Fauji Fertilizer Bin Qasim Ltd. (FFBL) Thriving on DAP margins

Fauji Fertilizer Bin Qasim Ltd. (FFBL) Thriving on DAP margins

FFBL is scheduled to announce its 9M11 result on October 25, 2011. We expect the company to post PAT of Rs6,962mn (EPS: 7.45) versus PAT of Rs2,931 mn (EPS: 3.14) in corresponding period last year, massive upsurge of (+137% YoY). Company’s profitability in 3Q11 likely to improve by (+74% QoQ) translating into PAT of Rs3,428mn (EPS: 3.67) versus PAT of Rs1,975 mn (EPS: 2.12) in 2Q11. Moreover we expect company to announce cash dividend of Rs3.25/ share in addition to already paid interim cash dividend of Rs3.50/ share.

Uptick in DAP margins to improve net margins

Since commencement of CY11 industry faced gas curtailment and seizure on Sui network. Considering the sensitivity FFBL focused to produce more of DAP which requires more of Phosacid compared to Urea which is completely dependent on ammonia production. Company capitalized on the rising DAP prices and primary hovering over US$ 300/ton.

DAP prices averaged at Rs3,309/ bag (ex factory) up by 30% YoY during 9M11 where as primary margins averaged at US$ ~315/ ton, up by (+28.5% YoY) during the period under review. Moreover urea margins improved too due to constant rise in urea bag prices. However production suffered owing to gas curtailment thus ammonia consumption prioritized towards DAP production and residual for Urea production. Consequently we expect gross margins to clock in at 37.80% versus 30.10% in 9M10.

Earnings marathon still on

3Q11 likely to prove best quarter for CY11 where we expect (EPS: 3.67) up by (+74% QoQ) on back of improved DAP offtake of 217k tons up by (+113% QoQ) however urea offtake to remain depressed at 119k tons, (-19% QoQ). Topline to improve by +78.7% and gross margins to clock in at 38%, slightly down by 200pps QoQ due to decline in primary margins to US$ 286/ ton during the quarter down from US$315/ ton in 2Q11.

CY11 earnings to be all time high

Recent According to our estimates CY11 earnings to be all time high and company‘s profitability to swell to Rs10,293 mn (EPS: 11.02), up by 58% YoY where as 4Q11 earnings to be (EPS: 3.28). We believe DAP prices to remain firm for the 4Q11 because Phosacid 4Q11 prices settled at US$1080/ ton, up by 3% QoQ and there is very gradual decline witnessed in international DAP prices.

Whats next for investors?

There are concerns in the market about earnings decline post CY11 onwards, we believe DAP prices to start easing from 1Q12, however we primary margins would still average at ~ US$252/ ton for the CY12 versus US$ 302/ ton for CY11. We expect ex factory DAP prices to dip by ~10% for CY12, but we believe company can compensate the margins loss through higher capacity utilization as DAP demand for CY12 is expected to increase to 1.3mn tons. On the other hand gas curtailment to continue during winter season and would force the fertilizer manufactures to further scale up the urea prices. We believe urea prices would not decline unless uninterrupted gas supply is ensured to the Sui network players.

Investment in WPP, a diversification in right direction

FFBL is investing in wind power project with 50mw of 2 projects and FFBL’s share is 35% in each project. Financial close is expected in 4Q11 and plants to come online in 2H13. Project cost is Rs11bn each and debt/equity ratio would be 75/25. Going forward from CY14 onwards dividend payout from power project to augment the other income portion along with hefty other income contribution from short term investments and PMP profits.

Recommendation:

The stock has rallied from Rs42.20 (July01’11) to Rs62.22 (todate), a gain of (+47.4%). The stock rallied on back higher earnings anticipation and it was trading at P/E of 3.84x in July. We still recommend Buy for stock and currently trading at CY11/CY12 P/E of 5.65x/6.43x and CY11/12 dividend yield of 16.63%/14.61%. Our June-12 TP of Rs73/ offers upside potential of 17.36%.

