn in 4QCY23, down by 13%/19% YoY/QoQ amid decline in DAP offtakes. However, we expect gross margins to clock in at ~26.7%, up by 12ppts QoQ amid higher DAP margins. Finance cost is expected to decline by 35%/36% YoY/QoQ amid decline in debt levels. Along with the result we expect FFBL to announce cash dividend of PKR1.0/sh
