Fauji Fertilizer Company (FFC) posted its half-yearly results for CY11 and showed just why it is a diamond jewel in the investment crown. The urea giants profits improved significantly over the corresponding period last year as the company rode on high prices and tasted the fruit of dividends in its smart investments. Never before in the companys history has the half-yearly revenue been as high as it was in 1HCY11. That was despite the fact that urea sales actually dropped by five percent year-on-year as prolonged gas curtailment resulted in production loss of nearly five percent versus the same period last year. But it turned out to be a blessing in disguise for FFC, as urea prices went up by 46 percent during the period, which more-than-offset the loss in production. The geographic location of the companys fertiliser plants continues to be a boon as they receive gas from the Mari network that faces just 12 percent gas curtailment as opposed to those linked with Sui network where curtailment is 20 percent. Since local urea producers enjoy strong pricing power given the fact that local prices are less than half of international urea prices; FFC gained from the price increase initiated by Engro and others who are linked with the Sui network. The gross margins resultantly, improved drastically to the highest ever level, as cost of sales largely remained flat given flat price of feedstock gas, during the period. Other than hefty gross margins, FFC reaped the gains of investment in its subsidiary, Fauji Fertilizer Bin Qasim, which had a good first quarter. FFBL is also riding on high DAP prices, which benefitted FFC in the form of higher dividend income. There are absolutely no demons attached to the companys fundamentals as it seems to have all bases covered, primarily driven by its geographic advantage and pricing power. It is quite an achievement that the company managed to make profits over rupees eight billion in just six months, considering the full-year profits back in CY09 were only slightly better. To add to to the investors delight, there was the interim dividend announcement of Rs4.75/share, taking the year-to-date dividend payout to Rs9.25/share. No wonder, the share price at the local bourse has seen such upward movement in the past few months, as not every company earns a net margin of 33 percent.
====================================================================== Fauji Fertilizer Company ====================================================================== Rs (mn) 1HCY11 1HCY10 % Chg 2QC11 2QC10 % Chg ====================================================================== Sales 24,221 19,947 21% 13,120 10,448 26% Cost of sales 10,527 11,113 -5% 5,337 5,658 -6% Gross profit 13,693 8,834 55% 7,783 4,789 63% Gross margin 57% 44% 28% 59% 46% 29% Other income 2,882 1,525 89% 919 263 250% Finance cost 471 494 -5% 242 230 5% PAT 8,189 5,101 61% 4,080 2,372 72% EPS (Rs) 9.65 6.01 - 4.81 2.80 - ---------------------------------------------------------------------- Source: KSE notice ======================================================================
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