Despite core business of the fertiliser manufacturer showing a drop in 2011, Fauji Fertilizer Company (FFC) beat all expectations and announced a two-fold increase in net profit to Rs22.5 billion.
The company’s urea sales fell 3% to 2.4 million tons, however, 54% surge in urea prices did the trick, says Summit Capital analyst Muhammad Sarfraz Abbasi. Hence, gross margin grew 19% to a healthy level of 62.2% against the preceding year’s 44%.
The result is at least 9% higher than market expectation as analysts expected the net profit to stand, on average, Rs20.5 billion.
In the final three months of the year, sales plummeted a massive 26% which led to a slowdown in net sales. However, they still managed to grow by 23% to Rs55.2 billion in 2011 against Rs44.9 billion in the preceding year. FFC also announced a dividend payout of R5.25 per share for the fourth quarter, taking cumulative dividend to Rs20 per share for 2011.
The company also announced a bonus issue of 50% alongside the result, likely on the back of upcoming power projects.
Lower financial cost and extensive rise in other income also helped take the company up a notch, said Abbasi.
Even though FFC reported a sharp rise of 32% in operating cost to Rs7.03 billion because of soaring transportation charges, other income tripling to Rs6.63 billion owing to higher dividend income from associates balanced things out, added Abbasi.
Urea pricing remains the key risk to profit in the near future. The resumption of gas supply to Engro new plant Enven after the winter season and consequent reduction in urea prices due to regulatory pressure may dampen urea margins for the industry. Additionally, imposition of equalisation tax is likely to result in depressed margins going forward.
Published in The Express Tribune, January 31st, 2012
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