Earnings Report /
Pakistan

Fauji Fertilizer Bin Qasim Ltd: Q1 CY 20 review: Losses expand despite strong sales

  • FFBL posted unconsolidated NLAT of PKR3.0bn (LPS: PKR3.26); loss of PKR2.6bn (LPS: PKR2.81) on consolidated level

  • Gross margins increased by 14ppts yoy to -6% in Q1; we expect the stock to continue underperforming the sector

  • We are currently reviewing our recommendations based on the dismal performance

Intermarket Securities
24 April 2020

FFBL posted an unconsolidated NLAT of PKR3.0bn (LPS: PKR3.26) in 1QCY20, much below our expected NLAT of PKR1.34bn (LPS: PKR1.43). Lower DAP prices, lower-than-expected other income and elevated finance cost have together dragged the company into deeper losses. On a consolidated level company has posted a loss of PKR2.6bn (LPS: PKR2.81) as compared to loss of PKR2.2bn (LPS: PKR2.39) in 1QCY19.

Key highlights:

  • Net revenues increased by 2.7x yoy to PKR9.6bn mainly due to higher offtake. DAP sales sharply increased by 2.8x yoy and Urea offtake increased by 3.1x yoy. However, this was not adequate to reduce the company’s losses. The Urea sales increase is mainly on account of dilution in market shares of EFERT and RLNG based plants; while DAP sales increased due to low base effect. FFBL’s market share in DAP increased by 45ppt yoy to 51%.
  • Gross margins increased by 14ppt yoy to -6% in 1Q. This is attributed to (i) 7%yoy decline in phosphoric acid prices and (ii) 99% reduction in GIDC on feed and fuel gases.
  • Finance cost jumped to PKR1.5bn, up 67% 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 line items include: (i) lower effective tax rate of only 3% providing some respite to the bottom-line, (ii) other income down by 60% yoy to PKR316mn potentially owing to non-availability 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 price has not supported companies margin and drag company into more loss. We expect the stock to continue underperforming the sector.