Engro Fertilizer, with market share of 20 percent, has again increased urea price by Rs400 (inclusive of sales tax) per 50 kg bag to Rs1980 per bag (dealer transfer price). Retail price for the farmer will now be close to Rs2,000 a bag effective from Monday (Oct 31, 2011). The local price is still 35 percent lower than international price.
This is the fifth time (excluding sales tax and fuel price revisions) that Engro has raised urea price in 2011 due to gas curtailment and other issues. The latest price hike is the highest amongst all.
Thus, after incorporating this change, retail price has jumped by Rs1083 a bag or 117 percent in first 10 months of 2011. Ex-factory urea prices have increased by more than Rs890 per bag (up 99 percent) in 2011YTD
We believe that plants with relatively less gas curtailment like FFC and Fatima will continue to be the major gainers while FFBL which is on Sui Southern gas network (lower gas curtailment than SNGPL network) would also benefit.
We expect other fertilizer producers to also increase the price in next few weeks inline with past practice. If new prices remain the same for next year (2012), FFC's annualized earnings will improve by Rs15 per share (our 2012 revised EPS would be Rs44).
Fatima and FFBL’s annualized EPS will improve by Rs1.7 and Rs2.5 while their 2012 EPS in this case expected to be Rs5.9 and Rs13, respectively.
Engro's EPS for 2012 will increase by Rs14-15. However much will depend on the actual gas availability to its new plant.
Though the fertilizer stocks will rally in the short run as 2012 profits will go up by 40-45 percent from earlier estimates due to this urea price hike, but government reaction will be interesting to evaluate. Ahead of general election, the government may don't want to affect the farmer community due to this increase in their cost of production. So the government will either supply adequate gas to Engro's new plant or will continue to see urea price rising next year also.
This is the fifth time (excluding sales tax and fuel price revisions) that Engro has raised urea price in 2011 due to gas curtailment and other issues. The latest price hike is the highest amongst all.
Thus, after incorporating this change, retail price has jumped by Rs1083 a bag or 117 percent in first 10 months of 2011. Ex-factory urea prices have increased by more than Rs890 per bag (up 99 percent) in 2011YTD
We believe that plants with relatively less gas curtailment like FFC and Fatima will continue to be the major gainers while FFBL which is on Sui Southern gas network (lower gas curtailment than SNGPL network) would also benefit.
We expect other fertilizer producers to also increase the price in next few weeks inline with past practice. If new prices remain the same for next year (2012), FFC's annualized earnings will improve by Rs15 per share (our 2012 revised EPS would be Rs44).
Fatima and FFBL’s annualized EPS will improve by Rs1.7 and Rs2.5 while their 2012 EPS in this case expected to be Rs5.9 and Rs13, respectively.
Engro's EPS for 2012 will increase by Rs14-15. However much will depend on the actual gas availability to its new plant.
Though the fertilizer stocks will rally in the short run as 2012 profits will go up by 40-45 percent from earlier estimates due to this urea price hike, but government reaction will be interesting to evaluate. Ahead of general election, the government may don't want to affect the farmer community due to this increase in their cost of production. So the government will either supply adequate gas to Engro's new plant or will continue to see urea price rising next year also.
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