Fauji Fertilizer Bin Qasim (FFBL) registered its highest ever yearly profits, crossing Rs.10 billion for CY11. The financial result was slightly above the market estimates, yet the share price failed to register a sizeable increase, it rather witnessed a slight dip as the market foresees the rosy times to be over for the Company. There was a lot to cheer for the shareholders, as FFBL declared a full-year dividend of Rs.10/share, beating its recent time history of slightly subdued payout ratio. The Company faced gas supply disruption being on the Sui network which hampered the urea production as it slid by 16percent year on year during 11MCY11. The production loss was, however, more than offset as massive increase in urea prices during CY11 resulted in a strong top line. The urea price during CY11 nearly doubled from that in CY10. The earning model for fertiliser firms works in the simplest possible manner - that is to sell more at a higher price and make higher profits. FFBL is no exception to the rule and it rode on the increased DAP fertiliser prices which rose by an average 45 percent year on year during CY11, touching an all-time high of Rs.4,200/bag. The massive increase has taken its toll on the overall DAP demand of the country but FFBL being the sole producer still manages to sell all what it produces. The DAP sales for FFBL during 11MCY11 registered a meagre increase of 3 percent year on year. The gross margins improved significantly on the back of significant increase in DAP prices. The primary margins are believed to have remained in the vicinity of $280-300/ton for DAP. Urea margins may not have strengthened as much as FFBL receives its gas from the Sui network, which faced extended gas curtailment than the ones situated at the Mari network. FFBL also continued to receive healthy support from other operating income as the Companys joint venture in Morocco posted better than expected profits. The cash rich balance sheet also enabled the firm to register higher other income mainly on account of interest income on cash. But the merry days, it seems, are over for FFBL. The gas supply concerns are still there and urea margins are expected to decline going forward. Moreover, significant addition of 3 million tons per annum in global DAP capacity will further put downward pressure on DAP prices. DAP prices have already gone down by over 20 percent in just two months time and are currently hovering around $500/ton. Furthermore, the Company expects input and output prices relationship to be unfavourable for the JV for CY12 as the commodity prices are receding. The analysts seem to have formed a consensus view that CY12 will not be as lucrative as CY11 for FFBL, yet the Companys fundamentals remain sound for healthy enough profits.
=========================================== Fauji Fertilizer Bin Qasim =========================================== (Rs mn) CY11 CY10 chg =========================================== Sales 55,869 43,257 29% Cost of sales 35,753 29,794 20% Gross profit 20,116 13,463 49% Gross margin 36% 31% Finance cost 1,088 934 16% JV profits 241 121 99% Other income 1,410 1,033 36% PAT 10,767 6,514 65% EPS (Rs) 11.53 6.97 ===========================================
Source: KSE notice
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