Equity Analysis /
Pakistan

Fatima Fertilizer: Q2 CY 19 results – Earnings in line with expectations

    Intermarket Securities
    27 August 2019

    Fatima Fertilizer Limited (FATIMA) announced Q2 CY 19 unconsolidated NPAT of PKR3.9bn (EPS: PKR1.85), up by 13% yoy. This is in line with our expected NPAT of PKR3.8bn (EPS: PKR1.81), and takes H1 CY 19 profitability to PKR7.5bn (EPS: PKR3.59) from PKR6.3bn (EPS: PKR3.02), up by 19% yoy. The jump in earnings came largely as a result of (i) improved fertiliser prices and (ii) and higher NP offtake.

    Key highlights:

    • Net sales increased by 15% yoy to PKR13.5bn despite a decline in sales for Urea/CAN (52%/6% yoy). However, this was offset by strong growth in NP volumes (up 28% yoy) and increase in fertiliser prices of Urea/CAN/NP by 13%-30%. 
    • The GMs fell by c4ppts yoy to 55% in Q2 CY 19 as against 59% in same period last year potentially due to (i) PKR devaluation and (ii) hike in gas tariffs. 
    • Other highlights include (i) distribution expenses of PKR530mn, down 47% yoy, (ii) effective tax rate of 28%, down 3ppts yoy, and (iii) increase in finance cost by 2.5x yoy to PKR777mn due to higher interest rates.

    We have a Neutral stance on FATIMA with a Jun'20 TP of PKR29/sh, trading at CY20 P/E of 3.7x.

    Risks: (i) Rise in gas prices, (ii) decline in fertiliser prices, and (iii) resolution of better gas supply agreement for non-operational fertiliser plants.