During 7MCY21, the industry recorded urea production/sales of 3.58/3.52Mn tons, taking urea inventory levels to 0.32Mn tons at the end of Jul’21.

Experts believe that lower urea inventory levels create a sizable room for fertilizer players to pass on any potential increase in costs, including a rise in gas tariff.

On the other hand, DAP prices are also on an uptrend, with a hike of around PKR 740/bag in the past two months, taking current market prices over PKR 6,500/bag. That being said, after incorporating the latest financial results and margin assumptions for both Urea and DAP, we have revised our CY21 earnings estimates for FFC and FFBL to EPS of PKR 15.8 and PKR 6.8, respectively.

Our BUY stance on both the companies remains intact with Jun’22 TP of PKR 135 and PKR 35 per sh, implying an upside of 27% and 41%, respectively.

Courtesy – BMA Capital Management Ltd.