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Fauji Fertilizer Bin Qasim Ltd: 1QCY21 Analyst Briefing Takeaways

  • FFBL gas contract was renewed for next 5 years. In the first half of 1QCY21 gas was unavailable, which was then resorted
  • FFBL has posted profit in 1QCY21, first time in last 5 years. This was mainly due to higher DAP margins and prices
  • FFL posted positive EBITDA in 1QCY21 and the business dynamics are expected to improve further in 2QCY21 and onwards

FFBL posted a NPAT of PKR1.27bn for 1QCY21 (EPS: PKR0.98) – massive improvement vs. a net loss of PKR3.05bn in 1QCY20 (LPS: PKR2.36). On a consolidated basis, FFBL posted net profits of PKR1.12bn (EPS: PKR0.87) in 1QCY21 as compared with losses of PKR2.62bn (LPS: PKR2.03) in 1QCY20.

Key Takeaways:

During 1QCY21, FFBL’s plant was not operational for the initial 45 days due to nonavailability of gas. But, soon after the extension of gas supply agreement with SSGC (for the next five years), FFBL resumed its normal production.

The company had quarterly profits for the first time in past five years. This was mainly due to higher international DAP prices and primary margins. Moreover, DAP’s primary margins are expected to maintain healthy levels in 2QCY21.

Commenting on Urea prices, the management said that the current delta between local and international prices is a whopping c.PKR1,900/bag. But it believes that producers will not be able to reduce the gap significantly, except for some inflationary pass-on, mainly due to government’s strict control and check on local Urea prices.

Presently, Punjab is the only province giving fertilizer subsidy to farmers. The federal government reportedly intends to reinstate direct farmer subsidy (in the form of a sticker in the bag) in the FY22 Budget.

Talks between the government and FFC (FFBL’s parent) regarding a new DAP plant are ongoing and have not yet reached a conclusion. The establishment of a new plant will be positive for FFBL, as the main raw material (Phosphate acid) will be provided by PMP Morocco (which is a JV with FFBL). The current capacity of PMP is 375,000 tons pa which is being fully consumed by FFBL; the capacity can be expanded.

FWEL plants (I-II both) are profitable and the decision to divest FFBL’s stake is not yet finalized. The possible spin-off will improve the cash-flows of FFBL and will help it to deleverage.

Fauji Foods (FFL) has started improving on the back on new management, cost cutting and other measures. FFL also posted positive EBITDA in 1QCY21 and the business dynamics are expected to improve further due to availability of new products and improved margins in the coming quarters.

Fauji Meat remains an overhang for FFBL. Management is mulling three possible future scenarios: (i) to form a JV with an expert in this business, (ii) restructuring of the business and (iii) complete divestment.


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