Engro Fertilizers Limited (PSX: EFERT) increased urea and DAP prices against the 5 percent federal excise duty (FED) on the fertilizer sector imposed by the government in the Budget 2023-24.
Our channel checks have confirmed that EFERT has increased urea prices by roughly Rs. 174 per bag, effective 5th July-2023 to pass on the impact of the recently imposed FED. The company has also announced an increase in DAP prices by Rs. 332 per bag to pass on the same.
Accordingly, EFERT’s urea and DAP prices now stand at Rs. 3,169 per bag and Rs. 10,114 per bag, respectively.
Fauji Fertilizer Company (PSX: FFC) has already announced an increase in Urea prices by Rs. 350 per bag. Whereas, Fauji Fertilizer Bin Qasim Limited (PSX: FFBL) has increased prices of urea by Rs. 162 per bag to pass on the impact of FED.
FFC and FFBL have also announced an increase in DAP prices by Rs. 480 per bag effective from 1st July-2023 to account for the impact of duties and taxes.
FFC Urea price stands at Rs. 2,910 per bag whereas FFBL Urea prices are at Rs. 3,212 per bag post price increase. FFC and FFBL DAP prices now stand at Rs. 9,995 per bag and Rs. 10,045 per bag, respectively.
Fertilizer Sector Passes On Impact of Duties and Taxes
The fertilizer sector attracted taxes and duties in the recently passed Finance bill for FY24. Whereby, a FED of 5 percent was imposed on the sector estimated impact of which comes to around Rs. 125-150 per bag for urea and ~Rs. 470 per bag for DAP. Another major move was the removal of tax exemption for DAP subjecting it to a 5 percent tax without allowance for differential claims.
Companies attempted to pass on the impact of these incremental taxes to consumers during the ongoing week. FFC increased Urea prices by Rs. 350 per bag, while Fauji FFBL raised Urea prices by Rs. 162 per bag to account for the impact of FED.
Additionally, both FFC and FFBL announced a DAP price increase of Rs. 480 per bag, effective from 1st July2023. Engro Fertilizers Ltd (EFERT) also raised Urea prices by approximately Rs. 174 per bag and DAP prices by around Rs. 332 per bag to offset the impact of the recently imposed FED.
Post increase, FFC Urea price stands at Rs. 2,910 per bag whereas FFBL Urea prices are at Rs. 3,212 per bag. Similarly, FFC and FFBL DAP prices stand at Rs. 9,995 per bag and Rs. 10,045 per bag, respectively. EFERT’s Urea and DAP prices now stand at Rs. 3,169 per bag and Rs. 10,114 per bag, respectively.
Agritech and Fatima Fertilizers have also increased prices to Rs. 3,277 per bag and ~Rs. 2,910, respectively. On the other hand, some pro-agri measures were also announced in the recent budget given the need to manage food inflation and maximise export potential.
Notably, allocations were made for the Research & Development of Agriculture. Moreover, resources were allocated to ensure availability of quality seeds, solarization of tube wells, and financing of agri machinery.
The government also vowed to take prompt measures this year to prevent the agriculture sector from getting affected like last year by the impacts of heavy rainfall.
Further Input Cost Escalation Anticipated
The sector’s demonstrated resilience in promptly transferring the impact of duties and taxes positions it well to pass on any future increases in input costs. With the previous gas price hike announced in February 2023 yet to receive clarity, it becomes crucial for the fertilizer sector to prepare for potential pass-on adjustments.
The sector can effectively manage any future cost hikes and ensure its sustained stability.
Sales Growth Expectation for Urea Strengthens Case
The report sees Urea sales during June-2023 to clock in at 611,000 tons, a 33 percent sequential improvement. FFC is likely to post a 32 percent MoM improvement in sales (-3 percent YoY) as it had held inventory to ensure buffer stock to meet Kharif demand.
On the other hand, EFERT is expected to also post sequential uptick of 79 percent for June as the company’s base plant was shut for almost the whole month of May owing to technical issues.
With production estimates at 550,000 tons, JS Global expects the industry’s closing inventory to clock in around 216,000 tons for Jun-2023.
DAP Offtake to Also Show Sequential Improvement
DAP off-take for Jun-2023 is expected at ~134,000 tons, a 103 percent month-on-month improvement. On a year-on-year basis, offtakes are expected to show an 8 percent decline. FFBL, the sole manufacturer of the product, is expected to post an offtake of 80,000 tons for June.
FFC and EFERT are expected to post DAP sales volumes of 17,000 tons and 12,000 tons during the same period, respectively.
