Karachi, Fauji Fertilizer Bin Qasim Ltd. (FFBL) recently held an analyst briefing to discuss their CY23 financial results and share insights into their future outlook, showcasing a significant increase in earnings despite facing operational challenges.
According to AKD Securities Limited, FFBL posted CY23 earnings of PkR4.4 billion (EPS: PKR3.4), marking an 89% increase year-over-year compared to PkR2.3 billion (EPS: PkR1.8) in the previous year. This surge was primarily due to a 28% annual increase in gross profit and a 49% rise in other income. However, the overall taxation for the period remained high at an effective tax rate of 69%, partly due to deferred tax payments and provisions on subsidy receivables from the Government of Pakistan (GoP), leading to elevated other expenses.
A major concern for FFBL has been the availability of gas, receiving only 42% of the allocated gas by the GoP. This shortage significantly impacted the company's operations, resulting in a 36% annual reduction in urea production and causing its market share to decrease to 5% from 8% in CY22. Despite this, the company received more than 30 million cubic feet per day (mmcfd) of gas throughout January, keeping the urea plant operational. However, future projections indicate lower urea production due to gas availability issues.
The DAP plant also faces potential operational challenges, with an expected shutdown of about a week due to supply chain issues arising from the ongoing conflict in the Red Sea. This will likely cause a shipment delay of an additional 10 days.
DAP market sales showed a recovery in CY23, reaching 1.6 million tons, up from 1.2 million tons in CY22. However, FFBL's market share in DAP dipped to 54% from 56% the preceding year. The price of Phos acid is currently maintained at US$945/ton for the first quarter of CY24, but it is expected to decrease to US$900/ton. Management anticipates launching Boran-coated DAP by the first half of CY24.
FFBL intends to mitigate the impact of any gas price hike by passing it on to consumers, although this may be challenging due to competition from imports. Regarding their financial position, management guided that the current debt and cash position doesn't represent the long-term situation. They expect a cash outflow exceeding PkR40 billion in 1QCY24, and an increase in borrowing due to the buildup of DAP inventory.
On the investments front, PMP Morocco incurred substantial losses of approximately US$40 million in 9MCY23. However, it is anticipated to break even by the full year, meaning no dividends from the associate are expected in CY24.
For more details, AKD Securities Limited can be contacted at their official channel: research@akdslresearch.com.