FFC shines - yet again

Pakistans largest urea manufacturer Fauji Fertilizer Company (FFC) announced its CY09 financial results on a predictable path posting a massive 35 percent growth in earnings. The company continued with its high payout policy giving away all of what it earned (Rs13/share) to its shareholders as dividends.
It was the ever increasing urea off-take and its price coupled with valuable support from Fauji Fertilizer Bin Qasim in the form of other- income, which helped FFCs bottom-line grow as much as it did.
FFCs tremendous operational efficiency during 11MCY09 helped it achieve growth in urea production and sales, unlike its peers which saw a slight decline in both production and sales during the period. The firm achieved a tremendous plant efficiency level of 125 percent for the period, leading to a 5 percent increase in urea production.
The strong production and distribution network helped the firm boost its urea sales by 3 percent during 11MCY09 - in a time when the peer companies witnessed a sharp fall in their urea sales. The major catalyst for the sizeable increase in revenue, however, was the 14 percent jump in urea prices. It is important to note that FFC enjoys 2-3 percent premium pricing over its peers as its Sona Urea brand enjoys good reception in the farming community.
The firm did not engage in urea imports as additional production capacity of 70,000 tons was achieved in the beginning of CY09. FFC also refrained from importing other fertilizers such as TSP and SOP, given the negligible margin on imports and declining demand.
The result reaffirms the sectors strength in general and FFCs in particular to pass on the impact of input cost hike. The firms gross margins picked up by 7 percent despite 9 percent and 14 percent increase in feedstock and fuel gas prices, respectively.
The icing on the cake, however, was a significant contribution from FFBL - the firms subsidiary company. FFBLs impressive performance during CY09 helped the company earn a massive Rs1.9 billion in the form of dividend income - which was as low as Rs760 million a year ago.
Peeking into the future has never been a herculean task when it is about FFCs fortunes. Things look in sound shape as the firm has no reason to fret over selling its produce, as the urea market despite Fatima Fertilizers advent remains undersupplied.
Even, if and when the feared oversupply situation actually materializes after CY11, FFC should be expected to emerge as a winner given its strong brand position and extensive distribution network. Shareholders can safely expect to milk high dividend yields in the years to come.

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FFC P&L

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Rs mn               CY09       CY08    % chg

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Sales             36,163     30,593      18%

Cost of sales     20,515     18,235      13%

Gross profit      15,648     12,358      27%

Gross margins         43%        40%      7%

Finance cost         945        695      36%

Other income       2,801      1,943      44%

PAT                8,823      6,525      35%

EPS (Rs)              13         10      35%

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