Agriculture and fertilizer sector remained strong during the COVID-19 crisis. Despite challenges on supply chain front global fertilizer offtake witnessed growth of ~2% during FY20.

Agriculture sector plays an important role in Pakistan’s economy. Despite being an agrarian country, Pakistan cropped area has remained stagnant over the years. Issues relate to poor crop yield and water scarcity remained big concern for the sector.

Domestic fertilizer sector showed resilience during COVID-19 pandemic. Total urea offtake for CY20 is clocked in at 6mn tons, showing meager decline of ~3% YoY, attributable to pre buying in Dec’19 due to rumors regarding increase in gas price. Our liking for the sector emanates from the following facts i) Gov’t pro farmer policies, extension in timeline of GIDC payment, ii) improving farmer economics, iii) significant discount between local and international urea prices and iv) attractive dividend yield.

Stable urea demand and attractive dividend yield makes fertilizer sector a safe play. In our fertilizer universe, we like FFC, EFERT & FATIMA due to their stable business model and attractive payout ratio. In addition to this, change in earning composition, improving dynamics of subsidiary companies and investment in new ventures makes ENGRO a good investment. Furthermore, FFBL witnessed turnaround in its bottom-line due to better margins and higher dividend income. We opine that higher DAP prices, restructuring of FFL (a major drag on FFBL’s profitability) and divestment of wind power plants will improve FFBL’s liquidity and profitability.

Full report here: