When the going gets tough, FFC gets going

Fauji Fertilizer Company (FFC), Pakistans leading urea producer, surprised the market with its 1QCY12 financial results yesterday. FFC said its quarterly profits dropped by six percent year-on-year - way above the consensus estimates, as the market expected the profits to go down by 20 percent.
The top line growth of just three percent year-on-year was subdued as per FFCs usual high standards. The major reason was depressed urea sales during the quarter - which is expected to have slid by 40 percent year-on-year, mainly on account of availability of cheap imported urea. Yet, the massive increase in urea prices kept the revenues on the higher side - a feat which FFCs peers cannot boast of this quarter.
The gross margins too, remained strong at 50 percent, which owes largely to FFCs inherent advantage of much reduced gas curtailment than its peers. The fact that the gross margins remained nearly as strong as 1QCY11, reflects the companys strong ability to pass on the impact, despite an almost threefold increase in the raw material feedstock gas price.
Other income, as usual continued to be a major contributor to the bottom line, as FFCs investment in Fauji Fertilizer Bin Qasim yielded it good dividends on account of healthy final dividend declaration by FFBL in CY11.
The company continued with its high dividend payout policy, announcing rupees three per share as the first interim dividend for CY12. Another important development was FFCs notice stating its desire to acquire 9.99 percent equity stake in Agritech Limited. FFC possesses a healthy balance sheet; therefore, fund generation would most likely be from internal sources. Moreover, the investment could pave way for an even higher contribution from other income in the years to come.
The urea off-take for local producers may remain a bit depressed as the government is aggressively engaged in urea imports, but FFC, would be the least hit amongst the peers, courtesy its relatively strong distribution network and being at an advantageous position as regards the gas curtailment.