Fauji Fertilizer Bin Qasim Ltd (FFBL) has posted an unconsolidated loss of PKR1.7bn (LPS: PKR1.31) for 3QCY22, compared to NPAT of PKR2.3bn (EPS: PKR1.76) in 3QCY21. The result is against our earnings expectation of PKR1.77/share, owing to higher-than-expected exchange losses to the tune of PKR4.2bn. This takes 9MCY22 EPS to stand at PKR1.33. We highlight that the company has posted a loss for the first time since 2QCY20. On a consolidated basis, FFBL has posted a loss of PKR455mn (LPS: PKR0.46) in 3QCY22, from an EPS of PKR3.11 in 3QCY21, taking 9MCY22 consolidated EPS to PKR2.68, down 39% YoY.

Key highlights of 3QCY22 result:

Net revenues have declined by 41% YoY and 51% QoQ to PKR22.6bn owing to a sharp c.75% YoY decline in DAP offtake in 3Q. However, the increase in DAP and Urea prices have cushioned the topline from declining further. Revenue came in line with our expectation of PKR22.5bn.

Gross margins depleted by 5.6/2.4ppt YoY/QoQ to 16.6%, against our estimate of c.19%. This is due to cost pressures emanating from the sharp PKR slippage and higher-than-expected phosphoric acid prices.

Finance costs more than doubled YoY to PKR1.2bn in 3QCY22, largely attributed to elevated borrowing rates and long term loans in 3Q.

Other expenses to the tune of PKR4.2bn in 3QCY22, came in significantly higher than our expectation of PKR1.5bn. The deviation is majorly attributed to hefty exchange losses booked by the company (PKR4.2bn exchange loss).

Among other line items: i) FFBL has booked tax credit of 22% in 3QCY22 versus an effective tax rate of 37% in 3QCY21, ii) distribution expenses have reduced by 36% YoY to PKR1.0bn in 3Q, due to lower offtake, and iii) other income reduced by 77% YoY to PKR964mn (elevated other income last year owing to one-off gains from the divestment of the wind businesses).

FFBL has posted a surprising result with exchange losses dragging the company’s bottomline. In the ongoing quarter we believe that elevated DAP prices, coupled with recent floods will keep DAP offtake in check. However, FFBL is expected to post decent earnings in CY23f and beyond, owing to lower other expenses and finance costs, coupled with better demand outlook. We maintain our Buy rating on the scrip with a Target Price of PKR37/sh.

Courtesy- IMS Research