DAP growth strengthens FFBL

While most of the fertiliser firms were on their merry way of churning out huge profit growth, the sole DAP producer in the country, Fauji Fertilizer Bin Qasim (FFBL) was not too far away. The companys profits jumped a significant 29 percent year on year; on the back of strong volumetric growth in its key DAP product.
Yet, the scrip price failed to deliver the sort of yield that its peers did during CY13, registering only 12 percent return--a rather weak return when compared to the outstanding year that the benchmark index just had. The market deems the share price to be trading near its fair value, leaving hardly any room for more upside, despite having strong fundamentals.
Phosphate fertiliser has won back the once lost love of farmers; evident from a decent surge of over 10 percent year on year in DAP sales. FFBLs DAP off-take is expected to have jumped by a good 27 percent year on year, while the prices remained largely flat. DAP primary margins also improved marginally, leading to higher gross margins.
The other income, which is otherwise a healthy contributor to the bottom line, dwindled, primarily due to loss from the share of joint ventures and reduced income on treasury, as discount rates receded. That said, the strong top line proved more than enough to inflate the profits significantly, enabling the company to declare a healthy final cash dividend of Rs2.25/share. Thats good news for FFC.
It is more about tomorrow, though, as FFBL is expected to face some pressure on its margins, especially in the urea business. It was only recently when the pricing power of the urea players failed to pass the stern GIDC test. There might be a case of FFBL forgoing some urea production in favour of DAP, which offers healthier margins. The firms investment in energy and other business is soon expected to start yielding dividends, which should keep the bottom line green.

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Fauji Fertilizer Bin Qasim

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Rs (mn)            CY13     CY12    chg

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Sales             54455    47911    14%

Cost of sales     39943    36450    10%

Gross profit      14513    11461    27%

Gross margin        27%      24%

Finance cost       1515     1821   -17%

Other income        494     1045   -53%

PAT                5613     4341    29%

EPS (Rs)           6.01     4.65

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Source: KSE notice