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Pakistan

Fauji Fertilizer Bin Qasim Ltd: 1QCY22 Review: Lower-than-expected GMs lead to earnings miss

  • FFBL has posted unconsolidated NPAT of PKR1.6bn (EPS: PKR1.26) for 1QCY22, much lower than our expected EPS PKR1.98

  • Revenues have nearly doubled yoy due to sharp rise in Urea offtake; GMs clocked in at 21.7%, up 2.7ppt yoy

  • We have a Buy call on the scrip a December 2022 TP of PKR29/sh

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

Fauji Fertilizer Bin Qasim Ltd (FFBL) has posted unconsolidated NPAT of PKR1.6bn (EPS: PKR1.26) for 1QCY22, much lower than our expected NPAT of PKR2.6bn (EPS: PKR1.98). The deviation stemmed from lower-than-expected gross margins and higher other expenses. 

On a consolidated basis, FFBL has posted net profits of PKR3.2bn (EPS: PKR2.47) in 1QCY22 as compared with profits of PKR1.1bn (EPS: PKR0.87) in 1CY21.

Key highlights of 1QCY22 result:        

  • Net revenues have nearly doubled yoy to PKR24.8bn amid sharp 67% increase in Urea offtake in 1Q, while DAP offtake decreased by a mere 2% yoy. Also, the sharp rise in DAP prices and Urea (latter increased toward the end of the quarter), contributed to the overall rise in topline.

  • Gross margins have increased by 2.7ppt yoy to 21.7%, attributed to healthy volumetric offtake and healthy primary margins. The GMs are lower than our expectation of 26.1%, mainly due to higher-than-expected realized price of Phosphate acid.

  • Finance cost has increased by 8% yoy to PKR706mn in 1QCY22, which is attributed to the increase in borrowing rates (Kibor averaged 11.34% during the quarter).

  • Other expenses increased by a sharp c.2.5x yoy to PKR1.2bn (which includes PKR258mn in GIDC payable). We await detailed quarterly financials for further clarity on the elevated other expenses.

  • Among other line items: (i) Distribution expenses have risen by 85% yoy to PKR1.7bn, majorly due to higher volumetric sales and transportation expense, (ii) other income has declined by c.30% yoy to PKR1.1bn, majorly due to absence of dividend from AKBL and (iii) effective tax rate in 1QCY22 has clocked in at 36% vs c.26% in SPLY.

FFBL has posted lower-than expected result in 1QCY22 majorly because of higher other expense and lower GMs. However, on a consolidated level, the company has posted impressive results, due to lower losses being posted by FFL and FML. Going forward, we expect that elevated DAP primary margins, lower debt and possible lack of one-off expenses will help FFBL to post decent profits in remaining quarters of CY22. We have a Buy call on the scrip with a TP of PKR29/sh.