The year 2012 has been a tough year for fertilizer companies as extended gas curtailment has hit their profits adversely. But the market leader, Fauji Fertilizer Company (FFC) was smart enough to keep the boat sailing even in distressed times.
FFC announced its 9MCY12 financial results yesterday, nearly maintaining its after-tax profit on year-on-year basis - an achievement of sorts considering all other peers have faced massive decline in their earnings in the same period.
The companys top line grew by a staggering 30 percent year-on-year, despite having sold eight percent lesser urea than the same period last year. The industrys urea off-take slid by a greater margin of 13 percent year-on-year, but FFC reaped the inherent advantage of being the recipient of feedstock gas from the Mari network, where gas load shedding is minimal.
The comparative advantage allowed FFC to operate at near optimum level, producing nearly similar amount of urea as that produced during the same period last year.
On the sales front though, the overall lack of appetite for locally produced urea hit the volumetric off-take, as imported urea at cheaper price was the product of choice for the farmers. A massive 35 percent year-on-year increase in urea prices enabled FFC to achieve strong revenue growth.
That said, the gross profit margins shrunk by nine percentage points, on the back of increased cess on feedstock gas and periodic reversal in urea prices to compete with imported urea.
What kept the bottom line from growing any further was a massive decline in other income contribution. FFC has traditionally been heavily reliant on dividend income contribution from its subsidiary FFBL, but a poor last quarter for FFBL meant no dividends, hence a lower bottom line. The other income contribution is all set to rise going forward, as FFBL has announced healthy dividends for 3QCY12, which will be booked on FFCs books for the final quarter.
Going forward, urea off-take might pick up in the final quarter as seasonal urea buying will compel farmers to procure urea. However, the prices may still remain under pressure should more imported urea arrive.
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Fauji Fertilizer Company
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Rs (mn) 9MCY12 9MCY11 chg 3QC12 3QC11 chg
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Sales 50,034 38,532 30% 13,903 14,311 -3%
Cost of sales 25,873 16,539 56% 7,059 6,012 17%
Gross profit 24,161 21,993 10% 6,844 8,299 -18%
Gross margin 48% 57% 49% 58%
Other income 2,842 4,393 -35% 383 1,511 -75%
Finance cost 816 603 35% 175 131 34%
PAT 13,793 13,835 0% 3,458 5,646 -39%
EPS (Rs) 10.84 10.87 2.72 4.44
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Source: KSE notice