Corporate results: Fauji’s positive earnings driven almost entirely by DAP



KARACHI: Fauji Fertilizer Bin Qasim Limited (FFBL) reported a profit of Rs1.82 billion for the half year period ending June 30 2013, which was up from a profit of Rs644 million for the corresponding period last year. With earnings per share at Rs1.95 against the market price of Rs1.75 per share, FFBL still has room to grow. The growth was driven mainly by Di-Ammonium Phosphate (DAP) fertiliser sales.
“We believe the favorable agricultural environment to be the prime factor behind the volumetric variance.” Analyst at Topline Securities Asad Siddiqi said.
According to the company’s financial results, not only did its profits increase but its sales net grew by 78% to Rs20.14bn up from Rs 11.3 billion, while gross profit rose to Rs 5.3bn up from Rs 2.4 billion last year.
The earnings have almost entirely been driven by di-ammonium phosphate (DAP) products. Sales of DAP product increased by 132% from the first half of 2012 to the first half of 2013, with sales at 162 tons at the end of the 2nd quarter of 2013. DAP margins actually increased 20% compared to last year, driving gross margin up by 4.6% points.

Such an increase is attributed to the high sales price of DAP in the market. Phosphoric Acid prices are currently settled at $715 per megaton up from $750 per megaton.
“We have increased 2013 DAP margins assumption to $300 per megaton up from $280 per megaton.” says Yousuf Rehman, analyst at Global Securities. Sales have also been driven by increased demand for fertilisers for the agriculture sector.
The figures are even more impressive considering that urea sales have been relatively low. Urea requires gas to produce it, which Pakistan is currently facing a shortage of. Urea prices in the international market have also been affected since fertiliser prices started falling massively in March 2012 and have reached their lowest level in June 2013. DAP on the other hand does not require natural gas to produce, and has a very high sales price compared to urea. And even with the gas shortage, FFBL still had a much better current year.

According to Sarfraz Abbasi, analyst at Summit Capital, “FFBL’s plant remained shut down for just 30 days in the first half of 2013 while during the same period last year the company’s plant remained shut down for 64 days on non availability of gas.”
The net sales not only balanced out reduced sales of urea but also greater costs this year. While finance costs dropped from Rs909 million to Rs624 million, selling and distribution costs increased from Rs981 million to Rs1.4 billion, administrative expenses significantly increased from Rs295 million to Rs440 million. The largest loss was in Other Income which suffered a 55% drop from Rs594mn in 2012 Rs237mn in 2013. This was primarily due to a loss of Rs121 million in from Pakistan Maroc Phophore, Fauji Group’s joint venture with the Kingdom of Morocco.
However, the FFBL management seems optimistic. Fauji Group recently acquired Askari Bank for Rs14 billion of which Rs4.2 billion was paid by FFBL almost entirely from its internally generated revenue. Yet despite the substantial cash outflow, FFBL still has Rs3.5 billion left in its balance, and has also issued a higher dividend than expected at Rs1.75 per share, which is still less than the earning per share figure. FFBL therefore is still looking up.



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