Fauji Fertilizer reaps GIDC extinguishment

Slightly checked topline growth did not stop Fauji Fertilizer Company (FFC) from recording a handy rise in gross profit. The urea retention prices in the last quarter increased slightly on sequential prices, coupled with the reduction in GIDC, which led to gross profit margin of 32 percent for CY20, higher by 3 percentage points year-on-year.

The result was accompanied with dividend payout of Rs3.4 per share, taking the full year cash dividend to Rs11.2 per share – in line with the company’s rich history of high payouts. The bottomline growth of 22 percent year-on-year translating into an EPS of Rs16. 36 was well above the market consensus, mainly on account of one-time treatment of GIDC liability, which led to remeasurement gains.

Recall that the fertilizer industry had gone into the courts and got a stay order on the August GIDC judgement by the Supreme Court. The matter is now pending in the court of law where the plea is to ascertain the factual determination of actual GIDC passed on. FFC is comfortably the single largest contributor towards GIDC, with an amount of Rs73 billion paid over the years. The company maintains that it has also absorbed a large portion of the same over all those years. The matter is of significant importance in terms of financial affairs of the company, and the court decision could be one of the key factors going forward.

There was an impairment loss to the tune of Rs1 billion on account of investment in Fauji Fresh N Freeze Limited which somewhat dented the profit and loss statement. Almost similar amount was booked under loss on account of allowance on subsidy receivable from the government. Other income stayed lower year-on-year due to lower payouts from associated companies during the Corona inflicted period.

Transportation cost has been in check as fuel prices stayed lower throughout the year from previous year. There were significant savings made on account of finance cost, as the interest rates went down by 625 basis points during the calendar year.

FFC has shown initial interest in setting up a fertilizer complex in Tanzania, whereas the diversification drive within Pakistan has also continued, with the latest 30 percent stake in a power plant in Thar. On the urea front, there appear no concerns in terms of demand, given Pakistan’s fertilizer market dynamics.