DAP offtake up 36% YoY; Urea sales plunge 25% YoY: During the month of September, in line with our expectation, offtake of DAP jumped 36% YoY to 256k tons primarily on the back of accumulation for the ongoing Rabi sowing season. Simultaneously, Urea sales witnessed a decline of 25% YoY to 324k tons.
9MCY10 – DAP & Urea sales down 38% YoY & 9.6% YoY respectively: During the 9-month period, both Urea and DAP witnessed a decline to 4,191k tons (-9.6% YoY) and 675k tons (-38% YoY) respectively. The suppressed demand was mainly due to uncertainties regarding soil condition for the upcoming Rabi season.
Positive stance – It’s not over yet! We anticipate full year Urea and DAP offtake at the level of 5.7mn tons (-11% YoY) and 1.3mn tons (-20% YoY) respectively, implying 4Q Urea/DAP offtake of 1,580k tons/ 670k tons respectively, down 14%/ up 12% YoY. Moreover, strong margins will result in healthy profitability growth for the manufacturers during the fourth quarter (4QCY10E EPS of FFC/FFBL estimated at PKR4.09/ PKR1.71).
DAP offtake the main highlight of the month (+36% YoY)
DAP remained the main highlight of the month witnessing a sharp recovery in offtake with 36% YoY growth to 256k tons during September 2010 as farmers stepped up purchases for the Rabi season. However, for Urea, offtake was down 25% YoY to 324k tons. During the 9-month period, both Urea’s and DAP’s cumulative sales registered negative growth to 4,191k tons (-9.6% YoY) and 675k tons (-38% YoY) respectively, primarily attributable to lower sales in anticipation of poor soil condition post flood during the previous months.
More to come during 4QCY10
With wheat sowing season starting in Oct-Nov, overall fertilizer dispatches (both Urea and DAP) will likely post significant growth during 4QCY10 with uncertainties regarding soil conditions tapering off. Moreover, sowing of Canola in flood affected areas is expected to improve the soil quality for the wheat sowing in Rabi season, which could lead to fast recovery in offtake. We expect 4QCY10 Urea and DAP sales at 1,580k tons/ 670k tons respectively, taking CY10 offtake to 5,770k tons/ 1,345k tons down 11%/ 20% on YoY basis.
Demand recovery combined with strong margins to bode well for manufacturers
Strong demand recovery likely during 4QCY10, coupled with strong industry margins, we believe the sector will enjoy healthy earnings growth during the last quarter (4QCY10E EPS of FFC/FFBL estimated at PKR4.09/ PKR1.71). Hence, we recommend accumulation at current levels with our June’11 PT for FFC and FFBL at PKR123/share and PKR39/share respectively.
Economic & Political News
Forex reserves dip to USD16.88bn
Pakistan’s foreign exchange reserves slipped to USD16.88bn on regular debt payments by the week ended on October 22, the central bank said. The foreign exchange reserves held by the State Bank of Pakistan (SBP) declined to USD13.09bn while those held by other commercial banks came down to USD3.79bn, it said.
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