Karachi, February 28, 2014 (PPI-OT): DAP primary margins jumped by 16% – BUY!
Phosphoric acid contract price for Fauji Fertilizer Bin Qasim (FFBL) was settled at USD 680/ton for 1QCY14, up 11% QoQ while still down 12% YoY. Accordingly FFBL has increased DAP prices by PKR 210/bag to maintain its primary margins for DAP.
According to Arif Habib Limited, they estimate the primary margin of DAP to stand at USD 267/ton in 1QCY14. Arif Habib Limited maintains Arif Habib Limited’s likeness towards the company as primary margins of DAP is expected to remain lucrative during CY14. Arif Habib Limited’s DCF based June-14 price objective works out to be PKR 52/share implying an upside potential of 20% from current levels. Arif Habib Limited thus maintains Arif Habib Limited’s ‘BUY’ recommendation for the stock.
DAP prices adjusted upward to maintain primary margins
International phosphoric acid prices have been spiralling downwards since Jul-12 from USD 1080/ton to USD 610/ton in 4QCY13. However, with commencement of CY14, this downward trajectory rebounds with upward trend. As per Arif Habib Limited’s industry sources, FFBL increased DAP prices by PKR 210/bag during Feb-14.
The increase in DAP prices was on account of 11% QoQ jump in phos-acid prices to USD 680/ton. This will eventually help FFBL to manage its DAP primary margins, which previously clocked in at USD 230/ton for Jan-14 down 10% QoQ when compared with 4QCY14 margins of USD 257/ton. Following this increase DAP primary margins jumped to USD 267/ton up 4% QoQ.
USD avg. 106.97 105.54 104.99
4QCY13 1QCY14 (only for Jan) 1QCY14 (current)
Phos/ton 610 680 680
DAP price/bag 3,450 3,450 3,660
DAP Primary margins 257 230 267
Change -10% 16%
DAP is expected to be in limelight going forward
Arif Habib Limited expects that company would focus more on DAP due to its better margins. The company has operated it’s DAP plant at 114% utilization level in CY13 amid better demand and margins; the same strategy is expected for CY14.
Gas curtailment updates
DAP plant was shut down for 47 days in 1QCY14 from 7-Jan-14 to 22-Feb-14. On the other hand urea plant is expected to be operational in Mar-14. Arif Habib Limited expects gas curtailment to remain at 45% during the year. However, 1Q gas curtailment was usual and incorporated in Arif Habib Limited’s models.
Key investments updates
In accordance with the group policy, FFBL is also diversifying its investments. The wind power projects are expected to come online by 3QCY14 and 4QCY14. As far as meat business is concerned, it is expected to be operational by 2QCY15. This would eventually add further value going forward.
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