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Expected results of fertilizer companies

Expected results of fertilizer companies

Fauji Fertilizer Bin Qasim (FFBL) announced its 2QCY20 financial results posting an unconsolidated loss of Rs1,160 million (LPS: Rs1.24) as compared to a loss of Rs84 million (LPS: Rs0.09) in 2QCY19. It takes 1HCY20 earnings to Rs4,208 million (LPS: Rs4.5). The loss is higher than industry’s expectations due to lower than expected Gross Margins and higher than expected Other Expenses. Revenues of the Company declined by 15%YoY to Rs15,224 million as compared to Rs17,998 million in 2QCY19 amid decline in Urea and DAP offtake by 1%YoY and 13%YoY, respectively. Other Expenses were up 43%YoY to Rs1,391 million because of Exchange Loss. Despite decline in interest rates, Other Income increased by 21%YoY to Rs1,372 million mainly due to dividend income from power companies.

Analysts await for release of detailed financials for further clarity on this. Sequentially, the Company managed to reduce losses owing to increase in Revenues by 59%QoQ amidst significant increase in Urea and DAP offtake by 149%QoQ and 32% QoQ, respectively. Finance costs also declined by 20% QoQ. The company booked taxation expense of Rs314 million in 2QFCY20 as against a tax reversal of Rs533 million for same period last year.

Engro Fertilizers (EFERT) is expected to post a 29%YoY higher profit after tax of Rs4.1 billion (EPS: Rs3.08) as compared to net income of Rs3.1 billion (EPS: Rs2.38) for the same period last year. The increase in earnings are expected on the back of: 1) increase in topline by 8%YoY higher, where anticipated 28%YoY increase in urea offtake is expected to neutralize 23% YoY decline in DAP offtake and retention prices, 2) decline in finance cost by 35%YoY due to lower discount rate and 3) lower effective tax rate of 29% as against 48% for the same period last year. On the flip side, an 86%YoY decline in other income due to absence of one-off recorded in SPLY is expected to contain the earnings growth. On a sequential basis, the increase in earnings is expected to be a function of improved urea and DAP offtake. It is worth mentioning that EFERT brought its urea price at par with FFC in March 2020, which coupled with pre-buying in Jun 2020 (negative budgetary measures, potential gas price hike in offing) led to sequential uptick in offtakes. It is expected that the Company may announce first interim cash dividend of Rs2.5/share alongside with result announcement as compared to Rs5.0/share announced in 2QCY19.



Fauji Fertilizer Company (FFC) is expected to post 2QCY20 profit after tax of Rs5.1 billion (EPS: Rs4.01), flattish YoY, but up 20% QoQ. This takes 1HCY20 net profit to Rs9.4 billion (EPS: Rs7.36), up 5% YoY. The sequential increase in earnings comes on the back of: 1) a 14% QoQ higher topline, led by 16% uptick in urea offtake, 2) higher gross margins of 38 percent, and 3) a 32% QoQ lower finance cost due to lower discount rate. However, a 32% QoQ decline in other income is expected to contain the earnings growth. On cumulative basis, the increase in earnings is expected on the back of: 1) higher gross margins of 37%, despite 5%YoY lower topline (urea price decline), and 2) a 33%YoY lower other expenses. However, 27%YoY decline in other income may offset the positive spillovers of aforementioned factors on the bottom line to some extent. FFC is also expected to announce a second interim cash dividend of Rs2.5/share, taking 1HCY20 payout to Rs5.0 as compared to Rs5.35 for the same period last year.

FFBL: Income Statement
(Rs in million)  2QCY20 YoY QoQ 1HCY20 YoY
Sales 15,224 -15.4% 59.3% 24,782 15.3%
COGS 13,293 -17.0% 31.4% 23,410 15.9%
Gross Profit 1,930 -2.4% -445.8% 1,372 6.0%
GMs 13% 1.7% 6% -0.5%
Selling and Distribution Expense 1,248 3.1% 74.8% 1,962 3.8%
Administrative Expenses 301 -8.9% 4.9% 588 -5.6%
Other Expenses 1,391 43.4% 620.1% 1,584 55.2%
Other Income 1,372 21.4% 333.6% 1,688 -12.6%
Finance Cost 1,208 -0.5% -20.5% 2,726 28.3%
PBT (846) 37.0% -71.4% (3,800) 56.1%
Taxation 314 -158.9% 235.5% 408 -184.5%
PAT (1,160) 1282.9% -61.9% (4,208) 115.7%
EPS (Rs) -1.24 n.a. -61.9% -4.50 115.7%
Source: PSX & AKD Research
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