You are a happy investor if you invested in Fauji Fertilizer Bin Qasim (FFBL) at the beginning of CY10 and held on to it through all the floods and gas curtailment hurdles that came its way. The stock paid good value to those who were patient enough to keep faith in the stock as it yielded a massive 63 percent annual return, including a rocketing 25 percent dividend yield.
FFBL said its profit grew by 72 percent in CY10 over the previous year; the announcement was slightly above the consensus estimates. The share price did not inch upwards, however, as the massive improvement in profitability seemed to have been incorporated ever since the start of CY11. FFBLs stock has massively outperformed the benchmark index, gaining 19 percent month-to-date versus a modest 4 percent rise in the KSE-100 index.
The sole DAP producer in the country is expected to have sold 19 percent and 8 percent less urea and DAP, respectively, during CY10. Yet, it posted a 19 percent uptick in revenues as the pricing favoured FFBL throughout the period. DAP and urea prices surged by a massive 29 and 10 percent, respectively, owing to a variety of reasons including the floods, gas curtailment and global commodity price surge.
The gross margins showed a significant improvement as the phosacid contract prices for the fourth quarter remained unchanged, which played in FFBLs favour as the final quarter saw robust sales at much higher prices. The average DAP margins are believed to have stood at nearly $280/ton, which is a 25 percent improvement from the previous years margin.
The surge in net margins besides the operational performance was also contributed by a sizeable dip in financial charges as well as a considerable rise in other income.
The performance of the PMP plant at Morocco augmented other income considerably after its financials turned green during CY10. However, the 4QCY10 performance seems to have dipped as PMP seems to have suffered losses during last quarter.
Going forward, it would be too optimistic to hope for a repeat performance of CY10 from FFBL as early as CY11 because some dynamics are due to change. The DAP primary margins may never be as high again, come the mid of CY11, as Saudi Arabia is due to commence a large DAP plant by that time, which is bound to cool DAP prices.
The urea business, however, will continue yielding healthy margins. But that does not constitute the major share in the revenue mix. No wonder there are no buy calls from the local research houses anymore.
FFBL P&L
Rs (mn) CY09 CY08 Chg
Sales 43,257 36,725 18%
Cost of sales 29,794 27,060 10%
Gross profit 13,463 9,665 39%
Gross margins 31% 26% 18%
Finance cost 934 1,460 -36%
Other operating income 1,154 683 69%
PAT 6,514 3,784 72%
EPS (Rs) 6.97 4.05
Source: KSE notice
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