Morning Call

September 29, 2010

Fertilizer Offtake Chemicals

Urea and DAP sales down by 50%YoY and 76%YoY

Overweight
Flood taking its toll on fertilizer offtake
National Fertilizer Development Corporation (NFDC) has released fertilizer data
Urea Offtake (000' ton)
for the month of August 2010. Urea offtake in Aug’ 10 recorded a decline of 49.5%
4186.008
4300 YoY to 302k tons compared to 598K tons witnessed same period last year. This
4000 3866.923 was mainly on account of recent floods in the country. On 8MCY10 basis offtake
3603.438
3700
3404.771 stood at 3,867k tons, a drop of 7.6% YoY.
3400 3163.724 On company-wise basis, urea sales during 8MCY10 for FFC and FFBL were
3100
recorded at 1,533k tons and 337k tons, registering a drop of 7.6% YoY and 13.8%
2800
YoY, respectively. However, ENGRO offtake remained stagnant at 600k tons for
2500
the same period. The drop in urea offtake was phenomenal for all FFC, FFBL and
8MCY06

8MCY07

8MCY08

8MCY09

8MCY10

ENGRO on a MoM basis posting a decline of 54.2%, 48.4% and 66.1%,

respectively.
Fertilzer offtake ('000 tons)
Aug'10 Aug'09 YoY 8MCY10 8MCY09 YoY
Source: NFDC Urea 302 598 -49.5% 3,867 4,186 -7.6%
DAP Offtake (000' ton) DAP 50 205 -75.6% 424 907 -53.2%
Com pany offtake ('000 tons)
800 702.06 Urea
614.116
600 FFC 97 212 -54.2% 1,533 1,659 -7.6%
464.731
374.32 FFBL 32 62 -48.4% 337 391 -13.8%
400
ENGRO 31 91 -66.1% 600 599 0.3%
193.941
200 DAP
FFBL 16 115 -86.1% 196 487 -59.7%
0
ENGRO 18 37 -51.7% 127 146 -12.8%
8MCY06

8MCY07

8MCY08

8MCY09

8MCY10

Average Price /20 kg bag Aug'10 Aug'09 YoY MoM

Urea 862 767 12.39% -1.93%
DAP 2,597 1,963 32.30% -1.10%
Source: NFDC Source:NFDC
Urea Price s (PKR/bag)
P Urea production declined by 10.25% MoM
900
Total industry’s urea production in Aug’10 stood at 420k tons, a decline of 10.25%
850
MoM. This decline was due to trip over of Engro’s plant which resulted in a 30%
800
decline in company’s production. However, the plant problem was rectified and
750
has resumed normal operations. FFC and FFBL production remained flat at 214k
700 and 48k tons, respectively.
650
600
Urea price surged by 10.2% YoY
Urea prices on average recorded an increase of 10.2% YoY in 8MCY10 period
39661

39753

39845

39934

40026

40118

40210

40299

40400

from 765/bag to PKR 843/bag. This surge in prices is attributed to increase in fuel
stock prices by 18% to PKR 382/mmbtu effective from Jan’10 and gas curtailment
issue which is expected to continue till Oct’10. However, urea prices exhibited a
Source: NFDC dip of 1.93% MoM in July’10.
Analys t DAP offtake plunged by 75.6% YoY
Shahbaz Ashraf DAP offtake in Aug’10 stood at 50k tons, a plunge of 75.6% YoY. In 8MCY10
shahbaz.ashraf@arif habibltd.com period, offtake exhibited the same trend, posting a significant decline of 53.2%.
021-32462589 The reason for lower offtake is a 32.3% YoY jump in DAP prices to PKR
2,597/bag and recent flooding. However, on a MoM basis DAP prices declined
www.arifhabibltd.com marginally by 1.10% despite Rabi season (Oct-March) round the corner. DAP

Disclaimer: The information contained herein is compiled from sources AHL believes to be reliable, but we do not accept responsibility for its accuracy or completeness. It is not intended to be an
offer or a solicitation to buy or sell any securities. AHL and its officers or employees may or may not have a position in or with respect to the securities mentioned herein and they do not accept
any liability whatsoever for any direct or consequential loss arising from the use of this publication and its contents. AHL may, from time to time, have a consulting relationship with a company
1
being reported upon. All opinions and estimates contained herein constitute our judgment as of the date mentioned in the report and are subject to change without notice.
 Morning Call
September 29, 2010

