Fauji Fertilizer Bin Qasim Limited (FFBL) announced its 2QCY20 results earlier this week, wherein the company reported a loss of PKR 1.16bn (LPS: PKR 1.24) for the quarter. Cumulative loss for 1HCY20 now stands at PKR 4,207mn (LPS: PKR 4.51) against a loss of PKR 1,951mn (LPS: PKR 2.09) posted in SPLY. The results underperformed our expectations where the main deviation emanated from higher other expenses.

Net sales posted a decline of 15% compared to SPLY due to decline in fertilizer offtake as well as market prices. On the other hand, cost of sales declined by 17% due to lower cost of raw materials.

FFBL’s gross margins grew to 13% during 2QCY20 compared with -6% the previous quarter largely due to recovering fertilizer sales. Moreover, the removal of GIDC has likely supported margins on the company’s DAP sales during the period.

FFBL’s urea and DAP sales are estimated to be around 187k Tons and 143k Tons respectively for the quarter under review compared to 190k Tons and 164k Tons in SPLY. This reflects decline of 1% and 13% YoY in Urea and DAP sales respectively.

Main deviation to our estimates came from inflated other income and other charges. We suspect that higher other income is mainly attributable to dividend income received from power subsidiary. Whereas, higher other expenses could be due to impairment expenses on loss making subsidiaries. FFBL’s long-term investments currently stand at PKR 24.96bn compared to PKR 26.18bn in the previous quarter.

Going forward, FFBL is set to benefit from lower interest rates due to levered balance sheet. We maintain our HOLD stance on the stock with the Dec-20 TP of PKR 22/sh translating into a limited upside of 13% from current market price. (BMA Capital Management Ltd.)