Fauji Fertilizer Bin Qasim Limited (FFBL) announced its 2QCY21 result today, where the company reported a positive bottom-line of PKR 2.6Bn (EPS: PKR 2.0), a remarkable turnaround from the loss of PKR 1.2Bn (LPS: PKR 0.9) in 2QCY20. This takes the 1HCY21 earnings to PKR 3.9Bn (EPS: PKR 3.0) as opposed to a loss of PKR 4.2Bn (LPS: PKR 3.3) in SPLY. Better profitability during the period was primarily attributable to higher other income (↑ 1.8x YoY), which is most likely on account of surprise receipt of dividend income from its power subsidiary (FPCL). Additionally, higher DAP margins, lower finance costs (↓ 50% YoY), and absence of one-off impairment charges booked in SPLY also aided earnings growth. Key highlights of the result are discussed below:

Despite lower fertilizer offtake (↓ 21% YoY), net revenue escalated by 11% YoY to PKR 16.9Bn in 2QCY21, courtesy higher DAP prices (↑ 62% YoY). This translated into 1HCY21 revenue of PKR 29.9Bn, up 21% YoY.

Due to improved DAP margins, gross margins witnessed a slight accretion of 2ppts to settle at 21% in 2QCY21. The margins are below our expectations due to higher realized phosphoric acid prices. Gross profit jumped by 1.8x YoY to PKR 3.5Bn during the outgoing quarter.

Finance cost declined by 50% YoY to PKR 0.6Bn in 2QCY21, mainly due to lower interest rates and debt levels. On the other hand, other income jumped by 1.8x YoY to PKR 2.5Bn, most likely due to surprise dividend income from FPCL which usually comes in 3Q.

Due to tax exemption on dividend from FPCL, the company reported a lower effective tax rate of 12% vs. 37% in SPLY.

Courtesy – BMA Capital Management Ltd.