Alternate Research Sector Call

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2QCY16 result season is nearing its end. Meanwhile, financial
results of all four Fertilizer giants are out (FFC, FFBL, EFERT
and FATIMA). The sector declared NPAT of PKR 4.1bn in
2QCY16 against PKR 11.5bn recorded in 2QCY15. Amongst the
companies under discussion, Fatima, FFC and EFERT also
declared a dividend of PKR 1.25/sh, 1.55/sh and 2.00/sh
respectively. Industry sales did not pick momentum in Q2.
Cumulatively 4 big producers were able to make PKR 41bn
against PKR 61bn in 2QCY15. Even though industry sales were
under pressure FFC and Fatima performed relatively well,
however, FFBL and EFERT showed significant drop in profits.
Subdued off-take
Companies were unable to successfully sale their produce this
quarter. In 2QCY16 industry Urea off-take remained 1,054 KT a
decline of 22%YoY, whereas industry DAP off-take remained
254 KT a decline of 10%YoY. Market share of Urea and DAP in
2QCY16 varied considerably, as for FFC Urea market share
increased considerably to 55% in Q2 compared to 44% in
2QCY15. FFBL DAP market share declined considerably to 25%
in Q2 compared to 56% in 2QCY15. Lower off-take has resulted
in all time high industry inventory levels which is sufficient for 2
to 3 year demand. To sell those inventory companies have
started marketing and TVC of Agritech and Fatima are being
aired for last 2 months .
Fertilizer prices under pressure
Fertilizer prices during the quarter remained under pressure as
international fertilizer prices were weak and government policy to
provide cheaper inputs to farms decreased fertilizer prices
resulting lower revenues. According to NFDC data prices of
Sona Urea declined 5%YoY compared to 2QCY15, DAP
decreased by 21%YoY, NP decreased by 19%YoY and CAN
7%YoY.
This report has been prepared by Alternate Research and is provided for information purposes only. Under no circumstances it is to be used
or considered as an offer to sell, or a solicitation of any offer to buy. This information has been compiled from sources we believe to be
reliable, but we do not hold ourselves responsible for its completeness or accuracy. All opinions and estimates expressed in this report
constitute our present judgment only and are subject to change without notice. This report is intended for persons having professional
experience in matters relating to investments.
Source: NFDC
Source: NFDC
Fertilizer : Sector earnings decline 64%YoY in 2QCY16
Thursday, 01 Sep-2016
0%
10%
20%
30%
40%
50%
60%
FFC FFBL EFERT FATIMA
urea dap
MARKET SHARE IN 2QCY16
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Urea Sona DAP NP CAN
2QCY15 1QCY16 2QCY16
Industry mn 2QCY15 1QCY16 2QCY16
Sales 60,984 33,925 41,666
COGS 39,027 23,894 29,956
GP 21,956 10,031 11,710
OP.P 17,042 9,557 10,142
NP 11,490 5,460 4,120
FERTILIZER PRICES
Source: NFDC
Fertilizer Sector Review 2QCY2016
Equity research analyst
Muhammad Mujtaba
mujtabamuhammad23@gmail.com
0345-3091189

PHONE : +92 21 3432 6917-19
Outlook
Fertilizer outlook looks better then first half as off-take has started to increase gradually on monthly basis
and according to August 2016 NFDC report, urea off-take in July’16 increased 73.8%YoY and DAP by
143%YoY. Heavy monsoon this season can effect off-take, however its not visible from the stated figures
as demand for fertilizer is healthy.
Budgetary subsidy is having its effects and off-take has stated to pick momentum in July’16. Urea and
DAP are selling at subsidized prices of PKR1,400/bag from existing PKR 1,790/bag, while DAP came
down to PKR 2,558/bag from PKR 2,858/bag. Government has also announced subsidy of PKR 88/bag on
CAN and PKR 117/bag on superphosphate fertilizer.
ECC decision to allow NFML to sell Urea at PKR 1,310/bag will hurt private urea producers off-takes.
Which is a worried sign for FCC and EFERT as they are two big producer with significant level of
inventories unsold. However, quality concerns of NFML stock might not hurt private producers.
Commodity prices like sugar and cotton are redounding, while wheat prices are still sluggish.
Stock performance of these four companies have not been satisfactory due to lower commodity prices,
lower international fertilizer prices and submissive agri growth, however, government initiatives and
improvement in commodity prices is expected to help these stocks to gain momentum in the medium term
but in the short term investor have to be cautions as prices are still overvalued according to stock
performance stated below.
EFERT: Currently stock is trading at PKR 67.50/sh with P/E 8.5x at the moment. The stock performance has
been unsatisfactory since last year and has declined 31%. The reason behind stock price decline is
company’s performance remained unsatisfactory and showed continuous decline in EPS. For now the stock
is overvalued as it is trading at a higher band of 15x to 18x, however, it has historically moved between a P/E
band of 6x to 9x,so it is expected that price might decline further.
-
50
100
150
200
250
1QFY14 1QFY15 1QFY16
Average Price P/Ex 3 P/Ex 6
P/Ex 9 P/Ex 12 P/Ex 15
P/Ex 18
50
60
70
80
90
100
110
120
EFERT KSE

3
FFC: Currently stock is trading at PKR 110.75/sh with P/E ratio 10.64x at the moment. Stock has
declined 25% since last year to due dismal results as industry was struggling to gain momentum due to
negative growth in agricultural sector last fiscal year. As companies was struggling to make sales this
year decline in EPS has resulted the stock price to trade between 12x to 15x , however, historically it
trades between to P/E of 6x to 9x.
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50
100
150
200
250
300
P/Ex 18
FATIMA : It is trading at PKR 32.65/sh with P/E 12.3x at the moment. The stock declined 31% from
last year. Average P/E of the stock is 9.99x which is lower then the current P/E ratio. Higher P/E ratio
is attributed to lower earnings of the company which has resulted in increased P/E ratio. Company
earnings in second half might gain momentum due to historical trend which might result in decline
P/E ratio by the end of this year.
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90
100
0
20
40
60
80
100
120
FFC KSE 100
0
20
40
60
80
100
120
Fatima KSE-100
This report has been prepared by Alternate Research and is provided for information purposes only. Under no circumstances it is
to be used or considered as an offer to sell, or a solicitation of any offer to buy. This information has been compiled from sources
we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. All opinions and estimates
expressed in this report constitute our present judgment only and are subject to change without notice. This report is intended for
persons having professional experience in matters relating to investments.
PHONE : +92 21 3432 6917-19
Source : Company Accounts
Source : Company Accounts Source : Company Accounts

FFBL : The stock is trading at PKR 54.00 with P/E 21x of at the moment. The reason behind higher P/E
ratio is due to negative earnings reported in the last 2 quarter as major its major produce UREA and DAP
were effected by lower industry off-take. The stock inclined 17.4% this year which make it clear that even
after negative earnings the stock is still overvalued. It is seen that FFBL offtake gain momentum in the
second half of the year which is likely that P/E will decline but will remain higher then the P/E average of
7.65x.
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CY10 CY11 CY12 CY13 CY14 CY15
PHONE : +92 21 3432 6917-19
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1-Jan-15
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1-Jul-16
FFBL KSE - 100

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