Equity Analysis /
Pakistan

Fauji Fertilizer Bin Qasim Ltd: Analyst Briefing Takeaways

  • FFBL held its Analyst Briefing Session today, the management discussed the near-term outlook for the company

  • Stellar dividend from PMP and improvement in performance of FFL and FML contributed to rise in consolidated EPS

  • In 2H, we expect FFBL to post healthy earnings on the back of elevated fertilizer products and offtake

Intermarket Securities
29 July 2022

FFBL held its Analyst Briefing Session today to discuss the recent performance and the future outlook. In 2QCY22, IMS Fertilizer Universe posted a c.55% decline in NPAT, whereas the decline in FFBL’s earnings (c.30% YoY) was cushioned due to the large dividend from PMP. On a consolidated basis, improvement in financial performances of FFL (focus on changing sales mix from tea-whiteners) and reduction in losses in FML, contributed to the c.60% YoY rise in NPAT. In 2HCY22, we expect FFBL to post healthy earnings on the back of elevated fertilizer products and offtake.

  • During 1HCY22, Industry Urea offtake clocked in at 3.2mn tons (+12% YoY), while DAP offtake on the other hand declined by c.10% YoY to 0.54mn tons. The decline in DAP offtake is largely attributed to i) sharp rise DAP prices (in tandem with international parity and PKR devaluation) and ii) substitution of DAP for Urea by farmers. 

  • On the supply side, overall production and import of DAP reduced to 0.66mn tons in 1HCY22, from 0.86mn tons in SPLY. The decline in 1H is due to uncertainty of demand from farmers which is owed to elevated prices and off-season. Hence, importers were hesitant to procure more DAP from international markets.

  • With regards to local DAP prices, management expects DAP prices to remain elevated in the near-term despite international DAP prices come off due to recent sharp PKR devaluation. The high prices is also a reason why the management expects overall DAP offtake in CY22 to clock in at 1.5-1.6mn tons.   

  • With regards to the expected gas price increase, management believes the industry is likely to pass on costs to consumers. 

  • FFBL currently is using both imported and local coal for fuel, at an overall cost below USD300/ton. Also, in 2Q, FFBL booked dividend income to the tune of PKR2.5bn from PMP. As per management, PMP and AKBL had stellar financial performances during 1HCY22. 

  • As for its subsidiaries, FFL management is focusing on shifting the sales mix away from tea-whiteners and towards other products such as UHT milk, cream, cheese and butter. FFL is also aggressively promoting its products and reducing losses. FML losses are also decreasing.

  • On the cost side, phos.acid prices are likely to remain elevated due to PKR devaluation, despite some relief (nearly USD250/ton) in tentative price quotations received by the company. Also, FFBL currently is not facing any issues in opening LCs for raw material imports. 

Going forward we expect that i) elevated DAP and Urea prices, ii) strong offtake in 2HCY22 and iii) lower debt will help FFBL to post decent profits in 2HCY22.