Earnings Report /
Pakistan

Fatima Fertilizer: 4QCY21 review – Lower GMs lead to earnings miss

  • FATIMA posted 4QCY21 NPAT of PKR4.4bn (EPS: PKR2.09), up 18% yoy. Higher prices and volumes has increased profits

  • Gross margins have decreased by 3ppt yoy to 27% in 4Q, due to discontinuation of concessionary gas, in our view

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

Abdul Ghani Mianoor
Intermarket Securities
7 April 2022

Fatima Fertilizer Company Ltd (FATIMA) has posted 4QCY21 NPAT of PKR4.4bn (EPS: PKR2.09), up 18% yoy (down 8% mom), taking CY21 net profit to PKR18.5bn (EPS: PKR8.80), up 39% yoy. The result has missed our expected NPAT of PKR5.4bn (EPS: PKR2.58). FATIMA has also announced a final DPS of PKR3.5, higher than our expected DPS of PKR3.0. Alongside the result, FATIMA announced investment in Fatima Cement Ltd by way of acquisition of 30mn ordinary shares at PKR10/sh, which would make it a wholly-owned subsidiary of FATIMA.

Key result highlights for 4QCY21:

  • Net revenues have increased by 44% yoy and 21% qoq to PKR35.7bn (broadly in line with estimates). The yoy increase in sales is mainly attributed to significantly higher CAN/NP offtake, which increased by 28%/23% yoy, coupled with DAP and NP price hikes also.

  • Gross margins have decreased by c.3ppt yoy and 16ppt qoq to 27% in 4Q lower than our expected margins of 34%. The decline in margins is due to the delay in receipt of government subsidy for Fatima Fert (which is presently operational on RLNG).

  • Distribution expenses have decreased to PKR0.8bn down 27% yoy, from PKR1.1bn in 4QCY20. This is despite the increase in overall sales volumes and we await detailed annual accounts for further clarity. Admin expenses are up 16% yoy to PKR1.1bn in 4QCY21.

  • Other income is down 38% yoy to PKR486mn (core), which may be due to lower short term investments, in our view. FATIMA has also booked a  re-measurement loss on GIDC payable of PKR477mn in CY21; this is being reflected in other income in the table to see.

  • Among other line items: effective tax rate of 23% is lower than 27% in 4QCY20.

We have a Neutral stance on FATIMA (TP PKR40/sh), but we highlight that higher international phosphate based fertilizer prices and possible increase in Nitrogen based fertilizer prices can unlock upside in the stock.