Bullion touched US$1669 an ounce yesterday before closing, with a drop of 3.54%, at US$1594 an

Bullion touched US$1669 an ounce yesterday before closing, with a drop of 3.54%, at US$1594 an
ounce. It reached US$1669 an ounce as Euro debt resolution became more and more doubtful.
Investors also took advantage of low prices indulging in short selling, which resulted in fluctuating
price levels.
The main demand for the metal that is causing its prices to increase is from India and China who
have always been the largest and second largest consumers of gold. Moreover, the peak season for
gold has already started in September with Eid and will continue in October and onwards owing to
Diwali and weddings which will further boost the metal’s consumption.
However, global recession threat including expected deceleration in China’s growth, falling demand of
US consumer goods etc is causing all commodities to fall, and is also spilling its effects on gold. Plus the
strengthening of dollar has also resulted in the precious metal losing its appeal as an investment
haven.
The metal has touched US$1583 an ounce today breaking the support level of US$1588 an ounce. Thus
it is possible that it dips to US$1533 an ounce once again. This period is for investors to perform short
selling; buying at around US$1587‐US$1600 and selling as it reaches US$1644‐US$1650 an ounce.
Using Fibonacci Retracements we have estimated the following resistance levels for gold:
R1=US$1651; R2=US$1714; R3=US$1793
Analyst:
Ms. Gulshan D
Ferozepurwalla*
gulshan@scstrade.com
+92‐21‐111 111 721
September 29, 2011
Pakistan Research
Commodities Daily
MARKET WATCH
(Prices as on September 28,
2011)
Open

The fertiliser sector has been facing serious problems as a result of gas curtailments by the Sui network. It has substantially affected production, s

The fertiliser sector has been facing serious problems as a result of gas curtailments by
the Sui network. It has substantially affected production, subsequently affecting urea
sales for the 8MCY11, resulting in a fall of 3.9% as against the same period last year,
from 3.86mn tons to 3.7mn tons of urea dispatches.
Though if only the last month of August is reviewed then one would see an increase of
84.5% to 556,000 tons of Urea sales compared to 302,000 tons in August 2010. This
increase has mainly been contributed by the single train fertilizer Engro Enven, which
boosted operations by 35% to 150,000 tons on a monthly basis, and the lower
comparative production figure in the same period last year on account of devastating
floods.
However, DAP did not meet the same fate as Urea. Infact the Di‐ammonium phosphate
fertilizer witnessed an increase of 24.3% in 8MCY11 period, rising to 521,000 tons as
compared to 419,000 tons in same period last year. The reason behind the increase in
DAP sales is the shortage of Urea production and expectation of rise in DAP prices.
Thus the highlight of today’s news is the climb in DAP sales which is a positive news
for Fauji Fertilizer Bin Qasim (FFBL) as it is the sole producer of DAP in Pakistan and
hence would enjoy the largest chunk of revenue.
Moreover, as the Rabi season is nearing the DAP sales are further mounting, with
77,000 tons DAP dispatches in August 2011 alone, which is 52.9% higher than the
50,000 tons in August 2010. Thus FFBL would capitulate most of the benefits which
would be further combined with the increase in Urea production and sales on
account of gas resumption.
Thus we expect FFBL to yield an EPS of Rs9.06/sh and potential PE of 6.35x with a
DCF fair value of Rs68.2/sh.
FFBL has already shell out first and second interim dividends and is expected to give
third and fourth interim dividends which would bring the amount of total dividend to
around Rs10/sh.
We reiterate “BUY” for FFBL which has an appreciation margin of 18.6% from its
current market price of Rs57/sh.

GOLD TRENDS 29-9-2011 Gold touched US$1533 an ounce yesterday and closed at US$1630 an ounce with a ‐0.77% change.

