DAP boosts FFBL profits

Fauji Fertilizer Bin Qasim (FFBL) put a strong show for the quarter ending March 2011, posting a massive growth in profits. The companys net earnings nearly doubled during the quarter on year-on-year basis, with income for the quarter surpassing Rs1.5 billion, beating consensus estimates by a good 10 percent.
Along with a 19 percent capital gain in the stock price since the beginning of the period, there was more delight for the shareholders in the form of a Rs1.25/share dividend that was announced for the period.
The secret of FFBLs success was in the massive price surge of both urea and DAP fertilisers - as gas curtailment resulted in a 35 percent increase in urea prices at home without much affecting product demand. The company is expected to have sold a similar quantity of urea as it did during the corresponding period last year.
The DAP prices too, hiked by as much as 35 percent year-on-year, on the back of a massive rise in international prices as the Phosacid contract prices were settled at much higher rates than the previous year. The DAP sales remained flattish for the first two months and the top line reaped gains of the increased product price - improving by 23 percent.
Improved prices and the fact that the Phosacid contract was booked for the entire quarter improved the gross margins. The DAP primary margin hit its peak during the quarter nearing $350/ton, a significant jump from the previous years margin. Urea margins have always been on the safer side, because of the pricing power that the local producers have - so the loss in production wasn such an issue.
The cash rich balance sheet and a complete turnaround from the Morocco subsidiary PMP helped FFBL earn a sizeable other income. With Phosacid prices likely to be on the higher side for the next few quarters, more flows in the form of other income can be expected to grace FFBLs bottom line.
The Phosacid contract prices are expected to touch the highest ever mark of $1,000/ton, as a consequence of which, DAP primary margins are expected to slide to $300/ton, from the current high. The marketers argue that the farmers economy has improved considerably to afford DAP at Rs4000/bag - therefore, the top line is expected to stay firm although with a slight decrease in contribution margin.

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FFBL P&L

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(Rs mn)                  1QCY11    1QCY10     chg

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Sales                    8,054     6,566      23%

Cost of sales            5,307     4,756      12%

Gross profit             2,748     1,810      52%

Gross margins               34%       28%     24%

Finance cost               107        99       9%

Other operating income     332       135     147%

PAT                      1,558       809      93%

EPS (Rs)                  1.67      0.87

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