The BMA fertilizer universe showcased strong performance during 3QCY20 as the companies posted cumulative profitability of ~PKR 17.37Bn during 3QCY20, up 2.0x YoY. The improvement in industry profitability was mainly on the back of higher DAP (↑ 39% YoY) and Urea (↑ 3% YoY) offtake, and better urea and DAP margins.

The fertilizer industry recorded urea production/offtake of 4.52/4.20Mn tons during 9MCY20, which took inventory levels to 0.47Mn tons (Sep’20 closing). We expect the year-end urea inventory to clock-in at around 0.31Mn tons.

FFC/EFERT/FATIMA reported earnings of PKR 3.64/5.27/1.14 per share during 3QCY20, up by 1.30/2.11/1.11x, respectively. On the other hand, FFBL posted a turnaround in profitability with PKR 3.54 per share during 3QCY20 as opposed to LPS of PKR 0.50 in SPLY.

On the GIDC front, the Supreme Court has allowed an extension of 3 years in the recovery of outstanding GIDC payables to 5 years (60 months). With this relaxation, the annual cash outflow impact per share now is PKR 9.85, PKR 4.75, PKR 2.84, and PKR 0.55 per share for FFC, FFBL, EFERT, and FATIMA respectively.

We maintain our BUY call on FFC/EFERT/FFBL/FATIMA with Jun’21 TP of PKR 118.14/ 72.21/26.70/46.46 per share, offering upside potential of 13.83/7.82/23.44/69.99% respectively.

BMA Capital Management Ltd.