Fauji Fertilizer Company Limited (FFC) reported earnings of PKR 20.8Bn (EPS: PKR 16.4) for the year, up 22% YoY. Better urea margins due to removal of GIDC levy, modest growth in urea offtake (↑ 2% YoY) and lower finance costs (↓ 24% YoY) are the primary reasons behind profitability growth in CY20. Moreover, the company reported final cash dividend of PKR 3.4/sh in 4QCY20, which takes the total payout for CY20 to PKR 11.2/sh.

During 4QCY20 alone, the company registered earnings of PKR 7.1Bn (EPS: PKR 5.5), up 52% YoY. Improvement in profitability is mainly on the back of higher DAP offtake (↑ 24% YoY), along with an uptick of 8% YoY in DAP prices during the quarter. The company also booked fair value gain of PKR 5.9Bn on deferral of GIDC liability under IFRS 9 but one-time expense of PKR 2.0Bn kept the earnings growth in check. On a sequential basis, the 52% growth in earnings during 4QCY20 was backed by 19% QoQ increase in urea offtake and 55% QoQ increase in other income (excluding the fair value gain on GIDC) due to dividends received from Pakistan Maroc Phosphore (PMP).

The company recorded top line of PKR 29.2Bn (up/down 19/11% QoQ/YoY) during 4QCY20, taking the total revenue for CY20 to PKR 97.7Bn, down 8% YoY. The YoY decline in revenue is primarily driven by lower urea offtake (↓ 3% YoY). Additionally, due to better urea margins, gross margins witnessed a slight accretion of 1.0ppts YoY to clock-in at 29% in 4QCY20.

Finance costs declined by 43% YoY to PKR 0.5Bn owing to lower interest rates and debt levels. The other income also decreased by 14% YoY to PKR 1.5Bn (excluding the fair value gain on GIDC) during 4QCY20.

The company reported effective tax rate of 32% during 4QCY20. Normalizing the impact of tax and one-time gains/losses, the earnings for 4QCY20 would have been PKR 4.6Bn (EPS: PKR 3.6).

Report by: BMA Capital Management Ltd.