Earnings Report /
Pakistan

Fatima Fertilizer: 2QCY22 earnings dwindle due to higher-than-expected super tax

  • FATIMA posted 2QCY22 NPAT of PKR167mn (EPS: PKR0.08), down 97% YoY, missing our expected EPS of PKR2.03

  • Gross margins have increased by a sharp c.3ppt YoY 48%, likely due to receipt of subsidy from the government

  • Large supertax charge (ETR of 98%) majorly led to the deviation in earning. We maintain our Neutral stance on the scrip

Intermarket Securities
25 August 2022

Fatima Fertilizer Co. (FATIMA) has posted a 2QCY22 NPAT of c.PKR0.2bn (EPS: PKR0.08), down a sharp 97% both sequentially and in SPLY, missing our projected EPS of PKR2.03. The variance primarily stems from higher-than-expected taxation and other expenses. This drags down 1HCY22 EPS by 37% YoY to PKR2.79.

Key result highlights:

  • Net revenues increased by c.30% YoY owing to both higher fertilizer prices and volumes (ex-CAN, which declined by 23%). Topline came in lower than our estimate, likely due to lower retention prices and DAP volumes.

  • Gross margins have increased by c.3ppt YoY to 48%, higher than our estimated margin of 42%. The increase in gross margin is potentially due to receipt of government subsidy for Fatima Fert (which is presently operational on RLNG), in our view.   

  • Distribution expenses surged to PKR1.9bn, owing to higher product offtake, in our view, whereas Admin expenses rose by 28% YoY. We await quarterly accounts for more clarity on the former. 

  • Among other line items: i) taxation touched PKR10.4bn (ETR: 98%) significantly higher than our estimated rate of 61% and ii) other expenses surged to PKR2.0bn, potentially due to exchange losses, in our view.  

Going forward, recent floods are likely to depress offtake for 3QCY22, before rebounding in 4QCY22. However, gross margins are likely to remain healthy amid recent prices hike across the board and subsidy disbursements. We look to revisit our estimates following availability of quarterly accounts.