Karachi, May 28, 2012 (PPI-OT): As per industry sources, urea remained subdued at 301.9k tons in Apr’12, down by 38%YoY but sequentially up by 15%MoM. Imported urea sales of 150k tons comprised ~50% of total urea off take in the month under review. Urea inventory at end-Apr’12 closed at a high level of 937.7k tons (~2 months demand; highest in recent past) including 160k tons of imported urea. FFC contributed close to 50% of local urea sales while FATIMA remained virtually absent on the urea front. On a sequential basis, FFBL and ENGRO registered better urea off take, up 2.5xMoM and 2.25xMoM to 19.2k tons and 30.0k tons, respectively. That said, continued YoY decline in offtake poses concerns – AKD Securities attributes this to delay in cotton sowing due to non- availability of water and dealers’ hesitancy in a volatile price environment. Considering the risk of higher natural gas prices (yet to be finalized by OGRA), AKD Securities believes FATIMA (CY12F P/E: 7.25x) will emerge a relative winner where AKD Securities’ revised target price of PkR39.4/share offers upside of 63%. Buy!
Apr’12 Urea Offtake: AKD Securities understands that Apr’12 urea offtake remained subdued at 301.9k tons, down by 38%YoY but sequentially up by 15%MoM. Imported urea sales of 150k tons comprised ~50% of urea offtake. Urea inventory at Apr’12 closed at a high 937.7k tons (~2 months; highest in recent past) including 160k tons of imported urea. Continued YoY decline in offtake poses concerns – AKD Securities attributes this to delay in cotton sowing due to non-availability of water and dealers’ hesitancy in a volatile price environment. Regarding the latter, AKD Securities understands that dealers are not acting on speculation of a GIDS-induced urea price increase owing to general hesitancy amidst heavy losses on urea inventory.
FFC: Against urea production of 1927k tons, FFC managed to sell 75k tons in Apr’12, although this was still ~50% of local urea offtake. Closing inventory stood at a sizeable 367.6k tons, which explains recent decision to reduce urea price by PkR145/bag.
ENGRO: ENGRO sold just 30k tons in Apr’12 while urea production was 105k tons. Even so, this offtake is 2.25x higher compared to Mar’12 offtake of 13.4k tons.
FATIMA: FATIMA was virtually absent on the urea front in Apr’12, selling 1.1k tons. In this regard, anticipating the demand of urea, FATIMA also reduced the production of urea to 28.3k tons diverting resources to other products.