· Across the board increase in gas tariff is just around the corner as ECC has already approved the gas tariff hike which is awaiting final nod from federal cabinet.

· As per news flows, ECC has approved gas tariff hike of 42% and 82% for feed & fuel gas of fertilizer manufacturers. This increase in gas cost will translate in ~PkR420/bag increase in cost of urea production for FFC.

· If fertilizer manufacturers completely pass on the impact of increase in gas price then the profitability of manufacturers will see a jump as they have recently increased urea price to PkR2,200/bag post federal budget. If the manufacturers increases urea price by PkR420/bag then we estimate CY23F EPS of PkR26.5/20.5/8.3/14.1 for FFC/EFERT/FFBL/FATIMA, respectively.

· On the flip side, inability to pass on the impact of gas tariff increase will result in significant downward revision in earning profile of fertilizer companies. To note, we have assumed an increase of PkR350/bag in urea price for CY23 estimates. Assuming no increase in retail urea prices, our estimates for CY23F earnings are PkR16.3/11.9/6.1/11.2 for FFC/EFERT/FFBL/FATIMA, respectively.

Courtesy- AKD Research