Urea industry sales have increased by 17% YoY to 1.6mn tons in 1Q2022 compared to 1.4mn tons in 1Q2021. The growth in Urea demand has resulted from improved farm economics coupled with the increasing price disparity of Urea compared with other fertilizers, including DAP. This was disclosed during the Analyst Briefing.
The management shared that the farm economics for wheat, sugarcane, and cotton is expected to improve in FY22. Wheat net income per acre improved to Rs39,164 in FY22 from Rs32,978 in FY21; Sugarcane net income per acre improved to Rs90,400 in FY22 from Rs87,600 in FY21; Cotton net income per acre improved to Rs82,343 in FY22 from Rs66,494 in FY21. However, net income per acre of rice is expected to remain flattish at Rs29,040 in FY22 from Rs29,360 in FY21.
That said, management expects Urea demand to hit 6.5mn tons in 2022 compared to 6.3mn tons recorded in 2021. However, management also indicates the strong probability of product movement across the border amid significant local and international prices disparity.
Despite a recent increase in Urea prices by Rs150/bag, domestic Urea prices are still trading at a discount of 84% to Rs1,919/bag vs international landed equivalent price of Rs11,741/bag.
The company is pushing where Urea prices to be based on import parity or WACOG prices.
EFERT’s Urea sales went down by 9% YoY to 549k tons in 1Q2022 amid lower opening inventory at the start of 2022. 2022 will not be a year of record Urea sales for EFERT due to planned outages of 50-60 days of base plant in 2H2022. To note, EFERT’s Enven plant will undergo a turnaround next year.
Due to higher prices, DAP industry sales have decreased by 24% YoY to 245k tons in 1Q2022 compared to 322k tons in 1Q2021.
Domestic DAP prices have increased by 89% YoY to Rs10,018/bag, which is in line with the increase in international DAP prices by 87% YoY to US$983/tons in 1Q2022.
Subsidy receivable of Rs6.5bn and sales tax refunds of Rs11bn remains key challenges for the company.
In 2021, the company purchased aircraft worth Rs2.5bn after due deliberation to facilitate the business operation and meetings with the ministry, considering the company’s competitors are situated in the north of the country. The aircraft is chartered externally as well for commercial consideration.
EFERT announced 1Q2022 consolidated earnings of Rs4.13/share, down 7% YoY and 40% QoQ, which aligned with industry expectations. The result also declared an interim cash dividend of Rs5.5/share in 1Q2022.
Courtesy – Topline Securities