Fauji Fertilizer Company reported a 2 percent growth in first quarter profits on Friday. The firm said it earned a profit of Rs4.02/share for the quarter ending March - about eight percent below the market consensus.
FFCs tremendous operational efficiency helped it manage urea production and sales growth unlike its peers; who underwent a slight decline in production and sales. The firm achieved higher plant efficiency level of 124 percent for the period, leading to a two percent increase in urea production and sales.
Once again, the ever persistent periodic surge in urea prices helped the top line grow by as much as it did. It is pertinent to note that FFC enjoys 2-3 percent premium pricing over its peers as its Sona Urea brand enjoys good reception in the farmers community.
The firm did not engage in urea imports due to relatively higher production efficiency and a slight slowdown in overall industry demand. Other than urea, FFC also refrained from importing other fertilizers such as TSP and SOP given the negligible margin on imports and their declining demand.
Although, the company still enjoys the highest gross margins in the urea business amongst its peers, the first quarter saw a meagre decline in margins. Peeking into the detailed accounts reveals that a 64 percent jump in salaries and benefits, given the employee friendly firm that FFC is, caused the gross margins to dip.
FFBLs dividend income continues to be a significant contributor to FFCs bottom line as the subsidiarys dividend announcement in CY09 added more than Rs1 billion to the other income segment.
As it has always done in the past, FFC continued with its high payout policy maintaining its near 100 percent dividend payout ratio.
Going forward, FFCs enterprise is in sound shape. The company has no reason to fret over selling its produce as the urea market remains undersupplied, despite the entry of Fatima Fertilizer.
On a slightly negative note, more so for the farmers than for FFC though, the power crisis has forced the government to take the tough decision of curtailing feedstock gas supply for fertilizer companies. For FFC, the curtailment would be 12-13 percent, which would mean a 15 percent cut in production.
That does not mean a straight 15 percent revenue loss, as the company still has enough room to pass on the impact of any unwanted incident. Most likely, that the company would increase urea price by 10-12 percent, to maintain a healthy margin. The impact would be best assessed when the firm comes out with the official verdict though.
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FFC & P&L
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Rs (mn) 1QCY10 1QCY09 % chg
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Sales 9,499 8,233 15%
Cost of sales 5,455 4,505 21%
Gross profit 4,044 3,728 8%
Gross margins 43% 45% -6%
Finance cost 264 290 -9%
Other income 1,262 1,290 -2%
PAT 2,729 2,687 2%
EPS(Rs) 4.02 3.96 2%
Source: KSE announcement
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