FFC - impressive again

Fuji Fertilizer Company (FFC) tends to have the simplest of business models. The fertilizer giant announced its 1QCY13 results yesterday, registering yet another impressive performance. It sold nearly all what it produced during the quarter, unlike the same period a year ago. Despite lower prices, revenues went up the roof, as farmers queued up to buy urea.
Of all the urea manufactures in the country, FFC is the least affected from feedstock gas curtailment – something which consistently mirrors in its financial performance. The firm’s gross margins did take a slight dip, but impressive volumetric sales more than made up for low prices.
Recall that the fertilizer companies were being charged Rs197/mmbtu as infrastructure cess in 1QCY12, which has now been abolished. Local players have faced pressure from imported urea which is available at cheap rates. What the stellar performance of leading fertilizer players tells is that if given adequate gas, they can still make good profits, without having to raise the product price significantly.
The dividend income contribution from FFBL declined in comparison, but still made a meaningful contribution to the bottom line. The sister firm FFBL has also improved its performance of late, which bodes well for FFC in the upcoming quarters.
The interim dividend of Rs3.5/share should remove all the doubts regarding the firm’s ability to fund the acquisition of AKBL. FFC sits heavy on cash and should have no problems financing the AKBL acquisition, without having to compromise on its payout.

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FAUJI FERTILIZER COMPANY

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Rs (mn)              1QCY13    1QCY12     Chg

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Sales                16,361    11,433     43%

Cost of sales         8,592     5,675     51%

Gross profit          7,769     5,758     35%

Gross margin          47.5%     50.4%

Distribution cost     1,295     1,340     -3%

Other income          1,500     2,141    -30%

PAT                  4,910      3,875

EPS (Rs)               3.86      3.05

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