Corporate results: Fauji Fertilizer Bin Qasim’s profitability improves over previous quarter

Although earnings are down 70% YoY, company does 44% better on sequential basis.

KARACHI:

Fauji Fertilizer Bin Qasim Limited (FFBL) announced its earnings result for the first nine months of the current calendar year (9MCY12) today. The company has posted a net profit of Rs2.13 billion, which is down by a whopping 70% year-on-year (YoY) if compared to the Rs1.17 billion net profit it posted for the same period last year. FFBL however has announced a better-than-expected dividend payout of Rs2.25 per share.

On a more positive note, however, the company’s profitability in the third quarter of the current year (3QCY12) has improved by a healthy 44% over the previous quarter. The sequential growth was underscored by robust DAP sales, which were higher by almost 196% over the previous quarter, said Senior Investment Analyst Ayub Ansari, who is associated with AKD Securities.

According to the 9MCY12 result, FFBL’s revenues have dropped 20% YoY primarily due to sinking urea off-take, which plummeted 42% as compared to last year. Furthermore, off-take of DAP fertiliser was also lower by 13% as compared to last year. Urea manufacturing has been highly disturbed this year, marred by low gas supply and lost markets due the availability of cheaper imported urea.

The company’s gross margins also shrunk by a hefty 16 percentage points YoY to 22%, due to constricted margins on DAP sales, and resulted in a 53% lower gross profit of Rs6.43 million. FFBL’s other income was also lower by 36% compared to last year, and stood at Rs695 million due to losses in Pakistan Maroc Phosphore – a subsidiary in which the company holds a 25% stake.

Outlook

Raza Hamdani, investment analyst at Shajar Capital, expects FFBL’s DAP off-take to remain strong during 4QCY12, while he expects that demand for urea is also expected to revive after the dismal off-take witnessed in September due to flooding and price speculation. “Moreover, DAP primary margins may improve during 4QCY12 due to a recent downward revision in phosacaid contract price [a raw material used in production] by 4%QoQ,” he said.

FFBL has also announced investment in meat export and processing business to diversify the company’s interests. Ansari was quick to point out that the FFBL’s board of directors met in Brazil, of all the places in the world, and believes that this has something to do with the South American country being one of the world’s largest meat exporters.

Published in The Express Tribune, October 20^th, 2012.