Corporate results: Fauji Fertilizer earns Rs13.8 billion in nine months

Fertiliser manufacturer announces cash dividend of Rs2.5 per share, taking total payout to Rs10.5.

KARACHI:

Fauji Fertilizer Company (FFC) – one of the companies not affected by the gas suspension issue – posted a profit of Rs13.79 billion for the first nine months of 2012, flat compared to Rs13.83 billion in the corresponding period of the previous year.

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 and earlier, in September 2012, the SNGPL announced that it will be unable to provide gas to its network due to low gas pressure.

Along with the result, the fertiliser manufacturer announced a cash payout of Rs2.5 per share, taking the taking total payout to Rs10.5 per share for the period under review, says a notice sent to the Karachi Stock Exchange on Tuesday.

Revenues climbed 30% to Rs50 billion, attributable mainly to 35% increase in urea price over the period despite a 10% decline in urea offtake, according to a Shajar Capital research report.

Data available for August showed a 44% decline in fertiliser offtake in country to 448,000 tons, where urea offtake declined by 42% while di-ammonia phosphate (DAP) sales declined by 31%. The trend also continued in September where offtake further deteriorated with the arrival of imported fertiliser and expectation of reduction in urea price. Demand also suffered as the country witnessed heavy rains, rendering large parts of the country unfit for sowing.

Earlier, the government issued a tender for import of 300,000 tons of urea, this coupled with local inventory stock dented local market demand and pricing power of local giants such as FFC.

Gross margins were also hit adversely as it contracted by nine percentage points to 48% because of climbing gas prices, which went up a staggering 63% over the year, including the gas infrastructure development cess increase to 197 per million British thermal unit.

Other major factors owing to decrease in company’s profitability were the climbing operating expenses and lack of other income.

Financial charges shot up by 36% which can be linked to increase in short-term borrowings.

On the other hand, other income contracted substantially by 35% to Rs2.8 billion from Rs4.4 billion mainly due to the absence of dividend income from its subsidiary Fauji Fertilizer Bin Qasim Limited.

Published in The Express Tribune, October 23^rd, 2012.