Gold touched US$1533 an ounce yesterday and closed at US$1630 an ounce with a ‐0.77%
change.
It touched US$1663 an ounce as investors realized that the Greece debt crisis is not going to
be solved anytime soon; in fact speculators consider it to be on the brink of a default.
However, investors are in a frenzy witnessing the augmenting dollar against the Euro, which
is reducing gold’s demand as an alternative investment to dollar and therefore want to
realize as much cash as possible by selling bullion and move towards Treasuries.
We expect gold to dwindle in short term on account of dubious investors, which may cause
the metal to touch the US$1533 low once again. However, it appears that the uncertainty of
Euro zone debt resolution is bringing investors a bit closer to gold which is maintaining its
prices above the support level of US$1583 an ounce for now. The support level of US$1648 is
very weak and the metal appears to break this level time and again in daily trading.
Furthermore, gold is expected to fall in the short term if any news related to the efforts to
resolve the Greece debt issue, surfaces.

CEMENT TREND - FFC IS THE BEST AFTER LUCKY

The rising prices of raw materials such as coal, diesel, electricity etc have grabbed the
cement companies by the throat, who are trying to develop new means of production
to cut as much as cost of production as they can. However in this time of augmenting
inflation good news has surfaced, for the cement companies i.e. Rs30 per kg bag
increase in the selling prices of cement in the northern zone. This constitutes a 7.8%
rise in prices in just one month. Newspapers are reporting retail price of Rs 415/50kg
bag.
This increase in price would benefit the northern players including major players such
as DG Khan Cement (DGKC) and Fauji Cement (FCCL). We cover both the companies.
The revenue base would witness a jump which would also compensate for any decline
in local sales or exports in the situation of a supply glut. Particularly, we expect Fauji
Cement to gain high profits on the back of increasing prices. Moreover, a discussion
with the FCCL management highlighted that FCCL’s production has increased
manifolds along with sales booming substantially in recent times. Moreover, the new
German line is fully operational thus making FCCL making one of the better players in
the industry.
We expect FCCL to yield FY12EPS in the range of Re 0.7/sh with a DCF target price of
Rs8/sh ‐ Rs9/sh.
P&L a/c Rs '000 FY09 FY10 FY11
Sales 6,953,323 4,902,396 5,788,302
Gov. levy (1,638,785) (1,093,941) (1,045,709)
Net sales 5,314,538 3,808,455 4,742,593
COS (3,627,110) (3,292,871) (3,919,540)
GP 1,687,428 5 15,584 823,053
Distribution cost (50,260) (47,737) (74,149)
Administrative expenses (103,186) (103,490) (147,938)
PBIT 1,533,982 3 64,357 600,966
Other income 1 90,424 27,220 28,053
Other operating expenses (78,173) (25,460) (36,944)
Finance cost (224,716) (41,206) (103,922)
PBT 1,421,517 3 24,911 488,153
Taxation (413,894) (74,732) (62,492)
PAT 1,007,623 2 50,179 425,661
EPS 1.43 0.31 0.52
Margins and ratios FY09 FY10 FY11 FYE12
EBIT margin 28.9% 9.6% 12.7% 14.7%
PBT margin 26.7% 8.5% 10.3% 12.5%
PAT margin 19.0% 6.6% 9.0% 9.6%
cost/sales 68.2% 86.5% 82.6% 81.9%
Source: Standard Capital Research
We continue to maintain “BUY” for FCCL and now consider it our top pick in
cement sector after Lucky Cement (LUCK).

Pakistan Petroleum Ltd (PPL)

