Fatima Fertilizer Company Ltd (FATIMA) has posted 3QCY21 NPAT of PKR4.77bn (EPS: PKR2.27), up 99% yoy, taking 9MCY21 net profit to PKR14.0bn, up 47% yoy. The result is broadly in line with our expected NPAT of PKR5.05bn (EPS: PKR2.40).

Key result highlights for 3QCY21:

Net revenues have increased by 36% yoy and 15% qoq to PKR29.5bn, mainly due to significantly higher Urea/CAN/NP offtake, which increased by 52%/24%/36% yoy, coupled with price hikes.

Despite the discontinuation of concessionary gas rate, gross margins have increased by 14.1ppt yoy to 43% in 3Q but have reduced by 2.7ppt qoq (higher than our expected margins of 34%). Higher Phosphate base fertilizer prices was the key reason behind increase in gross margins, in our view.

Distribution expenses have increased to PKR1.62bn (up 34% yoy) as compared with PKR1.20bn in 3QCY20. This can be attributed to higher fertilizer offtake and transportation expenses.

Other income is down 38% yoy to PKR324mn, mainly on account of lower interest bearing assets. FATIMA has also booked a net re-measurement loss on GIDC payable of PKR66.6mn in 3QCY21; this is being reflected in other income in the below listed table.

Among other line items: (i) Admin expenses have increased by 13% to PKR966mn, and (ii) effective tax rate of 41% is higher than 33% in 3QCY20.

We have a Neutral stance on FATIMA (TP PKR30/sh), but we highlight that higher international phosphate based fertilizer prices and possible increase in Nitrogen based fertilizer prices can unlock upside in the stock.

Courtesy – Intermarket Securities Limited.