Fauji Fertilizer Company Limited (FFC) announced its financial result today where the company posted earnings of PKR 4,628mn (EPS: PKR 3.64) during 3QCY20 in contrast to PKR 3,563mn (EPS: PKR 2.80) in 3QCY19, depicting a jump of 30% YoY. With this, the profitability for 9MCY20 settled at PKR 13,764mn (EPS: PKR 10.82), up by 10% YoY. Alongside the result, FFC announced a third interim cash dividend of PKR 2.55/share in 3QCY20 (PKR 7.80/share in 9MCY20).

Result Highlights

· Topline witnessed a drop of 7% YoY during 3QCY20, arriving at PKR 24,636mn amid i) 14% and 3% YoY descend in urea and DAP prices, respectively, and ii) 3% YoY dip in Urea offtake. Whereas, DAP offtake climbed up by 25% YoY during the 3QCY20. Similarly, during 9MCY20, net sales tumbled by 6% YoY arriving at PKR 68,418mn given 8% and 3% YoY fall in urea and DAP prices, respectively, tagged with 14% YoY plunge in DAP offtake.

· Gross margins settled at 33.6% (up by 784bps YoY) in 3QCY20. On a cumulative basis, gross margins settled at 33.9% in 9MCY20 versus 29.6% in SPLY, attributable to lower effective gas prices during the period on account of reduction in GIDC.

· Financial charges plunged by 51% YoY to PKR 271mn in 3QCY20 on account of lower in interest rates. With this, total financial charges for 9MCY20 settled at PKR 1,406mn, down by 15% YoY.

· Other income plummeted by 39% YoY to PKR 951mn amid fall in income from financial assets. Therefore, other income in 9MCY20, clocked-in at PKR 4,958mn, down by 10% YoY.

· The company booked effective taxation at 30% in 3QCY20 vis-à-vis 32% in 3QCY19.

Outlook and Recommendation

· Our Jun’21 target price arrives at PKR 136.3/share, offering an upside of 26%. Hence, we recommend BUY.

(AHL Research)