Earnings Report /
Pakistan

Fauji Fertilizer Bin Qasim Ltd: 4QCY19 review: Huge losses have surprised

    Intermarket Securities
    29 January 2020

    FFBL posted unconsolidated NLAT of PKR3.5bn (LPS: PKR3.75) in 4QCY19, far below our expected NPAT of PKR316mn (EPS: PKR0.34). Possible impairment, higher taxes and lower-than-expected other income (also the key deviations from our estimate) have dragged the company into deeper losses. FFBL has thus posed a large net loss of PKR5.7bn (LPS: PKR6.34) for CY19 as compared to NPAT of PKR1.44bn (EPS: PKR1.54) in CY18.

    4QCY19 Key result highlights: 

    • Net revenues decreased by 3%yoy to PKR23.2bn mainly due to offtake, which showed mixed trends where DAP sales decreased by 38%yoy while Urea offtake increased by 2.05xyoy. However, a significant jump in Urea sales did not offset the dip in DAP offtake. The decline in DAP sales is mainly on account of dilution in market share owing to increased sales by importers. FFBL’s market share in DAP declined by 6ppt yoy to 21%.
    • Gross margins declined by 4ppt yoy to 10% in 4Q. The gains from decline in phosphoric acid prices (down 7%yoy) were completely offset by (i) hike in gas prices (feed/fuel up by 32%/35%yoy), and (ii) the impact of increase in gas prices, which cannot be passed on in local DAP prices (import parity) unlike Urea.
    • Finance cost elevated to PKR1.64bn, up 2.3x yoy, due to increased borrowing and higher interest rates. Recall that the increase in borrowings of FFBL is despite pile-up of GIDC accruals.
    • Other expenses have also increased significantly to PKR1.56bn, up 2.6x on a yoy basis, possibly due to a one-off impairment booked on FFL and Fauji Meat. We await clarity on this post availability of annual accounts.
    • Other line items include: (i) significant tax charge amounting to PKR939mn and (ii) other income down by 78%yoy to PKR385mn 78%yoy potentially owing to unavailability of dividend income from its subsidiaries, and potential exchange losses.

    The dismal performance in core business and losses from Fauji Foods are adding on to the company’s woes. However, the reduction in GIDC and a possible increase in fuel gas price are expected to lift margins on a sequential basis (FFBL is using its Power subsidiary for fuel energy). Our recommendation is Under Review.