FFBL hikes DAP fertilizer price in Pakistan
Aftab Ahmed
The Fauji Fertilizer Bin Qasim Limited (FFBL) increased price of DAP by Rs550 per bag in Pakistan, mainly due to increased demand globally and the reduction in supply from China.
After the current increase, FFBL primary DAP margins increased to a record high of USD230/ton, which was last seen in 2015 as phosphoric acid remained stable at USD689/ton.
It is worth mentioning that FFBL also has a joint venture investment in Pakistan Maroc Phosphore which provides a competitive advantage over regional players. Private importers expect to witness further increase in fertilizer price by Rs200-300 per bag as domestic DAP inventory in Pakistan stands at less than 50,000 tons at the end of December 2020.
https://newztodays.com/fertilizer-sales-increased-on-fear-of-gas-price-hike/
Engro Fertiliser has already hiked price of DAP fertilizer by Rs400 to Rs4,350 per bag effective from January 7, 2021 in Pakistan, following an increase in the commodity’s global price.
International prices are increasing due to the short availability of the product as production in China has declined due to Covid-19 triggered lockdowns. One of Pakistan’s largest DAP trader Engro Fertilizer Limited has recently imported 33,000 tons of DAP from Saudi Arabia.
Pakistan normally imports the majority of its DAP shortfall requirement from China but this time companies are importing from the expensive product from Gulf suppliers due to short availability of products internationally.
Shahroz analyst at Insight Securities said that FFBL would be the beneficiary of the increase in DAP prices.
READ FFC, Engro increase DAP prices
In a recent research report written by Ailia Naeem research analyst at AKD Securities has said “Fauji Fertilizer Bin Qasim Ltd (FFBL) is likely to post 4QCY20 unconsolidated NPAT of PkR2.7bn (EPS: PkR2.90), as opposed to NLAT of PkR3.50bn (LPS: PkR3.75) in the same period last year.
The increase in earnings is likely on the back of (i) 59% YoY uptick in DAP volumes, along with uptrend in local price of DAP fertilizer in Pakistan. Secondly, it will also depend on 50/30% YoY decline in feed/ fuel gas prices, courtesy GIDC elimination, and absence of impairment charge booked in 4QCY19 and (iv) 52% YoY decline in finance cost amid lower interest rates.
On a full-year basis, GIDC elimination in Jan’21, an uptick in volumetric offtake and higher prices of DAP are likely to pull the bottom line is green.”
The analyst has also added that the extension of 3 years for GIDC payments with 60 instalments to be paid over 5 years vs. 24 instalments over 2 years as per initial SC decision, shall be favourable for FFBL which has the cash to cover 40% of GIDC payment as per latest financials (PkR8bn vs. GIDC payment of PkR22bn).
As per initial working, FFBL would have witnessed a shortfall of PkR4bn per annum for meeting net cash burden based on expected CFO in CY21 (per annum CFO is PkR3bn on average vs per annum GIDC payment of approx. PkR7bn).
The company has recently issued a 38.3% right to raise PkR5.0bn. To add, MARI has also expressed interest in the acquisition of majority shares in wind power projects. FFBL has a 35% stake in Foundation Wind Energy I & II each, where we value the FFBL’s stake in the projects at PkR8.7bn (PV of ROE).
If the transaction goes through, FFBL may be comfortable in terms of liquidity (right issue of PkR5bn + FEW transactions of PkR8bn) despite GIDC payment (PkR14bn, net of existing cash balance). The FEW I & II sell-off may also result in a one-time positive EPS impact of PkR1.27.
READ ECC forms a body to prepare a proposal on DAP’s subsidy
