A review of financial performance of Fauji Fertilizer Bin Qasim

Key Takeaways

The management of Fauji Fertilizer Bin Qasim Limited (FFBL) held a corporate briefing session on 31st Jan’22 to discuss the CY21 financial result and future outlook.

Highlights:

To recall, the company posted profit after tax of PKR 241mn (EPS: PKR 0.18) in 4QCY21 compared to PKR 3,094mn (EPS: PKR 2.40) in SPLY, down by 92% YoY. The plunge in profitability during 4QCY21 comes on the back of i) allowance for expected credit losses related to FML, ii) absence of re-measurement gain on GIDC, iii) decline in urea margins due to higher coal prices and iv) fall in dividend income from subsidiaries and income on cash and cash equivalents.

With this, in CY21, the company posted a profit after tax of PKR PKR 6,391mn (EPS: PKR 4.96) compared to PKR 2,192mn (EPS: PKR 1.70), up by 192% given i) hike in urea and DAP prices by 5% and 67% YoY, respectively, ii) gain on sale of Foundation Wind Energy I & II, iii) improvement in DAP margins and iv) higher dividend income from FPCL, AKBL and PMP.

The company told that it successfully managed to retain market share of 42% in DAP sales in CY21 despite overall DAP sales of the country witnessed a decline owed to higher DAP prices.

The company booked impairment of expected credit loss on FML’s equity. According to the company, it is due to accounting practice. Furthermore, the company plans to convert loan given by the company to FML into equity. The outstanding loan amount as of Dec’21 stood at PKR 6.2bn. Moreover, the company does not anticipate any major expected credit loss in future. Hence, the company expects no more equity injection. In addition to this, the company is working on a divestment strategy.

For natural gas availability the company is in touch with the government. Furthermore, the company normally undergoes Annual Turnaround (ATA) in the month of January. Given availability of gas the company has delayed ATA for few months.

The company told that its management has been in talks with Finance Minister regarding long outstanding GST refunds. As per the company the Finance Minister has told them that this issue will be resolved by Jun’22.

For FFL’s business, the company expects improvement in company’s profitability and to breakeven in CY22.

The company told that FML incurred loss of PKR 1.1bn in CY21, while FPCL has a net profit of PKR 3.6bn in CY21.

Given government wants to fully support fertilizer sector, the company believes chances of hike in gas price are low.

The company informed that FPCL buys coal at competitive pricing and it has inventory lead time of 30 days.

Courtesy- AHL Research

 

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