Fauji Fertiliser Bin Qasim (FFBL) is planning to invest in two wind power projects with capacities of 50MW each. The project is being undertaken by Fauji Foundation and will incur a total estimated cost of $260 million (Rs 11 billion). The cost is expected to be financed by a debt to equity ratio of 75:25. FFBL will contribute 35 percent in the equity of the projects, which aggregates to an investment of $23 million.
Financial close of the project is expected in the second half of 2011, while the project will come online by 2013. The dollar based IRR on the project stands at an attractive 17 percent. FFBL has yet to finalise the financing mix of its investment, as it has the option to borrow and curtail dividends.It is to be noted that the company recently posted PAT for 1Q11, that was recorded at Rs 1.56 billion (EPS Rs 1.67), an annual increase of 93 percent. Robust margins (GMs up by 7pps to 34 percent) was the major earnings driver, despite lower volumetric sales of both urea (-25 percent annual to 77,000 tonnes) and DAP (-2.0 percent annual to 105,000 tonnes). While the gas curtailment has hit production across the fertiliser industry, plants on the SNGPL network have borne the brunt of gas curtailment.
One of the proposals to tackle the gas crisis on SNGPL is to divert 40mmcfd of gas from IPP’s to DAWH, with IPP’s provided with HSD as an alternate fuel. The fertiliser industry will bear the cost differential between the cost of production on gas and HSD. Based on initial estimates, the daily cost differential of production on HSD will be Rs 77 million, translating into a monthly cost of a substantial Rs 2.3 billion, said Ayub Ansari at Investfinance. He added that fertiliser manufactures, consequently, will have to raise urea prices to counter the increase in costs, which based on an average monthly production of 450,000 tonnes, translating into a further urea price hike of at least Rs 250 per bag.
The phosacid contract price for 2Q11 has been set at $980 per tonne, an increase of a quarterly $150 per tonne. However, despite the rise in phosacid prices, DAP primary margins still remain very healthy at $265 per tonne. Imposition of GST on DAP is expected to dampen demand with retail DAP prices shooting over Rs 4,000 per bag. However, the management sees little sales risk as imports of DAP are very low and farmer economics are still very healthy following a bumper wheat crop and record high cotton prices.