Pakistan Petroleum Ltd (PPL) reported consistent cuts in its dividend payouts as
witnessed by market since FY08. The company had announced a dividend payout of
Rs12/sh in FY11 as against a payout of Rs9/sh and Rs13/sh in FY10 and FY09 respectively.
Years FY11 FY10 FY9 FY8 FY7 FY6 FY5
Div. % 120 90 130 155 110 90 55
Bonus % 10 20 20 10 10 ‐ ‐
Source: www.scstrade.com
Due to the concerns of circular debt coupled with the consistent flat growth observed in
Oil and Gas Sector, analysts did not expected much from PPL. The recent news updates
delineated apparent management’s intentions to discontinue dividend cuts. Thus
management is trying not to deprive its shareholders from dividend especially when
Government of Pakistan is the major shareholder and beneficiary.
PPL despite of undertaking large‐scale exploration and production activities together
with the strategic shift of focus to drilling its own oil and gas wells instead of relying on
joint venture partners to shore up the company’s depleting reserves; it is yet seems to
have its financial and liquidity position in a comfortable zone. This financial stability could
be a good omen and a trigger for the attractive cash payouts along with the customary
bonus of 10% ‐ 20%.
The biggest trigger in PPL is any news which is related to privatization since company
needs injection of investment in technology and latest equipments which could only be
possible if some able foreign partner take a direct control of the company. PPL, for many
years, is having flat gas production and its proportion of oil production is minimal in
overall ‘production mix’. At present the PPL has got weak triggers. The main trigger for
PPL is ‘price increase’ announced by the regulator OGRA on PPL’s depleting assets.
Rumors on Qadirpur subsided
We have had a discussion with many people in the company (OGDC) wherein we could
not find any thing negative happening at big gas producing field Qadirpur since it is
a perforated land in Sindh province and cannot be in any way equated with Pindori like
water log problem at Khyber Pakhtoonkhwa.
In fact a new compression plant installed is at the testing stage. The gas field reported
satisfactory sale of 501mmcfd till 6' o clock morning yesterday (which is last sale
reporting time). Any good result in testing would result in addition to gas production.
We consider this to be good news for OGDC (major stakeholder) and PPL (minor
holdings).

KSE TREND 26-9-2011

Markets ended lower on the last trading day of the week as turmoil in the international markets was reflected in KSE. Net outflow of $1.936 million was witnessed in the equities on Friday.



Further, increasing tensions with America on the issue of Haqqani network is a source of concern for investors, however, the army called an extraordinary corps commander meeting on Sunday where a source privy to discussions at the conference revealed that de-escalation efforts were afoot.



The government has lowered the GDP growth target for FY12 from 4.2% to 3.5% following an estimated loss of 2.5 million cotton bales in Sindh by recent floods

PSO EARNING FUTURE OUTLOOK

Break down in supply chain, fuel shortages and nationwide loading shedding
are becoming major sources of concern as PSO receivables reach a daunting
Rs155bn of which, around Rs131bn is the circular debt.
It appears that this famous bubble of circular debt is on the verge of bursting. It
has reached its limit and is creating enormous amount of problems for Pakistan
State Oil as well as for other refineries. It has hurt PSO’s liquidity massively
causing it to default on local refineries payments in this month, as a result of
Rs131bn to PSO by the power sector. In fact the companies have continuously
defaulted on its payment obligations hence hampering PSO’s ability to meet its
creditors’ payments.
This delay in payments to refineries has, in turn, affected local production
which is a sign that if not taken drastic measures immediately, our country
would suffer severe shortage of fuel causing prices of petroleum products to
reach sky high.
Moreover, the deteriorating liquidity of PSO is making it difficult for it to meet
its international obligations, for which the company is struggling very
assiduously as any default on this end would disturb supplies which would then
take months to resume, thus creating a gap in imports as well.
Hence, it is a dire need for the company to receive its payments as any further
delays in the near future would cause fuel cargoes to be deferred, as PSO has
utilized all its resources for financing future product supplies. As far as the local
production of fuel oil is concerned, it is already in melancholy and imports are
needed to curb the supply shortages to avoid increased load shedding.
In a nutshell, PSO needs to receive its rightful share of cash in the nearest
future to avoid further hindrances in local production and import of fuel oil, to
evade the severe scarcity of the concerned product, rising prices and intense
load shedding; before it gets bankrupt.
We have a ‘Sell’ stance on PSO with FY12 expected EPS in the range of
Rs57/sh‐Rs60/sh.