offtake of FFBL remained depressed at mere 22k tons in Aug’10, taking 8MCY10
sales to 196k tons, an enormous dip of 59.7% YoY .By end of Aug’10 total
industry inventory of DAP stood at 569k tons.
Outlook
In CY10E we expect both urea and DAP sales to record a drop of 8% and 35%
YoY to 6.1mn tons and 1.2mn tons, respectively. However, current flood situation
could further exacerbate fertilizer offtake in the remaining 5 months of CY10.
Morever, we expect both urea and DAP prices to increase in 4QCY10 as Rabi
season commences where normally fertilizer uptick is witnessed.
Our top pick in the sector is FFC which is trading at a discount of 20% discount to
our December 2010 DCF based target price of PKR 124/share. Thus, we
recommend a BUY on the scrip. In addition to this, the scrip is trading an attractive
PER and dividend yield of 7.5x and 11%, respectively based on our CY10
earnings estimates.

2
 Morning Call
September 29, 2010

Marke t Review All share KSE-100 Market Today (Sales Desk)

KSE - Closing 6,972.09 9,981.07
Points Change 30.10 44.28 The market is expected to remain range bound today. However, if interest
% Change 0.43% 0.45% rates are hiked up today and if soon no positive news on launch of Margin
MoM Change 122.49 168.02 Trading system is heard then market may post a decline of 200-300 points.
YTD Change 306.54 594.15 Therefore, we advise our investors to implement a defensive strategy. Our
Turnover (m) 86.74 63.16 preferred list includes POL, PPL, HUBC, KAPCO and FFC.
Source: KSE
Volum e Le ade rs Volum e (m ) Close
LOTPTA 10.07 8.75
BAFL 8.18 8.07 Today’s News
TRG 7.87 4.23
 RGST rate to be on higher side, flood tax may be imposed on large
THCCL 5.92 19.49
HUBC 3.43 33.03
property owners. (Business Recorder)
Major Gaine rs Change Close  SBP chief urges government to cut public spending. (Business Recorder)
ULEVER 38.55 4,028.55
DREL 27.00 578.00  Fuel stock storage, OMCs except PSO violated licensing pact. (Business
BATA 19.28 499.74 Recorder)
FZTM 14.63 346.53
SIEM 11.32 1,136.31  Power projects below 50mw, ministry yet to frame policy. (Business
Major Losers Change Close Recorder)
WYETH -31.54 948.00  Decline in oil prices likely. (Business Recorder)
PECO -15.94 303.41
IDYM -12.52 237.95
COLG -10.00 695.00
SITC -5.41 110.40
Source: KSE
Settle m ent Data Volum e (m ) % Settle d
POL 0.32 42.16%
PSO 0.18 31.49%
PPL 0.28 46.38%
MCB 0.25 31.76%
UBL 0.82 64.78%
* data of September 27, 2010 FIPI (USDm ) Net Buy/(Sell) MSCI Index Last Day YTD
Source: NCCPL 28-Sep-10 2.32 Pakistan 81.4 0.7% -0.7%
Future Open Int Shares (m ) Values (m ) MTD 23.06 Frontier Markets 545.3 0.7% 8.1%
POL-OCT 0.75 178.47 FYTD 104.59 Emerging Markes 1061.3 0.0% 7.3%
PSO-OCT 0.28 73.81 CYTD 384.51 EM Asia 433.2 -0.5% 7.9%
Source: NCCPL Source: MSCI
ENGRO-OCT 0.37 64.64
MCB-OCT 0.29 54.32
OGDC-OCT 0.28 39.42 Board M ee tings/Eve nts Date Tim e
Total (Oct) 4.49 519.23 Attock Ref inery 29-Sep-10 12:00 p.m.
Source: KSE Attock Petroleum 29-Sep-10 3:00 p.m.
Fixed Incom e National Refinery 29-Sep-10 12:30 p.m.
6M KIBOR 12.97% Pakistan Oilf ields 30-Sep-10 1:00 p.m.
T-Bill 12M 12.79% Attock Cement 30-Sep-10 2:00 p.m.
PIB 10Yrs 13.27% Sui Southern Gas 30-Sep-10 11:30 a.m.
Source:Bloomberg Gul Ahmed Textile 4-Oct-10 3:30 p.m.
Curre ncy Rates Jahingir Siddiqui & Co. 7-Oct-10 10:00 a.m.
USD 86.19 Fauji Fertilizer Bin Qasim 21-Oct-10 10:00 a.m.
EUR 116.06 Monetary Policy 29-Sep-10
GBP 136.59 T-Bills Auction 6-Oct-10
Source: Bloomberg
Com m odity Prices
Gold ($/oz) 1,309.05
WTI ($/bbl) 76.18
Source: Bloomberg