Fauji Fertilizer Company expects urea demand to hit 6.6mn tons in 2022

Fauji Fertilizer (FFC) held its corporate briefing today to discuss financial result and future outlook of the company.

The management expects Urea demand to hit 6.6mn tons in 2022 compared to 6.3mn tons recorded in 2021. However, DAP demand is expected to be down at 1.4-1.5mn tons compared to 1.9mn tons recorded in 2021 due to significantly higher prices.

FFC’s Urea market share slightly dropped to 38% in 9M2022 vs. 39% in 9M2021 due to lower production and inventory levels. However, Agritech’s market share increased to 5% in 9M2022 vs. 3% in 9M2021 due to higher production amid gas availability.

Despite hike in Urea prices by Rs350/bag, gross margins declined on QoQ basis due to inflationary impact and unexpected shutdown during 3Q2022.

Management informed that around 90% of Rs70bn held in short term investment is invested in Mutual Funds.

Foundation Wind Energy – I & II announced dividend of Rs450mn during 3Q2022.

FFC Energy did not announce any dividend during 9M2022 due to its commitments to invest in Fauji Foods Limited.

Management informed that no progress has been made on installation of DAP plant or on GIDC case.

Regarding gas prices, management informed that talks are ongoing with government and final decision will be taken considering current economic and farming dynamics of the country.

Depleting natural gas reserve is a major challenge for the company. However, FFC does not foresee any issues related to supply and pressure of gas till 2029-30 from Mari. Meantime, FFC is working on Coal gasification Project and is currently at initial stages.

Other few of the challenges the company is facing include (1) potential increase in gas prices, (2) increase in urea prices, (3) cost pressures including rupee devaluation, higher inflation, and higher interest rates, and (4) long pending GST and subsidy of Rs25bn.

FFC recorded highest-ever revenue (Rs79.2bn), investment income (Rs10.3bn), and pre-tax profit (Rs26.3bn) in 9M2022.

In 3Q2022, FFC posted unconsolidated profit of Rs5.2bn (EPS: Rs4.12); down 19% YoY while up 56% QoQ. This takes 9M2022 earnings to Rs14.8bn (EPS: Rs11.67), down 7% YoY.

Alongside result, the company announced final cash dividend of Rs3.18/share, taking cumulative cash dividend to Rs8.98/share in 9M2022.

Courtesy- Topline Securities

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