Analyst:

Muhammad Sarfraz Abbasi

Sarfraz.abbasi@atlascapital.com.pk

Summit Capital Update Pulse Feb 24, 2011

(+92-21)-111-226-100 Ext 404

(Formerly Atlas Capital Markets (Pvt.) Limited)

72% YoY respectively in CY10. Above all, DAWH came

Fertilizer Sector – CY10 ended up out of loss this year by posting PAT of PKR3.25bn (221%
with rock solid earnings… YoY) in CY10 against loss of PKR1.78bn. Market Snapshot
Aggregate Sector Index Chg %
Synopsis… KSE 30 11041.83 -143.48 -1.28
PKR (m) CY09 CY10 % Chg
Pakistan Research

KSE 100 11523.42 -125.96 -1.08

Fertilizer Sector (FFC, FFBL, ENGRO and DAWH)
Sales 142,081 176,833 24% KSE ALL 8009.81 -84.11 -1.04
experienced an eventful year. The financial
performance of the fertilizer sector was remarkably well Cost of sales (99,313) (120,020) 21%
as during CY10 profitability of the sector recorded Gross profit 42,768 56,812 33%
substantial rise of 70% YoY. In today’s report, we present Financial charges (6,455) (7,989) 24%
the results’ overview of the sector for CY10 and explain Key Data
Other income 5,100 6,948 36%
some key facts behind this super duper performance.
PBT 23,000 37,243 62% 12M Avg. Volume (m) ENGRO 1.87
Fertilizer sales and prices… PAT 15,398 26,133 70% 12M Avg. Volume (m) FFC 1.14
12M Avg. Volume (m) FFBL 3.52
The urea sales volume of the sector during CY10 was 3% Gross margin 30% 32% 12M Avg. Volume (m) DAWH 0.04
lower in comparison to CY09 whereas its retail prices Net margin 11% 15%
averaged around PKR853 per bag during the year (up
Source : Company Reports, Summit Capital Research
by 11% YoY). Similarly, DAP witnessed substantial decline 12M relative performance vs KSE
of 24% compared to the offtake achieved in the last FFC… 150%
DAWH KSE-100
FFBL FFC
year due to devastating floods. However, average FFC came out with impressive financial results in CY10 125% ENGRO

prices during CY10 compared to the CY09 were much with a PAT growth of 25% over the last year. Sales grew 100%
improved as average per bag price was hovering by 24% whereas cost of sales also went up by 23%. The 75%
around PKR2,675 in CY10 while average per bag price bottom line got a further uplift from 13% rise in other 50%
in CY09 was PKR2,032. income (dividend income form FFBL).

Apr-10

Aug-10
Feb-10

Oct-10

Feb-11
Mar-10

May-10

Jun-10

Sep-10

Nov-10

Dec-10

Jan-11
Jul-10
Profitability performance… FFBL…
The cumulative gross profit of the listed companies grew FFBL came out with robust financial performance during
by 33% over the last year which was mainly attributed to CY10 as its bottom line enhanced by a smart 72% over
higher urea and DAP prices, as a result of this, sales of CY09. Sales revenue of the company went up by 18%
the sector grew by a handsome 24% YoY in CY10. Gross over the last year, whereas cost of sales soared by 10%.
margin of the sector saw an improvement of 202bps However, substantial rise of 69% in other income further
YoY in CY10, where FFC was the lowest contributor in boosted up the bottom line. Major factor contributing
the sector as its contribution was mere 33bps YoY. The for this increase in other income was share of profit FFBL
highest enhancement in gross margin was seen in FFBL received from PMP Morocco (joint venture). Summit Capital (Pvt.) Ltd
which grew by 481bps YoY. As far as PAT is concerned, B-209, Park Towers, Clifton, Karachi
PAT of the sector showed substantial rise of 70% during ENGRO… Equity Research: Equity Sales:
CY10 mainly due to 1) higher urea and DAP prices, and ENGRO, the star performer of the sector in terms of Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
2) one time loss (impairment on investments) was growth in profitability as PAT grew by 73% over CY09. Top Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
booked by DAWH of PKR3.79bn last year. ENGRO and line of the ENGRO posted an increase of 38% YoY. Money Market: Corporate Finance:
FFBL outperformed the sector as these grew by 73% & In addition to this, 71% YoY increase in other income was Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
72% YoY respectively in CY10. Above all, DAWH came the major
Disclaimer: All information contained in this publication has been researched and compiled from reason behind
sources believed this
to be enormous
accurate augment
and reliable in
at the time
Financial Products Distribution:
of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited
Tel: 92 (21) 5376125
accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is
Fax: 92 (21) 5376126
provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any
information hereto contained.
 Summit Capital
(Formerly Atlas Capital Markets (Pvt.) Limited)

In addition to this, 71% YoY increase in other income was

the another major reason behind this enormous
augment in earnings. However, its gross & net profit
margin remained to have lowest to 25% and 8%
respectively in the sector.
n sReeasrecahr c h

DAWH…
Conversely to the other listed companies, DAWH posted
decline in its sales revenue by 21% YoY. Interestingly, its
bottom line grew by 221% YoY in CY10, however, that
was mainly due to PKR3.79bn impairment losses booked
in CY09. As far as the gross profit margin is concerned, it
stood at 40% second best in the sector after FFC which
was leading with 44% GP margins. In terms of net profit
margins DAWH has a top spot as its NP margin stood at
25%.

Future outlook and recommendations…

The country is currently faced with an acute gap
between demand and supply of the urea owing to gas
ae

curtailment of 12% to 20%. Thus, the government is

eyeing on importing fertilizer to abridge this gap. At
s tkai snt R

present, government is in dialogues with SABIC (KSA)

and some others to import 0.25m tons of urea. Due to on
going gas curtailment, local players had raised urea
prices to offset their production losses by PKR190 per
bag. However, any further deterioration in gas supply
can make players to raise their prices, as urea prices in
local market are cheaper than international market. As
P a kPi a

far as, affordability of the farmer is concerned, increase

in wheat support price by the government has improved
purchasing power of the farmers.
At current levels, we recommend HOLD for FFBL (Fair
value of PKR41) and FFC (Fair value of PKR123).