Quarterly results of
fertilizer manufacturers were keenly awaited by the investors. My previous post
hinted towards the possible decline in earnings of the companies due to: 1)
reduction in international prices of urea and 2) slower offtake. Today, review
of the accounts of three companies are presented. Only one company, Engro
Fertilizer has posted above expectations results, while Fauji twins have posted
below expected results. Results of Fatima and Dawood are still awaited.
Engro
Fertilizers (EFERT) has
posted unconsolidated profit after tax of Rs2.86 billion (EPS: Rs2.15) for July-September
2016 period as compared to net profit of Rs2.79 billion (EPS: Rs2.10) for the corresponding
period of last year, an increase of 3%YoY. The recovery in earning has come
from, 1) strong growth in topline to Rs20.76 billion (including subsidy) caused
by likely 39%YoY increase in Urea offtake to 502,000 tons post subsidy in
budget FY17 and 2) 31%YoY decrease in finance cost on account of swift
deleveraging and low interest rate environment. The result also accompanies an
unexpected cash dividend of Rs2.50/share, taking 9MCY16 cumulative dividend payout
to Rs4.50/share. On a cumulative basis, 9MCY16 earnings slipped to Rs5.66 billion
(EPS: Rs4.25) compared to Rs9.91 billion (EPS: Rs7.44) for 9MCY15, down 43%YoY
on account of unprecedented adverse market conditions caused by weak farm
economics (urea offtake down 16%YoY in 8MCY16) and delayed implementation of
subsidy on urea by the GoP.
Fauji
Fertilizer Company (FFC) has
posted unconsolidated profit after tax of Rs2.61 billion (EPS: Rs2.05) for July-September
2016 quarter as compared to a net profit of PkR3.69 billion (EPS: PkR2.90) for
the corresponding period last year, a decrease of 29%YoY. The decline in
earnings was expected on the back of: 1) gross margins declining to 32%
(includes subsidy) on account of reduction in Urea prices (down 9%YoY) due to
depressed farm economics and low international prices, down 36%YoY to an
average US$184/ton during 3QCY16 and 2) a 83%YoY decline in other income
(excluding subsidy) in the absence of dividend from associated companies (AKBL,
FFBL and FCCL) and reduction in return on term deposits. However, the result was
also accompanied by a cash dividend of R1.75/share, taking 9MCY16 cumulative
dividend payout to Rs5.15/share. On a cumulative basis, 9MCY16 earnings
declined to Rs7.51 billion (EPS: Rs5.90) as compared to Rs11.96 billion (EPS: Rs9.40)
for 9MCY15, down 37%YoY on account of unprecedented adverse market conditions
caused by weak farm economics, urea offtake down 16%YoY during 8MCY16 due to
delayed implementation of subsidy on urea by the GoP.
Fauji
Fertilizer Bin Qasim (FFBL)
has posted unconsolidated net loss of Rs1.05 billion (LPS: Rs1.13) for 9MCY16
as against net profit of Rs939 million (EPS: Rs1.01) for 9MCY15. This
significant downturn in earning resulted from, 1)gross margin declining to 14%
(including subsidy) on account of significant reduction in DAP prices, down
15%YoY due to depressed international price trends. Price came down 24%YoY to
an average US$325/ton during 9MCY16 and increased feed and fuel gas prices in
1QCY16 and 2) a 38%YoY lower other income (excluding subsidy of Rs3.18 billion
on DAP and Urea in the absence of dividend from associated companies and
reduction in term deposit placements. Following the trend 3QCY16 the Company
posted net loss of Rs159 million (LPS: Rs0.17) for 3QCY16 as against net profit
of Rs181 million (EPS: Rs0.19) for 3QCY15. However, on sequential basis, 3QCY16
earnings improved slightly against net loss of Rs381 million (LPS: Rs0.41)
2QCY16 on the back of likely increase in DAP/Urea offtake to post subsidy
announcement in Federal Budget FY17.
