Rarely does a fertilizer company in Pakistan post after tax losses, yesterday was one such day as Pakistans sole granular urea and DAP producer, Fauji Fertilizer Bin Qasim (FBL) reported a sizeable drop in earnings - a loss of Re0.41/share for 1QCY12 as against a healthy profit of Rs1.67/share in the corresponding period last year. It is also the first time in nearly 10 previous quarters that FFBL did not declare cash dividends to its shareholders, which pushed the companys stock price at the local bourse to the lower circuit yesterday. Recall that FFBL had just recently posted a year of record profits and operations in 2011, but persistent gas supply problems halted the companys march. The fertilizer statistics reveal that FFBL managed to produce only 78,000 tons of DAP during the first two months of 1QCY12, which is less than half of DAP produced in the same period last year. The performance on the urea front was even worse as the plant remained shut for most of the quarter due to extended winter gas curtailment, as a result of which, FFBL failed to produce and sell urea for the first two months of the quarter. DAP sales also remained depressed and FFBL failed to clear its high inventory, managing to sell only 17,000 tons versus 75,000 tons of DAP in the same period last year. It obviously transpired to the income statement as the topline took a severe blow, shrinking to one-fourth of what it was fir 1QCY11. Gross margins entered the red zone as the extended plant closure which carries high cost, collided with reduced primary margins on DAP, which are expected to have remained in the range of $210-220 per ton for the period. The companys high finance cost during the quarter also played its part in shrinking the bottom line further. The only respite came from a sizeable other income from its joint venture PMP in Morocco, which provided a much needed cushion to the otherwise abysmal profit and loss account. Going forward, FFBLs gas supply concerns should ease considerably as the peak demand season is over, which means a possible resumption in urea production to full capacity. DAP margins are likely to improve a little as well, as Phosacid contracts are expected to drop from the current level of $960/ton, but revival of DAP demand still remains uncertain. FFBL will have to pull out a miracle to repeat its record breaking 2011 financial performance.
======================================================= Fauji Fertilizer Bin Qasim ======================================================= (Rs mn) 1QCY12 1QCY11 chg ======================================================= Sales 1,934 8,054 -76% Cost of sales 2,199 5,307 -59% Gross profit (265) 2,748 Gross margins -14% 34% Finance cost 305 107 184% Other operating income 512 332 54% PAT (387) 1,558 EPS (Rs) (0.41) 1.67 =======================================================
Source: KSE notice
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