KSE TRENDS

Adm. Mullen's outburst against Pakistan's key intelligence agency ISI has some
reverberations on Pakistani politics as well as decision making of our fund manager
friends.
It’s being said that America would continue to show restraint despite threatening
posture, since any 'unilateral attack' on sanctuaries in North Waziristan may ignite
further trouble for the weak Pakistani political government. The trouble would
emanate within the streets which could wilt present 'democratic set up' wherein all
strong army could push for an interim set up. The shaping up of this scenario is now
evident from recent overtures by army top brass in Pakistan's troubled Sindh province
whereby army chief exchanged notes with Karachi based businessmen that indicate
increased interest to trigger 'political change'. Till now army has shown restraint
despite economic meltdown given political expediency.
In light of this we pronounce that funds should keep FFBL since it would continue to
dominate investors interest since it still provide 30% upside from present price. Many
analysts have failed to capture real value in FFBL (given lack of understanding on agridynamics
+ co relation with international price) and this is evident from funds holding
position on the stock.
Secondly, other fertilizer players are also at an advantageous position such as FFC
and Fatima (we see FFC and Fatima touching new highs). We do not like holding
company i.e. Engro Corp and instead would like investors to wait for Engro Fertilizer
IPO.
Among oil explorers, it is Pakistan Oilfields which continues to remain 'favorite'
despite delays coming in Domial2 (presence of 1mmcfd gas + company's inability of not
lifting thick oil) that would keep investors at tenterhooks. Though, we like OGDC due
to developments in Zin Block where 85 development wells are planned.
Among emerging players, investors should not forget new German plant of Fauji
Cement (FCCL; target price Rs 8/sh) which is now under production. People would
only realize value once it would make a Lotpta like journey in coming months. Among
other emerging players, Engro Foods (EFoods) also provide value.
Among banks, MCB and BAFL provide value (we like BAFL since it provides lot of
liquidity). Despite liquidity constraints, ABL is also a good option.
The developing political situation, though would initially send shivers down the spine,
is likely to give 'sign of relief' to investors in and around December 11'. At present
investors are wary from the current political impasse and are hesitating on filing CGT
returns.

GOLD TRENDS third support level of US$1650 an ounce by touching US$1628 an ounce on September 23, 2011. It opened today at US$1650 an ounce an

Gold has broken its third support level of US$1650 an ounce by touching US$1628 an ounce
on September 23, 2011. It opened today at US$1650 an ounce and is hovering at US$1597 an
ounce. This decline has been brought about by the rise in dollar against a basket of
currencies, the efforts by European leaders to come up with new ways to resolve the debt
issue and the decision by the Fed to replace short term debt to long term bonds. Moreover,
the fear of global recession has caused investors to sell their metal holdings and realize
whatever gains they can and as fast as they can.
We expect the metal to touch US$1475 an ounce in the short term and go further beyond
this level if investors continue to invest in dollar and divest from gold.
However, this decline is expected to reverse by the end of December 2011 as we should not
forget that the US debt is still lingering, the Euro zone debt crisis is still unresolved,
unemployment is not declining and growth is decelerating in the large world economies.
Moreover, a quantitative leasing‐3 is expected in 2012 which would support gold causing it to
once again become an investment haven.
It is also very likely that investors start buying the precious metal at these low prices,
resulting in an increase in demand for bullion and subsequently raising prices.

KSE MARKET TRENDS 26-9-2011 The possibility of fallouts of straining relationship between two allies weighed heavily over the market. Panic selling

KSE MARKET TRENDS 26-9-2011

The possibility of fallouts of straining relationship between two allies weighed heavily over the market. Panic selling was witnessed by the local investors whereas positive net flow of $1 million was witnessed from the foreign investors.

Political analyst believes that there is a likelihood of de-escalating in crisis between Pakistan and the US as the former started consultation with some of its close allies including China and Saudi Arabia . The PM of Pakistan also called an All Parties Conference on September 29^th to discuss the situation.

The SBP has decided to intervene to halt the depletion in the Pakistani Rupee (PKR) against the US Dollar (USD). PKR traded over Rs. 90 in the open market yesterday.

PPL is seeking Joint venture with Iranian oil companies

PPL is seeking Joint venture with Iranian oil companies

According to KSE notices, PPL is seriously considering Joint venture operation in oil and gas exploration sector of Iran with Iranian oil companies (Joint venture will lead stake in different blocks of Pakistan and Iran). Company is evaluating different options in oil and exploration sector. However, company has not finalized any agreement with Iranian oil companies. If any contract finalized between PPL and Iranian oil companies it will have huge positive impact on PPL as Iran have huge oil and gas reserves.

