Fauji Fertilizer Company (FFC) has kick started the blue chips financial results season, announcing its 2012 financial results with a seven percent year-on-year slide in profitability. With the competitors yet to announce their annual results, the market expects FFCs performance as good as it would get amongst the industry players, as the company has weathered the negativities rather nicely, not letting profits go down massively.
FFC managed to present a strong top line growth despite reduction in volumetric sales of Sona urea, their core bread earner. The market leader can consider itself lucky by virtue of its geographical proximity, not to be on the receiving end of the relentless gas load management that affects other major players adversely.
The companys urea production during 2012 is expected to touch 2.4 million tons, a level similar to its 2011 production. On the sales front however, the overall lacklustre demand of urea in the industry affected FFCs off-take as well, with its urea sales going down by nearly nine percent year-on-year, during the Jan-Nov 2012 period.
The real respite came from increased product price, as urea prices during the year increased by over 22 percent versus the last year. Sales of imported DAP at improved prices also gave the top line a much needed impetus.
The gross profit margins, however, took a massive hit, mostly owing to the impact of the gas cess imposition in the first half of 2012. The industry was not able to pass on the entire impact of the increased cost to the end consumer unlike the yesteryears, as the presence of imported urea at subsidies rates, made life tough for the local players. Even after having fallen massively, not many industries or even companies within the fertilizer industry can boast of a 48 percent gross margin.
What actually made the real difference to the bottom line was a considerable decline in the other income contribution. FFC has traditionally relied heavily in dividend income from its subsidiary FFBL, which remained under pressure for most part of the year, announcing lesser dividends during the period.
Going forward, the fundamentals of the company remain strong as there is no apparent threat to its core business. Urea prices are expected to recover strongly in the international market, which shall allow the company to regain ground on the gross margin front. Shareholders will be waiting eagerly to see how FFC decides to finance the AKBL acquisition deal, as it may or may not have an impact on its dividend payout in the near future.
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FAUJI FERTILIZER COMPANY
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(Rs mn) CY12 CY11 chg
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Sales 74,323 55,221 35%
Cost of sales 38,325 20,872 84%
Gross profit 35,998 34,349 5%
Gross margins 48% 62% -
Distribution cost 5,561 4,372 27%
Finance cost 999 786 27%
Other income 4,268 6,630 -36%
PAT 20,840 22,492 -7%
EPS (Rs) 16.38 17.68 -
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Source: KSE notice
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