Corporate results: Fauji Fertilizer Bin Qasim profits fall from billions to millions

Cheap imported fertiliser continues to haunt local manufacturers.

KARACHI:

Fauji Fertilizer Bin Qasim’s business continued to go through a torrid patch as huge influx of cheap imported fertiliser is being preferred by growers over the locally manufactured product.

The fertiliser manufacturer’s net profit plummeted 82% to Rs644 million in January to June 2012 compared with Rs3.5 billion in the same period a year ago, says a notice sent to the Karachi Stock Exchange on Friday.

For the second consecutive quarter, the company failed to pay an interim dividend to its shareholders.

The uncertain business scenario, particularly the volatile gas supply situation, is most likely what made the company conserve cash, said AKD Securities Senior Investment Analyst Ayub Ansari. Fauji Fertilizer Bin Qasim (FFBL) failed to produce a single bag of urea – the highest selling fertiliser – in January and February as continuous winter gas shutdown. The plant was down in June again, however, now it is up and running at a production capacity of around 70%.

The net profit was much less than market expectation as analysts estimated the bottom-line to be around Rs3.5 billion.

The stock price plummeted 4.6% - just below the daily lower limit of 5% - to close at Rs38.72 on Friday and with it dragged down the benchmark 100-share index at the Karachi Stock Exchange.

Local fertiliser manufacturers came second best to their imported counterparts during the period under review as price of imported fertiliser stood much lower due to the partial payment made by the government for them in the form of subsidies.

The government’s reliance on imports has eased the demand of the commodity for now, however, this will have a huge hit as far as the country’s fiscal management is concerned as the fertiliser import bill reached $848 million during the first seven months of the current financial year against a total of $300 million during same period last year.

On a sequential basis, FFBL is showing signs of improvement as it generated a profit of Rs1.03 billion generated during April to June after posting a loss of Rs387 million made in January to March 2012.

Sales revenue fell 37% to Rs11.2 billion in the first six months of fiscal 2012 against the preceding year’s mammoth Rs18 billion. However, on a quarterly basis revenue was up five times.

FFBL – the sole manufacturer of fertilizer Di-ammonium Phosphate (DAP) – sold 110,000 tons of DAP in the first half of the year, of which 78% was sold in the final three months.

DAP sales are expected to pick up the pace post-August, when demand for wheat crop would arrive, predict analysts.

DAP primary margins for FFBL averaged $255 per ton in the second quarter of 2012, down 23% on a yearly basis. The entre impact of gas infrastructure development cess (GIDC) – a tax imposed on the industry – was also not passed, saving the gross margins from shrinking any further.

The negative surprise came in the form of higher than expected financial charge, likely due to currency translation losses, and loss from Pakistan Maroc Phosphore (PMP) amid expectation of a slight profit, added Ansari.

Pakistan Maroc Phosphore (PMP) – a business in which FFBL has a 25% stake – posted loss of Rs122 million in the three months ended March 31 compared with profit of Rs192 million in the first quarter.

Published in The Express Tribune, July 14^th, 2012.