We expect Topline Fertilizer Universe earnings to be up by 5% YoY to Rs13bn in 42022, primarily attributed to increasing in Urea offtake, and DAP margins. The same is expected to jump by 1.7x QoQ due to an uptick in Urea and DAP offtakes. As a result, we expect full-year 2022 earnings to clock in at Rs39bn, down 21% YoY primarily due to the imposition of 10% super tax in budget FY23. However, pre-tax profits are likely to increase by 5% YoY to Rs76bn in 2022.

Urea offtake is anticipated to be up by 10% YoY and 21% QoQ to 1.8mn tons in 4Q2022. However, DAP offtakes are likely to be down by 31% YoY while up 200% QoQ to 468k tons during 4Q2022. This is likely to take full year 2022 Urea and DAP sales to 6.6mn tons (+4% YoY) and 1.2mn tons (-36% YoY), respectively.

Average, Urea prices (MRP) during 4Q2022 remained unchanged QoQ at around Rs2,250/bag while up 25% YoY amid rising cost pressures.

DAP prices have declined by 9% QoQ to average to around Rs11,300/bag, while up 46% YoY which is in line with the increase in international DAP prices and rupee devaluation against US dollar. DAP margins are likely to be up 43% QoQ and 41% YoY to Rs31k tons in 4Q2022.

Finance cost is expected to increase by 172% YoY and 55% QoQ to Rs4.6bn due to higher interest rate and higher borrowings of the sector.

We maintain our Over-Weight stance on the Pakistan Fertilizer sector. Our preferred play in the sector is Engro Fertilizers (EFERT) and Fauji Fertilizer Company Limited (FFC).

Fauji Fertilizer Company (FFC): We expect FFC to post unconsolidated EPS of Rs5.2, up 10% YoY in 4Q2022. The increase in earnings is led by an improvement in gross margins, and YoY increase in other income due to higher income on deposits. However, earnings are likely to jump by 26% QoQ primarily due to higher Urea and DAP offtake. Along with the result, we expect company to announce final cash dividend of Rs4.15/share, taking the full year 2022 dividend to Rs13.1/share.

Engro Fertilizers (EFERT): We expect EFERT’s consolidated EPS to be down by 28% YoY to Rs3.3/share in 4Q2022 primarily due to 25% YoY decline in Urea offtakes. To note, EFERT’s Base plant, was shut down for maintenance activity from September 27, 2022 to November 27, 2022. Furthermore, company’s Enven plant with a capacity of 1.3mn tons had also tripped on November 23, 2022, which was then restored by December 06, 2022. However, earnings are likely to increase by 6% QoQ due to higher DAP offtake. We expect EFERT to announce a final cash dividend of Rs3.5/share in 4Q2022, which will take the 2022 dividend to Rs12.0/share.

Fauji Fertilizer Bin Qasim (FFBL): We expect FFBL to post unconsolidated EPS of Rs1.6 in 4Q2022 compared to EPS of Rs0.2 in 4Q2021 and LPS of Rs1.3 in 3Q2022 mainly due to (1) increase in DAP and Urea offtake, (2) uptick in DAP margins and (3) decline in exchange loss. We do not expect the company to announce any dividend with the 4Q2022 result.

Courtesy- Topline Securities