Fauji Fertilizer Company – one of the companies not affected by the gas supply issue – saw its net profit jump 26% to Rs10.34 billion in January to June 2012.
Earnings came in higher mainly on account of significant increase in urea sales, said Global Securities analyst Sarfaraz Abid.
Fauji Fertilizer Company (FFC) enjoys benefits of stable gas supply from Mari network, a huge competitive advantage over manufacturers operating on the Sui-based network. Sui Northern Gas Pipline-based fertiliser plants Agritech and Pak Arab Fertilizer received gas for 63 days each while Engro and Dawood Hercules Fertilizers received gas for only 33 days of operations in the first six months of 2012.
The board of directors also announced their decision not to pursue the purchase of 9.99% stake in Agritech Ltd in lieu of the gas shortage faced by Sui-based fertiliser plants.
Along with the result, the fertiliser manufacturer announced an interim payout of Rs5 per share, taking the taking total payout to Rs8 per share, says a notice sent to the Karachi Stock Exchange on Tuesday.
Revenue surged by 49% to Rs36.13 billion during the first half of 2012 on the back of higher urea prices and contribution from imported di-ammonia phosphate (DAP) sales, according to BMA Capital analyst Farid Aliani. FFC urea sales stood at over at over 500,000 tons in June, offsetting the 38% sales decline witnessed in the first five months of 2012. Thus, cumulatively urea sales rose 6% to 1.2 million tons in the period under review.
Urea prices remained volatile from April to June 2012 as strategic decision to announce a price cut for May along with an announcement of reversal of Rs50 per bag in June helped the company become competitive and make sales. The price decrease was needed to compete with imported fertiliser as it stood at a much lower price due to partial payment made by the government in the form of subsidies.
However, gross margins stood at 47% during April to June 2012, posting a decline of 12.52 percentage points on a yearly basis due to imposition of Gas Infrastructure and Development Surcharge (GIDS) by 197 per mmbtu and net reduction of Rs100 per bag in urea prices during period under review.
Other income was unable to support the bottom-line as it declined by 15% to Rs2.46 billion mainly due to lack of dividend from subsidiary Fauji Fertilizer Bin Qasim Limited.
Financial charges shot up by 36% which can be linked to increase in short-term borrowing.
The above market consensus resulted in the stock price jumping Rs1.26 to close at Rs118.69 during trade at the Karachi Stock Exchange on Tuesday.
Published in The Express Tribune, July 26th, 2012.