Fauji Fertilizer Company Limited (FFC) announced its financial result today where the company posted earnings of PKR 6,452mn (EPS: PKR 5.07) during 3QCY21 versus PKR 4,628mn (EPS: PKR 3.64) in 3QCY20, witnessing a surge of 39% YoY. With this, the bottom-line for 9MCY21 arrived PKR 15,888mn (EPS: PKR 12.49), up by 15% YoY. Alongside the result, FFC announced a cash dividend of PKR 3.75/share in 3QCY21 (PKR 9.85/share in 9MCY21).

Result Highlights

· Topline climbed up by 20% YoY during 3QCY21, settling at PKR 29,574mn amid i) ascend in urea offtake by 22% YoY and ii) 7% and 72% YoY higher urea and DAP prices, respectively. Meanwhile, DAP offtake declined by 46% YoY in 3QCY21. On cumulative basis, net sales during 9MCY21 showcased a jump of 8% YoY, clocking-in at PKR 73,592mn owed to 2% and 56% YoY growth in urea and DAP prices, respectively.

· Gross margins arrived at 37.8% (up by 418bps YoY) in 3QCY21 given higher urea prices. Whereas, during 9MCY21, gross margins settled 37.2% compared to 33.9% in SPLY.

· Financial charges surged by 2.4x YoY to PKR 647mn in 3QCY21 on account of increase in short term borrowings. Total financial charges for 9MCY21 clocked-in at PKR 1,452mn, up by meager 3% YoY.

· Other income portrayed jump of 79% YoY to PKR 1,701mn on the back of higher income from cash and cash balances. Therefore, other income in 9MCY21, reached PKR 5,915mn, up by 19% YoY.

· The company booked effective taxation at 26% in 3QCY21 vis-à-vis 30% in 3QCY20.

Recommendation

· Our Dec’21 target price arrives at PKR 136.5/share, offering an upside of 36%. Hence, we recommend BUY.

Courtesy- AHL Research