Earnings Report /
Pakistan

Fauji Fertilizer: 2QCY22 Review - Strong earnings and payout despite tax dent

  • Fauji Fertilizer Company Ltd (FFC) posted unconsolidated NPAT of PKR3.4bn (EPS: PKR2.64), down 7% YoY – an earnings beat

  • Higher gross margin, greater other income and lower finance cost led to the earnings beat. FFC announced DPS of PKR2.1

  • FFC posted a strong result despite the high tax cost. We reiterate our Buy stance (TP of PKR136/sh) on the scrip

Intermarket Securities
28 July 2022

Fauji Fertilizer Company Ltd (FFC) posted unconsolidated NPAT of PKR3.4bn (EPS: PKR2.64) in 2QCY22, slightly lower than last year’s EPS of PKR2.85. The result beat our expected EPS of PKR2.25, due to i) higher gross margin, ii) higher other income and iii) lower-than-expected finance costs. FFC also announced an interim DPS of PKR2.10 against our estimate of PKR1.75.  

On consolidated basis, the company has posted NPAT of PKR6.5bn (EPS: PKR5.14), up 18% YoY, largely due to higher other income and share of profits from associates & joint ventures.

Key highlights of 2QCY22:

  • Net revenues in 2Q increased a sharp 27%YoY, to PKR28.4bn (broadly in-line with our estimate of PKR28.3bn). The growth in revenue is attributable to 16%YoY increase in Urea offtake and prices of Urea and DAP.

  • Gross margin increased c.6ppt YoY to 40.7% (higher than our expected margins of 38.5%), owed to higher trading margins on DAP and lower-than-expected increase in input costs, in our view.  We await detailed financials for further clarity.

  • Other income has surged to c.PKR4.0bn, more than twice that of last year, due to i) dividends from Fauji Wind and PMP, and (ii) sharp buildup of cash and short-term investments in a higher interest rate setting.

  • Finance cost clocked in at PKR945mn, due to elevated short-term borrowing and interest rate hikes (where the company holds substantial DAP inventory).

  • Among other line items: i) distribution expenses increased by 8%YoY to PKR2.1bn, mainly on account of higher transportation cost, and ii) FFC booked an effective tax rate of 68% in 2QCY22 owing to super tax.

FFC posted a strong result despite the high tax cost. Looking ahead, continued healthy sales and further possible increases in Urea prices should keep earnings and payout healthy. We maintain our Buy stance on FFC (TP PKR136/sh), with the stock offering a 12-month dividend yield of 12%.