Fertilizer Numbers: GST reduction rumors cause May12 urea sales to fall 20% YoY

 

          As per the latest data released by NFDC, total urea offtake fell by 20% YoY to 377k tons in May12, whereas DAP sales fell by 13% YoY to 26k tons

 

          NFDC attributed hefty decline in sales to 1) rumors of GST reduction on fertilizer in budget FY13, which failed to materialize, and 2) delayed cotton sowing

 

          The numbers and reasons for sales decline are inline with our expectations which we have already communicated in our report titled “Fertilizer: Tightening Screws” dated June 6, 2012

 

          We reiterate that with these rumors finally laid to rest, we expect Jun12 urea sales to clock in at over 750k tons, representing over 50% increase YoY. Accordingly, we anticipate that the largest players FFC and Engro Fertilizer will be able to sell ~400k and ~250k tons of urea respectively

 

          For May12, FFC sold 204k tons of urea, representing 3% YoY decline. Urea sales for Engro Fertilizer clocked in 43% lower YoY to 64k tons. FFBL and FATIMA sold 52k tons (up 19% YoY) and 1.5k tons (down 96%) of urea respectively

 

          FFBL’s DAP sales clocked in at 17k tons, down 21% YoY. FATIMA sold 28k tons of CAN (down 22% YoY) and 19k tons of NP

 

          We maintain our preference for FATIMA in BMA Fertilizer Universe, which enjoys immunity from additional gas cess to be imposed from July12. The company trades at CY12E PER of 6.2x and offers 45% upside to its Dec12 TP of PKR35/sh

 

          We highlight that FFC is likely to exhibit a short term rally based on healthy Jun12 sales numbers and 2QCY12 results

Fertilizer Numbers: GST reduction rumors cause May12 urea sales to fall 20% YoY