We maintain our Buy stance on PPL with target price of PKR 259/share.

Thanks and Best Regards,

Research Department

Phone : 0092-21-35317703

Fax : 0092-21-5895328

M.M. Group of Companies

MM Tower, 3-C, Khayaban-e-Ittehad

Phase – II extension

D.H.A, Karachi

PPL is seeking Joint venture with Iranian oil companies

PPL is seeking Joint venture with Iranian oil companies

According to KSE notices, PPL is seriously considering Joint venture operation in oil and gas exploration sector of Iran with Iranian oil companies (Joint venture will lead stake in different blocks of Pakistan and Iran). Company is evaluating different options in oil and exploration sector. However, company has not finalized any agreement with Iranian oil companies. If any contract finalized between PPL and Iranian oil companies it will have huge positive impact on PPL as Iran have huge oil and gas reserves.

We maintain our Buy stance on PPL with target price of PKR 259/share.

Thanks and Best Regards,

Research Department

Phone : 0092-21-35317703

Fax : 0092-21-5895328

M.M. Group of Companies

MM Tower, 3-C, Khayaban-e-Ittehad

Phase – II extension

D.H.A, Karachi

Gold fell yesterday by 0.66% closing at US$1824 an ounce after touching US$1844 an ounce.

Gold fell yesterday by 0.66% closing at US$1824 an ounce after touching US$1844 an ounce. This
decline has been mainly caused by the news that French and German officials are convinced that the
debt issue would be resolved and that countries are being probed to incur efforts to do so.
French President Nicolas Sarkozy and German Chancellor Angela Merkel received international calls to
increase efforts in combating the European debt crisis.
According to recent news UBS AG (UBSN), Switzerland’s biggest bank, faced a trading loss of about
$2bn owing to unauthorised trading at its investment bank. However, European stocks were not
affected by this news and instead climbed as the assurance from Germany and France, that Greece will
remain a member of the euro, outweighed this huge trading loss.
Gold also declined as vice chairman of the China’s top economic planning agency stated that China is
willing to help the debt burdened European nation by buying Euro bonds from countries who are
involved in this debt nightmare.
If gold closes below the US$1793 support level it is feared to reach around US$1700‐ US$1740 an
ounce. However, if the plans to resolve the debt issue are not soon put into action, the bullion may rise
to a resistance level of around US$1880 an ounce.
In the short term we expect gold to hover at low prices as the US stock market is reviving, the Jobs
plan is under consideration and the European debt issue is under scrutiny.

Lucky Cement Company Ltd. (LUCK)-Result Preview

Lucky Cement Company Ltd. (LUCK)-Result Preview

Lucky Cement Ltd. (LUCK) board is expected to announce its 1HFY11 result on January 31, 2010. We expect the company to post PAT of Rs1,643 mn (EPS: 5.08) in 1HFY11 versus PAT of Rs1,908 mn (EPS: 5.90) in corresponding period last year, a decline of (-13.9% YoY).

Lucky tackling all odds smartly

Lucky tackling all odds smartly

LUCKY cement likely to post PAT of Rs3,703 mn (EPS: 11.45) for FY11, up by (+18% YoY) versus PAT of Rs3,137 mn (EPS: 9.70) in corresponding period last year. Growth in profitability to stem from higher local / export cement prices by (+38.38% / +20.40% YoY) respectively, consequently topline would propel by (+19.43% YoY).

We recommend ‘BUY’ for the stock currently trading at P/E 5.97x - FY11E, our target price is Rs85.76/ share, offers upside of 25.38%.

Millat Tractors drop in earnings QoQ

Millat Tractors drop in earnings QoQ

Millat Tractors Ltd. (MTL) is scheduled to announce its 9MFY11 results on 25^th April, 2011. We expect the company to post PAT of Rs1,636mn (EPS: 44.70) as against PAT of Rs1,611mn (EPS: 44.0) in corresponding period last year, a slight increase of (+1.58% YoY).

