Nine months profits of Fauji Fertiliser Bin Qasim jumped more than 200 percent thanks to record high DAP sales, despite a few non-operating glitches, with earnings - EPS Rs 1.93/share - well in line with market consensus. The company maintained its high payout policy and announced an interim dividend of Rs 1.25/share taking the dividend to date to Rs 1.75/share.
The massive revenue growth of nearly three times came on the back of strong DAP sales that account for nearly 85 percent of the firm's top line. The company is likely to have sold a record 0.25 million tons of DAP in the third quarter alone - taking the 9MCY09 DAP off take to almost 0.55 million tons, which is higher by a staggering ten times on year-on-year basis.
The reason behind the record high DAP off take were two-fold; a) the low base effect of last year and b) the sharp decline in DAP prices which encouraged farmers to apply more of the phosphate fertiliser.
The price of DAP had gone as high as Rs 3100/bag during 3QCY08 and the absence of subsidy led to a halt in DAP demand. But the 38 percent year-on-year decline in DAP prices during 3QCY09 turned the farmers back to more DAP application. Urea sales for FFBL, however, remained lacklustre and are expected to have dropped by 13 percent mainly owing to DAP substitution effect and an 18 percent increase in the product price during the period.
Offsetting this revenue growth, however, were depressed gross margins as feedstock gas prices rose three times during the period; following the expiration of concessional price agreement available to FFBL in CY08. Although, the price of phosacid did cool down by 25 percent year-on-year, but the product prices went down by greater magnitude - eroding the DAP margins by 12 percent.
The bottom-line was also trimmed by losses incurred in FFBL's joint venture PMP despite the plant being operational in the 3QCY09. This comes as quite a surprise considering that FFBL's management had expressed its optimism on PMP's operations - something which clearly didn't materialise. Although, the company hasn't disclosed the reasons for PMP failure, it plans to hold an analyst briefing in a few days time.
Going forward, DAP off-take is likely to remain strong in the final quarter, although, it won't reach the highs of 3QCY09 as wheat is about to be sown which is generally a high urea consumption crop. The company might face a pressure on its margins yet again in 2010, as it is sitting on high inventory and global DAP prices are expected to cool-off amid reduction in phosacid prices. The PMP plant performance also remains an area of concern and a company verdict needs to come out before assessing the nature of the losses incurred during the quarter.
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FFBL P&L
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Rs (mn) 3QCY09 3QCY08 % chg 9MCY09 9MCY08 % chg
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Sales 12,026 3,404 253% 27,024 9,079 198%
Cost of sale 8,591 2,077 314% 20,639 6,229 231%
Gross profit 3,435 1,328 159% 6,385 2,849 124%
Gross margin 28.6% 39.0% -27% 23.6% 31.4% -25%
Finance cost 190 1,324 -86% 1,188 1,905 -38%
Other income 200 130 53% 612 1,084 -43%
Loss on JV 283.31 0 na 599.59 0 na
PAT 1,307 -174 na 1,805 544 232%
EPS (Rs) 1.40 -0.19 na 1.93 0.58 233%
DPS (Rs) 1.25 0.00 na 1.75 0.50 250%
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