Karachi, January 27, 2023 (PPI-OT): Fauji Fertilizer Manufacturers: 4QCY22E Previews

The Fauji Fertilizer manufacturers (FFC and FFBL) are scheduled to hold their board meetings for their annual results on Monday, where we expect unconsolidated earnings of PkR5.0/sh for FFC and PkR1.7/sh for FFBL, taking cumulative earnings for CY22 to PkR16.9/sh and PkR3.1/sh respectively.

Offtakes show recovery: After the floods caused devastation to agricultural lands in Sindh and Punjab in 3QCY22, fertilizer offtakes for both companies have shown a recovery in the final quarter of the year. FFC has sold 627k tons of urea and 14k tons of DAP, up by ~20% and ~90% on a quarterly basis respectively. In tandem, FFBL’s offtakes have increased significantly, with urea offtakes up ~50%QoQ to 156k tons and DAP offtakes quadrupling to 300k tons in the quarter.

Revenues to uptick: We expect revenue for FFC to clock in at PkR31.2bn for the quarter, up by 27%QoQ owing to higher selling prices along with better offtakes. Owing to the substantially higher DAP offtakes aforementioned, FFBL’s revenue is expected to rise by 187%QoQ to reach PkR64.9bn. Furthermore, higher selling prices have helped gross margins on urea where FFC is expected to post margins of 41%, while FFBL’s margins are expected to decline to 15% owing to costlier inventory of phosphoric acid for DAP.

Finance costs on the up: On the back of higher interest rates, finance costs for FFC are expected to clock in at PkR2.1bn, however, strong ST investments of PkR70.6bn are likely to offset this through higher other income. FFBL on the flipside took on hefty ST borrowings in the previous quarter, amounting to PkR21.9bn, hence finance charges for the company are expected to stay highly elevated to PkR1.6bn, exceeding its Other Income.

Taxation to sustain normalcy: Following the hefty Supertax charge on companies in 2QCY22, taxation for the quarter is expected to remain at 33% for both companies, clocking in at PkR3.1bn and PkR1.1bn respectively for FFC and FFBL. ETR for CY22 is expected to clock in at 40%/60% for FFC/FFBL compared to 28%/45% in CY21.

Earnings to clock in at PkR16.9/sh and PkR3.1/sh: We expect Fauji Fertilizer Company (FFC) to post NPAT of PkR6.3bn (EPS: PkR5.0) in 4QCY22, taking total earnings for the year to PkR21.5bn (EPS: PkR16.9), remaining flat YoY despite the imposition of Supertax in CY22. Furthermore, we expect a dividend of PkR4.25 for the final quarter from FFC, taking total payout in CY22 to PkR13.25/sh (D/Y: 12.6%) For Fauji Fertilizer Bin Qasim Limited (FFBL), we expect earnings of PkR2.2bn (EPS: PkR1.7) in 4QCY22, culminating to a NPAT of PkR4.0bn (EPS: PkR3.1) for the year, down by 38%YoY.