Fauji Fertilizer Bin Qasim Limited (FFBL) posted profitability of PKR 1.3Bn (EPS: PKR 1.0) during 1QCY21 as opposed to loss of PKR 3.0Bn (LPS: PKR 2.4) in SPLY. The turnaround in earnings in mainly attributable to 1) higher DAP offtake (↑ 8% YoY) along with an uptrend in DAP prices (↑ 44% YoY), 2) dividend income support from AKBL which announced a pay-out of PKR 3.0/sh in the last quarter and 3) lower finance cost (↓ 57% YoY). On the other hand, the sequential decline of 59% was on account of seasonal decrease in DAP volumes (↓ 68% YoY) and absence of re-measurement gain on GIDC. Key highlights of the result are discussed below:

Net revenue escalated by 36% YoY to PKR 13.0Bn during 1QCY20 owing to better fertilizer prices and higher DAP offtake.

Due to improved DAP margins during the period, gross margin clocked-in at 19% in 1QCY21 as against gross loss of 6% in SPLY.

Finance cost declined by 57% YoY to PKR 0.7Bn during 1QCY21 on account of lower interest rates. On the other hand, other income jumped 3.9x YoY to PKR 1.2Bn owing to dividend received from AKBL.

The company reported effective tax rate of 26% in 1QCY21 as against –3% in SPLY.

We reiterate our BUY stance on the scrip with our Dec’21 TP of PKR 32.0/sh, implying an upside of 19% from the last close.

Further analysis will be done once detailed results are out.

Courtesy – BMA Capital Management Ltd.