EFERT Engro Fertilizer Financial Analysis 2nd Mar. 2020

Urea prices have started inching up since start of this year and weekly price index of Urea fob Barge NOLA settled at 272.82 USD/Ton during last week with a net change of 16.75% on MoM basis. While a net increment of 13.53% have been recorded on YTD basis in Fob Barge prices. Meanwhile a price increment of 12.94% have been recorded on Chinese front where ZCE Urea future prices have settled at 1,745 Ұ/Ton at Feb 2020 end. It's expected that Urea prices would remain bullish during the year keeping focus on expected increase of 5% in demand globally and these price factors would discourage import of urea in Pakistan which would result in higher demand of local urea products, mean while it would open some new venues for exports with attractive profit margins. Technically speaking Urea fob Brage NOLA prices would touch 280 USD/Ton in coming days while on the other side ZCE Urea future prices are also expected to remain bullish and would try to settle between 1760-1800 Ұ/Ton.

DAP fob Barge NOLA prices have recovered after posting a new low at 260.70 USD in Dec. 2019 and this was the lowest price in last ten years, mean while a sharp recovery have started and a price increment of 19.5% have been recorded on YTD basis. Initially DAP fob Barge Nola prices would try to target 320 USD/Ton and now 300 USD would become a strong support price which would push its prices further upward.

EFERT have 32% of market share local urea market and 28% in DAP as per company briefing they have gained their last positions of 2018 by capturing 34% of urea market share in Dec. 2019. An increment of 3.89% was recorded by EFERT during 2019 and company's production numbers for the year clock at 2003KT, after posting record production in 2019 as compared to last five years and it's the major market player which still have additional production capacity of 0.3 million tons. Total production capacity of 2.3 million tons have been announced by the company in its briefing and in future with growing demand of Urea and DAP EFERT would be standing at top line as beneficiary to capture more market share. Company's revenues are increasing with a constant pace since last three years and an average increment of 17.19% have been recorded in revenues during last five years while a net increment of 11.13% was recorded in revenues on YoY basis. Mean while three and five year compound annual growth rate values of Revenue and Net income are also showing attractive growth. Keeping Market share, revenue and gross margin growth in focus it's expected that an increment of 9%-10% in quarterly revenue figures and 17%-18% on annul basis would be witnessed. On basis of these growth rates it's expected that a price increment of 27%-30% would be witnessed till Jun. 2020.

EFERT is moving below a descending trend line since Aug. 2018 and this line is reacting as a strong resistance but momentum is increasing beneath this line and it's expected that EFERT would gave a clear breakout of this line after bouncing back from 60-55 Rs. region because bearish waves beneath this trend line are squeezing their length and prices would found a strong support at 60 Rs from a strong horizontal supportive region. Therefore it's recommended to start buying EFERT above 60 Rs and average it out till 55 Rs with strict stop loss of 52 Rs. After starting reversal from its supportive regions EFERT would try to target initially 75 Rs to close above its resistant trend line, mean while a short term corrective wave would be witnessed below 70 Rs which would strengthen its bullish momentum. After breakout above 75 Rs EFERT would target 81 Rs. Weekly closing above 75 Rs would change sentiment of mid-long term basis and momentum would convert into strongly bullish zone.