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Bank Alfalah to expand earnings

Bank Alfalah Limited’s balance-sheet is geared up to expand earnings in rising interest rate scenario, while higher concentration towards zero-cost deposits will restrict the cost of funds at manageable levels.

Moreover, the net interest margins (NIMs) expansion is likely to continue in CY22 due to higher portion of shorter duration investments.

Analysts believe BAFL’s average return on equity (ROE) and return on assets (ROA) will likely to remain over 19 per cent and 1.1 per cent.

Further, strong profitability outlook and solid capital buffer will enhance the chances of aggressive dividend payout, while strong growth in fee income will keep bottom-line elevated and relatively lowest infection ratio of 3.3 per cent among the peers would provide comfort on the asset quality.


Similarly, the loan book will get fully re-priced in the second quarter of CY22. Likewise, higher portion of zero-cost deposits will keep the cost of deposits in check.

BAFL remains well-capitalised as the Capital Adequacy Ratio (CAR) stands at 14.68 per cent (September 2021), having an adequate buffer of 318bps from the regulatory requirements.

With the expectation of expanding bottom-line, going forward, likely slowdown of growth in advances after completion of TERF-related disbursements, capital ratios are expected to remain within the comfortable zone, which may result in higher payout ratio.

With respect to IFRS-9 implementation, the management said that this would not significantly impact the capital ratios. To note, the State Bank of Pakistan (SBP) announced on January 1, 2022 as the implementation date, but it will likely to be implemented gradually and the industry is waiting for the final notification.

However, it is unknown at this point in time whether this will have any impact on the government’s bond holdings under investment portfolio.

Key risks included lower-than-estimated deposits and advances growth, economic slowdown, resulting in higher-than-estimated non-performing loans (NPL) creation, shift in the regulatory requirements and higher impact of IFRS-9 implementation.


Engro Fertilizer formulating proposals for new policy

Engro Fertilizer is formulating proposals for the new fertiliser policy, which comprises consistent gas rate, full deregulation of urea price, surplus urea capacity export, and support optimisation of indigenous gas facilities and development gas efficiency projects.

Engro Fertilizer posted a consolidated net profit of Rs21.09 billion (EPS: Rs15.8) in CY21 vis-à-vis Rs18.13 billion (EPS: R13.58) in CY20, depicting a jump of 16 per cent (an all-time high earnings).

During CY21, the company recorded its highest-ever urea sales of 2.295 million tonnes, up 12 per cent YoY, while the urea production in CY21 was lower, compared with the last year, given Enven plant turnaround.

The local urea prices are currently trading at a discounted rate of Rs1,768/bag against the international landed price of Rs11,027/bag. However, DAP sales witnessed a decline of 21 per cent, settling at 366k tonnes in CY21 owed to surge in DAP prices.

Regarding concessionary gas pricing, the management briefed that no progress has been made since obtaining a stay order from the Sindh High Court, whereas, the Economic Coordination Committee (ECC) of the Cabinet has recommended that concessionary pricing should be extended by the number of days’ gas supply was not available.


In this regard, discussion is in progress between the government and Sui Northern Gas Pipelines Limited (SNGPL).

Sales tax receivables position of Engro Fertilizer and the industry have mounted to Rs8.9 billion and Rs51 billion, respectively, as of November 21. The management informed that urea sales of 6.3 million tonnes was recorded by the industry in CY21.

Moreover, the urea demand has increased to 6.1 million tonnes against the 10-yearr average of 5.8 million tonnes.

As per the management, the downstream value chain created urea shortage in CY21 by smuggling around 100k tonnes of urea out of the country with the purpose of inflating local urea prices.

However, with the government’s intervention, the supply chain was streamlined. During this time, EFERT kept its urea price unchanged instead of charging higher. At present, inventory levels have started building up.

The management also said that it is contemplating an upcoming BMR project in 2022/23, which will ensure higher production from the existing plants. The fertiliser industry can offer annualised import substitution of $3.5 billion and provide Rs524 billion benefit to the farmers based on average international prices.


Engro Polymer posts highest-ever PVC sales

Engro Polymer and Chemicals Limited (EPCL) made their highest-ever annual domestic PVC sales of 208k tonnes during CY21, up 28 per cent, compared with 162k tonnes last year.

EPCL’s PVC market share is estimated around 90 per cent during CY21.

Additionally, the company also exported 19.4k tonnes of PVC during the year, while on a quarterly basis, it sold 55k tonnes PVC locally in the fourth quarter of CY21, up 15 per cent YoY.

Caustic domestic sales volume during CY21 stood at 75k tonnes, down 7 per cent YoY from 81k tonnes in CY20. Additionally, the company sold 18k tonnes in the fourth quarter of CY21, compared with 19k tonnes in the same period of CY20.

The company also exported 5k tonnes of caustic products during the year.


As per the management, the issues pertaining to gas supply and plant turnaround impacted the caustic sales during the second-half of CY21. Consequently, EPCL’s CY21 full-year caustic market share averaged around 29 per cent in CY21, compared with 33 per cent in the first-half of CY21.

To recall, PVC line-3 of 100k tonnes capacity become operational in the first quarter of CY21, while VCM de-bottlenecking of around 50k tonnes was successfully completed towards the end of the second quarter of CY21.

With regard to venturing in the hydrogen peroxide market, the EPCL management disclosed that work on the project is currently under way with the expected commercial operations date (COD) in CY23.

The oxy vent recycle (OVR) project is near its completion, which is expected to improve the raw material efficiency of the company.

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