Fauji Fertilizer Bin Qasim posts massive improvement in 2QCY21

FFBL posted unconsolidated NPAT of PKR2.61bn (EPS: PKR2.02) in 2QCY21 – massive improvement vs. a net loss of PKR1.16bn in 2QCY20 (LPS: PKR0.90). On a consolidated basis as well, FFBL posted net profits of PKR1.12bn (EPS: PKR0.87) in 1QCY21 as compared with losses of PKR2.62bn (LPS: PKR2.03) in 1QCY20.

Key Takeaways:

In 1HCY21, FFBL posted the greatest half-yearly profits since 1HCY11. This was mainly due to higher international DAP prices and primary margins. Moreover, DAP’s primary margins are expected to maintain healthy levels in 2HCY21 given the global commodity boom.

During the quarter, FFBL received dividend income of PKR2.9bn from its invested companies. This dividend income majorly came from AKBL, PMP and FFBL Power. PMP, a joint venture in Morocco that produces Phos acid (raw material for DAP), generated decent profitability amid higher Phos acid prices and this is expected to continue in 2HCY21.

In the consolidated accounts, the profitability was lower compared with standalone accounts – because of a PKR1.67bn impairment booked on FWEL I-II. This, however, is a non-cash and non-recurring entry.

The company usually receives dividend from FFBL Power in the third quarter; but this year, FFBL got quarterly share of dividends in 2QCY21 and will continue to receive them in the coming quarters as well.

The Board of directors has approved the amalgamation of FFBL Foods Ltd into FFBL; this will be effective in 3QCY21. FFBL Foods was formed with the intention to establish cattle farming business to support Fauji Foods. But the plan has not yet been executed. FFBL Foods only consists of land which is rented; the company’s only income is the rent from the land. The piece of land was purchased long ago and the price has since appreciated significantly.

FFBL subsidiary Fauji Foods Ltd (FFL) performed well during 2QFY21 and posted positive EBITDA. Growth in revenues is majorly coming from UHT milk, Cheese and Butter segments. The company is hopeful that FFL will turn profitable in CY22 (for the first time since its acquisition in 2015).

Fauji Meat Ltd (FML): FML has renewed its exports license for Malaysia and other countries and will start exporting to them in a couple of months. Also, FFBL management is mulling three possible future scenarios: (i) to form a JV with an expert in this business, (ii) restructuring of the business and (iii) complete divestment of FML.

Fauji Wind Energy Ltd (I-II) deal has been finalized, and FFBL is only waiting for the approval of International creditors and regularly bodies. Once that is finalized, FFBL will receive proceeds from FFC. The management expects this to happen by the end of 3QCY21.

Courtesy – Intermarket Securities Limited

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