FFBL: back to profits, concerns remain
The countrys sole granular urea and DAP producer, Fauji Fertilizer Bin Qasim (FFBL) announced its 1HCY12 results on Friday, posting 82 percent decline in net profits, over the same period last year. The Companys first quarter dismal performance weighed heavily on the half year profits, yet FFBLs financial performance was well below the market consensus estimates. Recall that the Company faced extended gas curtailment especially during the first quarter which resulted in heavy production losses. The industry urea off-take remained on the lower side, especially for the local producers due to abundance of cheap imported urea in the market which led to heavy inventories for local producers. FFBLs urea production during 5MCY11 was lower by 41 percent year-on-year and the sales went down by 54 percent over the corresponding period of last year. The top line also faced pressure on the DAP fertilizer front as DAPs plant underwent an extended shutdown in the first quarter hampering the DAP production. The farmers too, did not show much appetite for DAP, owing to high DAP and urea prices. The gross margins slid considerably during the period owing to a variety of reasons. Recall that fertilizer feedstock gas prices were raised by nearly 200 percent in 1HCY12, after the imposition of infrastructure development cess, putting pressure on urea margins. DAP primary margins too remained in the vicinity of $230 per ton during 2QCY12, still lower than the same period of last year. Going forward, DAP margins are expected to improve slightly, as international Phosacid contract prices have reduced sharply and new contract are expected to be locked in at around $860-880 per ton. The bottom line though was severely hit by heft financial charges, which went up by nearly 3 times over the same period last year. The primary reason was the heavy rupee depreciation against the greenback which resulted in huge exchange loss for the company. Moreover, FFBLs short-term borrowing soared to Rs.13.7 billion as at June end, up from Rs.7.4 billion at the end of CY11. PMPs, the Companys subsidiary in Morocco, below par performance was another setback that dented the bottom line as it reported net loss in 2QCY12. Going forward, FFBLs sales are expected to improve as fertiliser off-take would surge later in the year. That said, DAPs future remains uncertain and the Company would hope a slide in international DAP prices to get a sales boost. The Companys reluctance to pay dividends for two quarters running underlines the vulnerable times that might be ahead.