The stock market sent Fauji Fertilizer Companys (FFC) shares down by nearly 3 percent yesterday, after the fertilizer giant announced its full year CY15 financial results. The 8 percent year-on-year decline in profits did not come as a surprise, but the investors are not generally attuned to FFCs profits going down. FFC continued with its rich history of high payout, taking the full year payout ratio to 90 percent.

All said the top line still managed to grow despite flattish urea retail prices throughout the year. FFC managed to sell 2 percent more urea than previous year, sold at almost similar rates. The fertilizer industry did face a tough period in the second half of CY15, when urea sales almost came to a halt, due to price hike anticipation and ambiguity over farmers package.

The last two months of CY15 brought about a change in fortune as urea sales picked up and more than made up for the slowdown earlier. But the upsurge in urea sales came at a cost, which is evident by the dip in gross profit margins, which went down crashing to 27 percent in the last quarter. The industrys pricing power has been in check for quite some time and FFC after initially increasing urea price following the GIDC imposition, had to reverse the increase in order to clear inventories.

Bear in mind, international urea prices have come down significantly in the last few months and the slide has not stopped yet. The differential between imported and locally produced urea is fast narrowing down, which means added pressure on all fertilizer players, FFC being no exception.

The ever reliable other income lent a supporting hand one again to the bottom line, as dividend contribution from Askari Bank played a big role. The financial charges were on the rise due to increased working capital requirements and GIDC provisions.

Urea pricing will continue to be the single most important determinant of FFCs fate and it could go anywhere.

A lot will depend on how the international price settles. There is no immediate pressure in terms of feedstock gas cost and should the international urea prices inch up, FFC and others may well have the cushion to cover up for the marginal loss in CY15.

Dividends are likely to continue at healthy rates and FFC does not appear to be sitting back and playing the waiting game. The board had earlier endorsed the signing of JV between Tanzania Petroleum development Corporation and a consortium including FFC for setting up a fertilizer plant in Tanzania.