Earnings Report /
Pakistan

Fauji Fertilizer: 1QCY21 Review: Higher margins beat expectation

  • FFC has posted unconsolidated 1QCY21 NPAT of PKR5.8bn (EPS: PKR4.57), up 36% yoy. Along with the dividend of PKR3.5/sh

  • Higher Urea and DAP prices and DAP offtake (up 8% yoy) has elevated net revenues by 5% yoy to PKR21.6bn.

  • GMs have increased by 3ppt yoy to 39% in 1Q21, mainly due to higher retention prices & lower COGS amid lower GIDC.

Intermarket Securities
28 April 2021

Fauji Fertilizer Company Ltd (FFC) has posted unconsolidated 1QCY21 NPAT of PKR5.8bn (EPS: PKR4.57), up 36% yoy. The result is above our expected EPS of PKR3.86, where the major deviation has come from higher-than-expected gross margins. The result is accompanied by an interim cash dividend of PKR3.50/sh (we expected PKR3.0/sh).

Key result highlights for 1QCY21:

Despite a 2% decline in Urea sales, Net revenues have increased by 5% yoy to PKR21.6bn due to higher Urea and DAP prices and DAP offtake (up 8% yoy).

Gross margins have increased by 3ppt yoy to 39% in 1QCY21 (higher than our expected margins of 36%). The reduction in GIDC, and higher retention prices of Urea (up c.4% yoy) and DAP (up c.27% yoy) are attributed for the elevated gross margins.

Other income has increased to PKR2.7bn (up 58% yoy) as compared with PKR1.72bn in 1QCY20. This can be attributed to higher dividend income from AKBL.

Finance cost has declined 38% yoy to PKR420mn; this was expected and is due to a decline in short-term borrowing and lower interest rates.

Among other line items: (i) Distribution expenses have declined by 3% yoy to PKR2.0bn, mainly on account of lower Urea sales, and (ii) FFC has booked an effective tax rate of 27% in 1QCY21 vs 28% in SPLY.

We have a Buy stance on FFC (TP PKR136/sh) based on rising earnings trajectory amid higher Urea/DAP prices and its dividend yield of 13% is the main attraction.