Who would not be an investor in the fertiliser business in Pakistan? 9MCY11 financial results of Fauji Fertilizer Bin Qasim (FFBL) tell the astonishing tale of enormous profits that are there for the taking for the fertiliser firms. FFBL notched its highest ever quarterly earnings during 3QCY11 as the 9MCY11 profits more than doubled in comparison to the same period last year. The earnings model works simply for most of the fertiliser companies and FFBL is no exception - they sold more and at a much higher price, hence ended up earning more. What also makes the top line growth even more phenomenal is the previous years low base effect because of the floods which hampered the fertiliser sales, DAP in particular. The company is believed to have sold 80 percent more DAP on year-on-year basis during 9MCY11 - as the 8MCY11 numbers suggest the trend of heavy pre-season DAP buying. With DAP prices on an all time high - the company reaped fruits of healthy DAP primary margins which stood over $320/ton for the 3QCY11. The gas shortages did hamper urea production, but the company rode on the massive rise in urea prices across the country which more than offset the production loss and resulted in much improved margins on urea. The Phosacid contract prices have settled at $1,080//ton for 4QCY11, which suggests another quarter of strong DAP prices and healthy margins as the DAP demand is expected to remain strong for the remaining year, primarily on account of Indian buying. The healthy cash position enables the company to generate a sizeable other income from various investment avenues - which supplements well to the bottom line growth. In the longer run, DAP prices will undoubtedly ease, but experts believe it will not be a sharp sudden decline, as global supply situation will gradually improve. The DAP primary margins may fall slightly going forward, but as FFBL happens to be the sole DAP producer in the country, DAP demand is almost assured. As of now, the investors are merrily enjoying the joyride - which offers lucrative return on investments. No wonder, the companys stock has massively outperformed the benchmark index in the recent past. The future seems bright as well.
=========================================================================== Fauji Fertilizer Bin Qasim =========================================================================== (Rs mn) 9MCY11 9MCY10 chg 3QCY11 3QCY10 chg =========================================================================== Sales 36,321 22,201 64% 18,304 10,282 78% Cost of sales 22,565 15,619 44% 11,477 7,437 54% Gross profit 13,756 6,583 109% 6,826 2,845 140% Gross margins 38% 30% 28% 37% 28% 35% Finance cost 766 720 6% 383 388 -1% Other income 1,092 821 33% 351 328 7% PAT 7,170 2,931 145% 3,656 1,209 202% EPS (Rs) 7.68 3.14 1.29 3.91 ===========================================================================
Source: KSE notice
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