Equity Analysis /
Pakistan

Fauji Fertilizer: Q2 CY 19 results: Better-than-expected earnings

    Intermarket Securities
    29 July 2019

    Fauji Fertilizer Company Ltd (FFC) posted 2QCY19 NPAT of PKR5.2bn (EPS: PKR4.09), up 2.1x yoy, taking 1HCY19 profitability to PKR8.9bn (EPS: PKR7.00). The result was considerably higher than our NPAT expectation of PKR3.7bn (EPS: PKR2.9) mainly owing to (i) lower than expected distribution expenses, and (ii) higher other income. The result accompanied interim cash dividend of PKR2.85/sh, taking total 1HCY19 payout to PKR5.35/sh.

    Key highlights in 2QCY19

    • Net revenues jumped by 15% yoy to PKR26.2bn, where better retention prices were more than able to offset the impact of decline in Urea/Dap offtake of 5%/24% yoy.
    • Gross margins improved considerably by c. 10ppt yoy to 34% in 2QCY19 as against 24% in 2QCY18, attributable to improved urea prices and decline in low-margin DAP sales. 
    • Other income (ex-subsidy) leaped by 88% yoy to PKR2.0bn on account of hefty cash & ST investments available, owing to build up of GIDC accruals. 
    • Among other line items: (i) Finance cost increased by 62%yoy on account of higher interest rates, and (ii) Effective tax rate was recorded at 27% in as compared to 43% in the same period last year. 

    We have a Neutral recommendation on FFC, at a TP of PKR106.