Morning Call about Fauji Fertilizer Bin Qasim Limited – Arif Habib Limited

Karachi: 9MCY11 earnings exceeded full year earnings of CY2010 by 17%

Fauji Fertilizer Bin Qasim Limited (FFBL) held its analyst briefing yesterday to discuss its 9MCY11 financial results.

According to Arif Habib Limited, the company earned profit after tax (PAT) of PKR 3,656mn (EPS: PKR 3.91) in 3QCY11 taking 9MCY11 net earnings to PKR 7,170mn (EPS: 7.68), a growth of 145% YoY. FFBL’s 9MCY11 PAT is 17% higher than what the company earned in CY2010 (EPS: PKR 6.55). This remarkable performance is attributable to higher fertilizer prices, increase in DAP offtake to 412 kT (up by 29% YoY) and healthy interest income. Along with the results, the company declared an interim cash dividend of PKR 3.0/share taking 9MCY11 cash dividend to PKR 6.50/share (dividend payout of 85%).


P and L statement (PKR mn)  3QCY11  2QCY11 %chg 9MCY11E 9MCY10A %chg
Sales 18,304 9,963  84%  36,321  22,201 64%
Cost of sales  11,477 5,781  99% 22,565 15,519  45%
Gross profit  6,826 4,182 63% 13,756  6,683 106%
Selling and Admin expenses 1,059  865 22%   2,403 2,155 11%
Other income 351  409  -14% 1,092       821    33%
Finance cost 383 266 44% 756  720 5%
Profit before taxation 5,344  3,225 66% 10,891 4,308 153%
Taxation 1,688 1,270  33%  3,721 1,376  170%
Profit after taxation 3,656 1,956 87% 7,170  2,931  145%
Earnings per share (PKR) 3.91 2.09 7.68 3.14
Source: AHL estimates & company accounts


Net Revenues recorded a growth of 64% YoY

During the period net revenues of the company exhibited a surge of 64% YoY to PKR 36,231mn compared to PKR 22,201mn in the same period last year. The growth in top line is attributable to hike in both DAP and Urea prices by 29% YoY and 34% YoY, respectively. In addition to this, higher DAP sales also aided the company to record phenomenal increase in net revenues; however Urea sales in 9MCY11 took a dip of 9% YoY. The decline in Urea sales was due to gas curtailment which subsequently led to lower production during the period.

Other income recorded at PKR 1,092mn

In 9MCY11, other income recorded a considerable rise of 33% to PKR 1,092mn (EPS impact of PKR 1.12/share) compared to PKR 821mn (EPS impact of 0.88/share) witnessed in corresponding period last year. This jump is mainly due to higher interest income earned of PKR 1,062mn up by PKR 403mn from 9MCY10.

During the period the company’s JV project PMP Maroc profitability remained under pressure due to higher input costs. In the near term, the same scenario is expected to prevail given input cost are rising at a faster rate than output prices.

Finance cost higher by 9% YoY

Finance cost during the period was recorded at PKR 756mn, an increase of 5% YoY. This was due uptick witnessed in 6M-Kibor during the period averaging 13.37% in 9MCY11 compared to 12.35% in 9MCY10.

Wind Power Tariff yet to be approved

The company has injected PKR 235mn as their part of equity investment in two wind power project of 49.5 MW each with an estimated cost of US$ 130 mn each. Both the projects would have a debt to equity ratio of 75:25. FFBL is expected to have a 35% stake in the said projects. The financial close of the project is anticipated by year end 2011 while commercial operations are anticipated to start in 1QCY13. Financial close is expected soon after GoP finalizes tariff structure of the aforementioned projects.

Winter Gas load management plan not finalized yet

It is still not decided if FFBL’s plant which is on SSGC network will be shut down as part of winter gas load management program or not for one month between December 2010 and February 2011. If it is forced to shut down further increase in DAP prices cannot be ruled out. Contrast to fears of investors if Engro is supplied gas through SSGC FFBL operations will not be affected quoted by the company management and will operate normally. According to the management total demand for DAP and Urea is likely to stand at 1.2 mn tons and 6.3mn tons and next quarter for PMP would remain challenging. Recommendation At current price level of PKR 60.6/share the stock of FFBL

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