Bank Alfalah profitability to grow (+9.5% YoY)

Bank Alfalah profitability to grow (+9.5% YoY)

Bank Alfalah Ltd. (BAFL) is scheduled to hold its 1QCY11 result meeting on April 23, 2011. We expect the bank to post PAT of Rs642 mn (EPS: 0.48) versus PAT of Rs586 mn (EPS: 0.43) in corresponding period last year, growth of (9.48% YoY).

Company Update- FATIMA Fertilizer – Ready to take off

Investment Perspective We initiate the coverage of Fatima Fertilizer with BUY recommendation. Our DCF based June-12 TP of Rs18.75/ offers an upside potential of 25.6% from its last close. Product mix to add value to the company’s profitability.

Fatima’s product line consists of

UREA – (Production Capacity 500k tons)
CAN – Substitute of Urea and cheaper by 10%-15% (Production Capacity 420k tons)
NPK- Substitute of DAP and cheaper by 40-45% (Production Capacity 300-320k tons)

Dedicated gas supply of 110mmcfd from MARI network – currently considered best among SNGP/SSGC due to no interruption in gas supply. The feed gas supply is available for 10 years at USD 0.7/mmbtu or (Rs60/mmbtu as against Rs102/mbbtu available to other players) and beyond this period expiration feed gas price would be revised at par with industry rates Fatima is enjoying benefit from both Urea and CAN owing to significant rise in both products prices. Urea was sold around Rs830/ bag in mid Dec-10 now available at Rs1,060/ bag (ex GST) (+27.7%) and CAN was available at Rs710/ bag and now at Rs975/ bag (ex GST) (+37.32%). There is no change in feed gas price for Fatima except slight curtailment of gas by 8-10% on Mari network. Any hike in Urea price




Any hike in Urea price would also be followed by CAN. We have calculated the sensitivity of change in price of UREA & CAN on the profitability of the company. Increase of Rs100/ bag in (UREA and CAN) would improve the earnings of Fatima by EPS 0.50, considering no change in feed gas/fuel cost. NP/NPK which trades at significantly lower price than DAP and key players of this product are Engro, PakArab and importers. We have analysed past trend of NP/NPK vs DAP, outcome depicts demand increases for NP/NPK when DAP gets abnormally expensive as was witnessed 2 years back in global commodity price upswing. Since 16% GST DAP has become expensive and currently at Rs4,100/ bag versus NP at Rs2,700/ bag.

Primary margins on CAN/UREA/NP would remain less volatile and high compared to peers mainly due to cheaper gas availability and stable PhosRock prices the main raw material of NP Company to gain additional income CER in the vicinity of Rs900-1,000 mn and any revision in price to benefit more. Bottom line impact to the tune of EPS 0.50 We expect Fatima to start paying cash dividends from CY12 onwards, more over currently stock is trading at compelling CY12e & CY13e P/E of 5.28x & 4.99x respectively. Our channel check suggests COD likely to be achieved in July’11.

DML Exim Private Ltd, India

DML Exim Private Ltd, India

Dear Sirs,

Kindly refer to our earlier communication regarding non-payment of an amount of US$ 568,934.90 by above mentioned supplier from India, awarded to us by International Cotton Association, Liverpool, U.K. on 21/12/2010.

Since DML Exim (Pvt) Ltd. failed to honor their commitment of supply of Cotton, we had gone for arbitration to International Cotton Association, Liverpool, UK. Who awarded decree in our favor. We therefore hereby request you to issue a circular to all the member that they should be very cautious in dealing with this party whose complete address is given below:

DML Exim Private Limited

405, Embassy Tower

Opp. Jubilee Garden

Jawahar Road, Rajkot 360 001

Gujarat, India

Tel: +91 281 222 9182-3

Fax: +91 281 223 0505, 2220409

Email: logistics@dmlgroup.in

(Company Owned by Mr. Harishkumar Lakahni)

They have backed out on their commitment and even not honoring the award of International Cotton Association, Liverpool, U.K.’s pronouncement who have awarded us the above amount. A copy of the Award is enclosed for your record and ready reference.