Earnings Report /
Pakistan

Fatima Fertilizer: 3QCY21 review – decent quarterly earnings despite higher tax rate

  • FATIMA posted 3QCY21 NPAT of PKR4.77bn (EPS: PKR2.27), up 99% yoy. Higher prices and volumes has increased profits.

  • Despite the discontinuation of concessionary gas rate, gross margins have increased by 14.1ppt yoy to 43% in 3Q

  • The company is expected to post decent earnings in coming quarters amid possible increase in fertilizer products prices.

Intermarket Securities
25 October 2021

Fatima Fertilizer Company Ltd (FATIMA) has posted 3QCY21 NPAT of PKR4.77bn (EPS: PKR2.27), up 99% yoy, taking 9MCY21 net profit to PKR14.0bn, up 47% yoy. The result is broadly in line with our expected NPAT of PKR5.05bn (EPS: PKR2.40).

Key result highlights for 3QCY21:

  • Net revenues have increased by 36% yoy and 15% qoq to PKR29.5bn, mainly due to significantly higher Urea/CAN/NP offtake, which increased by 52%/24%/36% yoy, coupled with price hikes.

  • Despite the discontinuation of the concessionary gas rate, gross margins have increased by 14.1ppt yoy to 43% in 3Q but have reduced by 2.7ppt qoq (higher than our expected margins of 34%). Higher Phosphate base fertilizer prices was the key reason behind the increase in gross margins, in our view.

  • Distribution expenses have increased to PKR1.62bn (up 34% yoy) as compared with PKR1.20bn in 3QCY20. This can be attributed to higher fertilizer offtake and transportation expenses.

  • Other income is down 38% yoy to PKR324mn, mainly on account of lower interest-bearing assets. FATIMA has also booked a net re-measurement loss on GIDC payable of PKR66.6mn in 3QCY21; this is being reflected in other income in the below-listed table.

  • Among other line items: (i) Admin expenses have increased by 13% to PKR966mn, and (ii) effective tax rate of 41% is higher than 33% in 3QCY20.

We have a Neutral stance on FATIMA (TP PKR30/sh), but we highlight that higher international phosphate-based fertilizer prices and a possible increase in Nitrogen-based fertilizer prices can unlock upside in the stock.