Engro decreases fertiliser price by Rs100 per 50kg bag

News expected to hurt earnings per share for industry peers.

KARACHI: Engro Corporation has decreased urea fertiliser prices by Rs100 to Rs1,480 per 50kg bag cut following government assurance of improved gas supply during winter for plants operating on the SNGPL network, including Engro’s new plant.

The move is part of an agreement reached between fertiliser manufacturers and government officials in November. In the first step, Engro Corporation rolled back increase in urea price on November 3 following government’s assurances that gas needs of the company’s large Deharki plant will be met.

The country’s gas distribution network is segmented into three companies namely Sui Northern Gas Company (SNGPL), Sui Southern Gas Company (SSGC) and Mari Gas. Some of the companies including Engro’s new plant are on the SNGPL network while Fauji Fertilizer Company and Fauji Fertilizer Bin Qasim among others are on the Mari Gas network.

Engro’s stock price jumped 3.4% at the Karachi Stock Exchange after the price decrease announcement.

Looking at previous trends, other companies are expected to follow suit and decrease prices. FFC and FFBL are expected to be hurt the most as any decrease in price will not be compensated by enhanced gas supply, adds the note.

KASB Securities decreased its earnings per share forecast for FFBL by 7.8% to Rs6.53 and FFC by 10% to Rs25.2 for 2012, keeping in view that that the price cut remains intact for 2012. However, gas supply situation for winter season December to February is likely to be tight and hence price cut could be short lived, adds the note.

Urea production was down by 27% to 342,000 tons in October on a monthly basis due to non-availability of gas to urea plants on SNGPL network. Three out of four urea plants, including Engro’s new plant, were down all month, says the note. FFBL and Agritech urea plants were operational for two-weeks.

Published in The Express Tribune, November 30^th, 2011.