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The net profit of fertiliser sector has increased by 43 percent on year-on-year basis to Rs 9.276 billion in the first nine months of 2008 as compared to Rs 6.480 billion earned in the corresponding period in 2007. Dawood Hercules (DAWH) recorded the highest increase in core earnings, rising by 298 percent on yearly basis to Rs 1,368 million.
The sector's net sales grew by 25.27 percent on yearly basis to Rs 52.685 billion in the nine months period this year against Rs 42.054 billion in the same period last year driven by 20 percent increase in urea sales, overcoming the significant decline in DAP sales (71 percent), high fertiliser prices (weighted average urea and DAP price/bag up by 23 percent and 153 percent respectively), Ayub Ansari, an analyst at Invest Capital & Securities said.
DAWH registered the highest growth of 90 percent on yearly basis on the back of 22 percent and 85 percent on yearly basis incline in urea and DAP sales respectively.
The sector gross profits rose by 42.8 percent to Rs 20.3 billion, with gross margins (GMs) jumping by 471bps to 38.4 percent. GM drivers increased proportion of own-manufactured urea (+22 percent) in the sales mix, high fertiliser prices, and depressed sales of relatively low margin DAP.
Fauji Fertiliser Company (FFC) enjoyed the highest GMs of the sector (42.6 percent, +319bps on yearly basis), while (DAWH) recorded the highest rise in gross profits by 107.3 percent to Rs 2.3 billion.
Urea production for the sector rose by a healthy 8.6 percent to 3.4 million tons, with a capacity utilisation standing at 114.3 percent (+680bps). Fauji Fertiliser Bin Qasim (FFBL) provided the production spurt (+58.2 percent to 497000 tons of urea) following the completion of its ammonia BMR (15 percent increase in annual urea capacity), while FFC achieved the highest capacity utilisation factor of 124.8 percent (+193bps), underscoring its status as the most efficient urea producer. DAP production increased by 8.2 percent to 30,2000 tons. High inflation (+25.3 percent) contributed towards pushing the S&A expenses/tonnes of fertiliser sold by 14.5 percent to Rs 688/tonnes, translating into a S&A rise of 22.5 percent on yearly basis.
The cumulative financial costs for the sector rose by a significant 124 percent on yearly basis to Rs 3,974 million in this period against Rs 1,775 million in the same period last year. High carry-over DAP inventory increased the working capital requirements, which in addition to rising interest rates (average six months KIBOR up 177bps on yearly basis to 12 percent) and currency translational losses fuelled the financial costs. FFBL recorded the highest increase of 320 percent in financial costs. Other income grew by 63.8 percent to Rs 3,284 million, with the growth momentum provided by ENGRO (+148 percent to Rs 1.6 billion).

Copyright Business Recorder, 2008

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