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
Abdul Ghani Mianoor

Investment Analyst

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Rahul Hans
Rahul Hans

Head of Research

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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.