Earnings Report /
Pakistan

Fauji Fertilizer: 1QCY22 review – Higher sales and other income lift earnings; in line

  • FFC has posted unconsolidated NPAT of PKR6.2bn (EPS: PKR4.90) for 1QCY22, down 7% yoy and 4% qoq.

  • On consolidated basis, the company has posted NPAT of PKR8.6bn (EPS: PKR6.72), up 42% yoy.

  • Other income has surged 27% yoy amid FWEL-I-II dividend and likely buildup of ST investments, in our view

Abdul Ghani Mianoor
Intermarket Securities
27 April 2022

Fauji Fertilizer Company Ltd (FFC) has posted unconsolidated NPAT of PKR6.2bn (EPS: PKR4.90) in 1QCY22, up 7% yoy and 4% qoq. The result has come in line with our expected EPS of PKR4.82, but the interim cash dividend of PKR3.70/sh is, lower than our expected DPS of PKR4.0.

On consolidated basis, the company has posted NPAT of PKR8.6bn (EPS: PKR6.72), up 42% yoy. The increase is majorly due to higher other income and share of profits from associates & joint ventures.

Key highlights for 1QCY22:

  • Net revenues in 1Q have increased by a sharp 22% yoy, but are down 25% qoq, to PKR26.3bn. The yoy increase is majorly attributable to c.10% yoy increase in Urea offtake coupled with increase in Urea prices. DAP local prices also surged significantly (in tandem with international prices). Revenues have come in line with our expectations of PKR26.2bn.

  • Gross margins have decreased c.3ppt yoy to 36% in 1QCY22 (lower than our expected margins of 38%, majorly due to lower-than-expected inventory gains on trading based fertilizer). Higher salaries and packaging expenses have dragged margins on a yoy basis, in our view. We await detailed financials for further clarity.

  • Other income has surged to PKR3.5bn, up 27% yoy and a sharp 73% qoq. The increase in other income is likely due to (i) dividends received from FWEL-I-II, and (ii) likely sharp buildup of cash and short-term investments in a higher interest rate setting.

  • Finance cost has increased by c.2.5x yoy and c.30% qoq to c.PKR1.1bn, due to elevated short-term borrowing and interest rate hikes (where the company holds substantial DAP inventory).

  • Among other line items: (i) Distribution expenses have increased by 9% yoy to PKR2.2bn, mainly on account of higher transportation cost, and (ii) FFC has booked an effective tax rate of 25% in 1QCY22 vs 27% in SPLY.

FFC has posted decent results despite the unexpected sequential decline in GMs. Looking ahead, continued healthy sales and further possible increases in Urea prices should lift margins and earnings during CY22f. To recall, EFERT has recently increased Urea prices by PKR100/bag and if FFC follows suit, the annualized EPS impact will be PKR2.65. We maintain our Buy stance on FFC (TP PKR136/sh), with the stock offering a CY22f dividend yield of c.10%.