In November 1993, Fauji Fertiliser Company, Fauji Foundation and Jordan Phosphate Mines Company (JPMC), established the FFC-Jordan Fertiliser Company (FJFC) as a joint venture. At that time, Fauji Fertiliser Company owned a 30 percent stake in FJFC, while the remaining two sponsors each held 10 percent of the stake. The Company was formally listed at the Karachi Stock Exchange in May 1996.
While commercial production was commenced from January 2000, the initial months were marred by technical, financial and managerial issues until 2001. As a result, production at the Company's DAP plant was suspended from 2001, until September 2003 after the Company had accumulated losses of about Rs 6.5 billion. After those testing times, however, the Company has re-emerged as a relatively strong entity complete with a new name as it was renamed as Fauji Fertiliser Bin Qasim (FFBL) in 2003. By this time, JPMC had sold its entire stake in the Company. In 2004, FFBL turned profitable and its margins have been on a steady rise now onwards.
FFBL is today, the sole producer of DAP fertiliser and granular urea in the country. Besides meeting 45 percent of total DAP demand in the country, it also caters about 13 percent to local demand for urea. Its plant site is located in Bin Qasim, Karachi while the Company's head office is situated in Rawalpindi.
FINANCIAL ANALYSIS OF FAUJI FERTILIZER BIN QASIM LIMITED
Profitability Volumetric sales of di-ammonium phosphate (DAP) improved significantly for FFBL in FY09. Since DAP sales account for a considerable 76 percent of the Company's overall sales, total revenue for FFBL increased by 37 percent, compared to the preceding fiscal year to reach Rs 36.7 billion in FY09.
In FY10 DAP prices fell significantly in the domestic market, bringing down DAP sales' value by 26 percent compared to FY09. Despite this decline, sales' revenue increased by Rs 43.2 billion, showing an improvement of 18 percent compared with the preceding fiscal year. This improvement in revenue is mainly due to the improved DAP margins for the Company.
At the same time, cost of sales continued to grow, rising from Rs 18.5 billion in FY08 to Rs 29.7 billion in FY10. The gross profit for FY09 stood at Rs 9.67 billion with GP margin of 26.3 percent. By comparison, FFBL enjoyed relatively hefty margins of about 30.67 percent in 2008; mainly due to the feedstock gas subsidy, which was abolished by 2009.
Gross profit of the Company for FY10 was recorded at Rs 13.5 billion with an improved margin of 31 percent due to better DAP margins during the year. FFBL earned a gross profit of Rs 6.9 billion in the first half of FY11 as compared to Rs 3.8 billion in the corresponding period of last year.
Net profit of the Company also showed an improvement over the years from 2008, moving from Rs 2,899 million in FY08 to Rs 6,514 million in FY10. That trend has continued into the current fiscal year as FFBL reported even better net profit after tax of Rs 3,514 million in the first six months of FY11.
Liquidity Working capital requirement of FFBL is financed through internal cash generations and short-term borrowings from external sources. The Company has been successful in maintaining a strong short-term capital status, which can be seen from the current and quick ratio values. The ratios increased from 1.09 to 1.19 and 0.82 to 0.98, respectively, from FY08 to FY10.
Debt Management FFBL's total finance cost fell by 18 percent from FY08 to FY09 to Rs 1,460 million as a result of reduced currency fluctuation along with significantly reduced utilisation of borrowed funds. Improved liquidity position cut down interest expenses further to Rs 934 million in FY10; an improvement of 36 percent compared to FY09. Long-term debt of the Company has also fallen 23 percent over the years from 2008, moving from Rs 10 billion in FY08 to Rs 7 billion in FY10.
Market Value Improvement in profitability since FY08 has favourably affected the earnings per share (EPS) of the Company. EPS increased to Rs 4.05 in FY09 from Rs 3.1 in FY08, and reached Rs 6.97 in FY10. On June 30, 2011, EPS was reported at Rs 3.76 against a tally of Rs 1.84 per share, during the same period of last year.
Future Prospects In 2010, Fauji Fertiliser Bin Qasim invested in two wind-power generation facilities of 49.5MW each acquired by Fauji Foundation. The projects are expected to become operational in 2013. There was a shortage of urea during the kharif season this year because of relatively low local production and insufficient imports of fertiliser. Due to this shortage as well as the passing on of higher costs by local fertiliser giants means urea prices are likely to remain sticky.
Increase in input prices at the international level will impact overall margins in DAP in the coming years. Further increase in local DAP prices may impact off take in kharif and rabi season, affecting the overall demand in 2011 compared to last year. All information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s).
This analysis is not for the benefit of or discredit to any person, scrip or tradable instrument. The content(s) of this analysis shall not be construed as an advice or recommendation to trade. No relationship of client will be created between Business Recorder and user of this information. Professional advice must be taken by the reader before making investment/trading decisions. BR disclaims any liability for investment(s) made or liability accrued on basis of this analysis. The content(s) including all opinion(s), statement(s) and information are subject to change without prior notice and/or intimation.