In Focus: Fauji Fertilizer (27062008)

Bin Qasim Limited
Investment strategy: "Buy and Hold"
Our DCF valuations intend us to hold a "Positive stance" for the scrip as our calculated DCF value for FFBL stood at Rs45, which is in the line of extra revenue inflows due to increased subsidy on DAP.
Despite the fact that the price hike of DAP and Urea has increased the front line revenues to double folds, the gross profitability margins still remained stagnant on the trend as increased raw material cost kept the margins limited to 34 percent.
DAP demand on
reviving trend
DAP demand has been on reviving trend with the start of khariff season, according to the data released by NFDC, DAP off-takes for the month of May declined by 38 percent to 57,256 tones YoY, but tells a good story if compared m-o-m.
The revision in subsidy will imply positive affect on the demand drivers of DAP in 2H08. On the other side DAP prices are still on increasing trend, in the month of May 08 DAP prices increased by 7 percent to Rs2,971.
Urea will Show Stagnant Pace
According to the data released by NFDC, Urea offtakes for the month of May increased by 25 percent to 474,000 tones, along with demand increase, prices of Urea also increased by 5 percent to Rs643 during May 08. With the Govt. intentions to support the use of phosphates in agriculture inputs in this budget, urea market is expected to show a stagnant growth in 2H08.