Fauji Fertilizer Bin Qasim Limited

Fauji Fertilizer Bin Qasim Limited (PSX: FFBL) is a public limited company established under the Companies Ordinance, 1984 (now Companies Act 2017). It manufactures, purchases and markets fertilizers. Its manufacturing plant is located in the Eastern Zone, Port Qasim, Karachi. It has a designed production capacity of 551,100 tonnes of urea and 650,000 tonnes of DAP.

Shareholding pattern

As at December 31, 2021, over 68 percent shares are owned by the associated companies, undertakings and related parties within which a major shareholder is Fauji Fertilizer Company Limited. The local general public owns 14.5 percent shares followed by 6.6 percent held in banks, DFIs, and NBFIs. The directors, CEO, their spouses and minor children own a negligible number of shares, while the remaining roughly 11 percent shares are with the rest of the shareholder categories.

Historical operational performance

Between CY16 and CY21, the company witnessed a declining topline once. Profit margins, on the other hand, have fluctuated between CY15 and CY19 after which they have been on an upward trajectory.

Topline in CY18 posted a growth of 16.6 percent to reach Rs 61.5 billion in value terms. While Sona Urea sales witnessed a growth of 3 percent, Soba DAP sales contracted by 17 percent. This was attributed to the existence of competition from availability of cheaper imports. But with production cost reducing to 86.7 percent of revenue compared to over 88 percent in the previous year, gross margin improved to 13.3 percent. However, the increase in net margin was less pronounced that was recorded at 2.3 percent compared to 1.9 percent in CY17, due to reduction in other income and increase in other expenses as a share of revenue.

In CY19, revenue growth stood at 8.7 percent with topline reaching Rs 66.8 billion. While production for DAP reached an all-time high, it was unmatched by sales therefore the company carried over 189,000 tonnes. With production cost rising to over 90 percent of revenue, gross margin fell to 8.8 percent. Due to high levels of inventory, finance expense escalated to consume almost 8 percent of revenue, eventually leading the company to incur a net loss of Rs 5.9 billion.

Revenue growth in CY20 stood at its highest thus far at 24.5 percent to cross Rs 83 billion in value terms. This was attributed to better farm economics that was a result of an increase in international commodity prices and government’s better support pricing. Additionally, Sona DAP saw its highest sales volumes at 926 Kt, while Sona Urea sales registered an increase of 10 percent. As a result, gross margin was recorded at its highest thus far of 15 percent. While net margin was significantly better year on year at 2.6 percent, if it were to be compared to that in CY18, it was better only marginally since the current period saw “impairment of equity investment in FML and FFL”.

Topline growth in CY21 climbed further up to 32.7 percent crossing Rs 110 billion in value terms. While the company increased its DAP production to 790 KT, urea production reduced by 10 percent due to its dependency on availability of natural gas. Moreover, revenue was primarily supported by rising fertilizer prices in the domestic market, particularly for DAP. Thus, gross margin peaked at 20 percent. This also reflected in the net margin that was higher at 5.8 percent for the year, while the bottomline was recorded at its highest of Rs 6.4 billion.

Quarterly results and future outlook

Revenue in the first quarter of CY22 was almost double year on year. Production for DAP was higher by 83 percent year on year while that for urea was 50 percent. Moreover, the company continued to dominate the local DAP market as it grew its market share to 48 percent compared to 37 percent in the same period last year. Thus, gross margin was higher at 21.7 percent versus 19 percent. However, net margin was lower at 6.5 percent compared to 9.7 percent in 1QCY21 as there was a more than corresponding rise in other expenses and taxation.

In the second quarter of CY22, revenue more than doubled year on year as it was recorded at Rs 46 billion compared to Rs 16.9 billion in 2QCY21. This was largely attributed to a surge in international prices of DAP. But production cost also increased as a share in revenue due to rising cost of inputs, particularly imported raw materials, the expense for which was further driven up due to currency devaluation. Thus, gross margin stood at 19 percent versus 20.7 percent in 2QCY21. On the other hand, net margin further shrunk to 3.9 percent compared to 15.4 percent in the same period last year as other expenses and taxation escalated significantly. Other expenses were higher due to an exchange loss of over Rs 2 billion. While demand has existed, the production faces challenges such as global economic situation and geopolitical tensions coupled with government’s policy measures.