Earnings Report /
Pakistan

Fatima Fertilizer: 1Q22 Review: Higher prices & margins elevate earnings; in line with expectations

  • FATIMA posted 1QCY22 NPAT of PKR5.7n (EPS: PKR2.71), up 51% yoy, broadly in line with our expectations

  • Gross margins have increased by a sharp c.15ppt qoq 42% in 1Q, likely due to receipt of subsidy from the govt

  • The company is expected to post decent earnings in coming quarters amid increase in fertilizer product prices

Abdul Ghani Mianoor
Intermarket Securities
22 April 2022

Fatima Fertilizer Company Ltd (FATIMA) has posted 1QCY22 NPAT of PKR5.7bn (EPS: PKR2.71), up a sharp 51% yoy and 30% qoq. The result is broadly in line with our expected NPAT of PKR6.0bn (EPS: PKR2.85), as lower-than-expected revenue was offset by higher-than-expected gross margins.

Key result highlights for 1QCY22:

  • Net revenues have increased by 35% yoy but are down 18% qoq to PKR29.1bn. Despite lower CAN/DAP/NP offtake, revenue has increased significantly, mainly backed by higher Urea volumes, coupled with elevated DAP and NP prices, in our view.

  • Gross margins have decreased by a mere c.1ppt yoy, but are up a sharp c.15ppt qoq to 42%. This is significantly higher than our expected margins of 34%. The increase in margins is potentially due to receipt of government subsidy for Fatima Fert (which is presently operational on RLNG), in our view.

  • Distribution expenses have increased to PKR1.4bn up 67% yoy, from PKR0.9bn in SPLY. Admin expenses however are down 27% yoy to PKR1.1bn in 1QCY22. We await detailed quarterly accounts for further clarity.

  • Other income is up 3.5x yoy to PKR340mn, which may be due to higher short term investments and dividend income, in our view. FATIMA has also booked a re-measurement loss on GIDC payable of PKR77mn in 1Q.

  • Among other line items: effective tax rate of 31% is lower than 36% in 1QCY21.

  • We have a Neutral stance on FATIMA (TP PKR39/sh), but we highlight that higher international phosphate based fertilizer prices and recent increase in Nitrogen based fertilizer prices is likely to unlock upside in the stock.