Earnings Report /
Pakistan

Fauji Fertilizer Bin Qasim Ltd: 2QCY22 Review: Exchange loss and stupendous taxation overshadow strong earnings

  • FFBL has posted unconsolidated NPAT of PKR1.8bn (EPS: PKR1.38) for 2QCY22, lower than our expected EPS of PKR2.11

  • Revenues have nearly tripled YoY due to sharp rise in DAP offtake; GMs clocked in at 19%, down c.2ppt YoY

  • FFBL posted lower-than expected EPS owed to elevated taxation, without which the EPS is likely to have been beat

Intermarket Securities
26 July 2022

Fauji Fertilizer Bin Qasim Ltd (FFBL) has posted unconsolidated NPAT of PKR1.8bn (EPS: PKR1.38) for 2QCY22, down c.30% YoY, lower than our expected EPS of PKR2.11. This takes 1HCY22 EPS to PKR2.64. The deviation stemmed from higher-than-expected other expenses and taxation.

On a consolidated basis, FFBL has posted net profits of PKR0.9bn (EPS: PKR0.67) in 2QCY22, up c.60% YoY, taking 1HCY22 consolidated EPS to PKR3.14, up from an EPS of PKR1.28 in SPLY.

Key highlights of 2QCY22 result:        

  • Net revenues have tripled YoY to PKR46.1bn owed to a sharp c.70% YoY increase in DAP offtake in 2Q. Also, the sharp rise in both DAP and Urea prices (latter decreased following government intervention during the quarter), contributed to the overall rise in topline.

  • Gross margin decreased by c.2ppt YoY to 19% against our estimate of c.20%, attributed to greater cost pressures from sharp PKR slippage and higher phosphoric acid prices.

  • The increase in finance cost is largely attributed to elevated borrowing rates in 2Q, whereas elevated other income is owed to handsome dividends from PMP.

  • Other expenses surged due to large exchange losses of c.PKR3bn, as PKR slipped c.10% QoQ against USD and the company presently has outstanding trade payables of PKR77bn in 2QCY22.

  • Among other line items: i) effective tax rate clocked in at 71.5% due to imposition of supertax and poverty alleviation tax in the budget (higher than our estimated tax rate of c.50%), ii) distribution expenses have remained flat YoY, and iii) admin expenses rose c.20% YoY to c.PKR0.4bn.

FFBL has posted lower-than expected result in 2QCY22 majorly due to elevated taxation, without which the EPS is likely to have been a strong beat. On a consolidated level, the company has posted relatively better results, due to lower losses being posted by FFL and FML, in our view. Going forward, we expect that elevated DAP prices and lower debt will help FFBL to post decent profits in 2HCY22.