Karachi, May 11, 2012 (PPI-OT): FFBL: skepticism by the beleaguered management – Neutral
The management of FFBL painted a somewhat worrisome picture given government’s attitude towards fertilizer manufacturers.
The skepticism was somehow evident given number of gas curtailment days that were higher i.e. 78days which rendered FFBL to shut down urea plant (having capacity of 0.5mn tons) for such number of days.
According to Standard Capital, Engro’s agony on the issue of gas curtailment, however, is the most worrisome given 105days of inactivity which rendered their newly installed plant Enven to shut down. Government on the other hand is stated to be importing urea at whopping import price equivalent of Rs 3600/50kg bag and selling it at Rs 1600/50kg bag and the remaining differential is painting a horrendous picture. On the other hand, fertilizer capacities remain idle given non-supply of feedstock gas from SNGP and SSGC network.
Apart from negatives, FFBL analyst briefing also casted few positives. Firstly, their windmill project is seeing financial close this year. Standard Capital sees this to be very significant development since Standard Capital has long said that fertilizer sectors abnormal profits should be diverted towards diversification such as wind project at Gharo, Sindh.
Secondly, Engro has increased its imported DAP price couple of days back wherein FFBL has kept the price at Rs 3645/50kg bag. Standard Capital feels once sowing for Kharif would start from May 15 then the price of DAP may increase manifold which will be a good sign for FFBL. Thirdly, FFBL has a good investment in Morocco based PMP plant which produces P2O5, the raw material for DAP, whose contract is vetted in Euro. If Euro Rupee parity comes down then FFBL may reap gains for new production of DAP. Fourthly, a lot of imported DAP is lying in the inventory wherein FFBL’s DAP is sold out given its allegiance with FFC (the parent investor) channel.
Standard Capital has already delineated in one of Standard Capital’s calls that FFBL may report 1HCY12 EPS of Rs 2/sh given application of DAP in rice and other crop sowing in the month of June. However, DAP margins may still take FFBL to home with better earnings outlook in 9MCY12 given major procurement coming for Rabi.
Standard Capital signals Standard Capital’s Neutral stance on FFBL given government’s apathy of the overall situation wherein fertilizer producers are given raw deal.