Fauji Fertilizer Co. reports financial result for 2QCY20

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Fauji Fertilizer Company Ltd (FFC) has posted 2QCY20 NPAT of PKR4.9bn (EPS: PKR3.83), down 6% yoy, taking 1HCY20 profitability to PKR9.1bn (EPS: PKR7.18), up 3% yoy. The 2Q result was below than our expectation of PKR5.2bn (EPS: PKR4.12) mainly due to lower gross margins. The result was accompanied by an interim cash dividend of PKR2.75/sh (also below our expectations), taking total 1H payout to PKR5.25/sh.

Key highlights for 2QCY20:

Net revenues declined by 12% yoy to PKR23.2bn amid lower Urea and DAP prices and lower DAP offtake (down 58% yoy). The decline in DAP sales is mainly because of dilution in market share amid increased sales by DAP producers/ importers.

Gross margins declined by 2ppt to 32% in 2QCY20. Discontinuation of GIDC on feed and fuel did not materially impact gross margins (because prices were reduced in tandem). We await the financial statements for more clarity on this.

Other income of FFC has increased to PKR2.3bn (up 16% yoy) as compared to c.PKR2.0bn in 2QCY19. Better dividends from AKBL and PMP Morocco are attributed, in our view.

Finance cost decreased to PKR462mn, down 27% yoy, due to decreased borrowing (lower inventory level in the quarter) and lower interest rates.

Other expenses have decreased significantly to PKR628mn, down 52% yoy basis. Impairment of Fauji Fresh and Freeze elevated other expenses in 2QCY19.

Among other line items: (i) Distribution expenses increased by 7% yoy on account of higher transportation costs amid higher Urea offtake, and (ii) effective tax rate was recorded at 28% in 4Q as compared to 27% in the same period last year.

We have a Neutral stance on FFC (TP PKR120/sh) where a CY20f dividend yield of 10% is balanced by lack of growth prospects. (Intermarket Securities Limited.)

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