ENGRO may get all the gas from Guddu: preparing to run both plants

ENGRO may get all the gas from Guddu: preparing to run both plants

 

• Our channel checks in fertilizer industry have suggested that the entire gas diverted from Guddu power plant has been allocated to Engro Fertilizer. The company is preparing to run both their plants and these may start producing urea within a week

 

• This implies additional 40-60mmcfd of gas available to the company. The total available gas, including from Mari (~80mmcfd), Mari New Field (~20mmcfd), SNGPL (~10mmcfd) and Guddu (~40-60mmcfd) now potentially sums up to 150-170mmcfd

 

• This will enable annualized urea production of 1.87mn tons (~80% capacity utilization; combined for both plants). We maintain that this arrangement may not be acceptable to other Mari based competitors of Engro (FFC and FATIMA), leading to questions over sustainability of this gas supply

 

• Annualized earnings impact from this incremental production from our base case is an astounding PKR4.6bn (PKR8.9/sh) for ENGRO. We maintain the company as our top pick in the fertilizer sector. Our Dec13 TP stands at PKR177/sh, with significant upside risks available – BUY!

 

• Research Analysis by BMA Capital