February 1, 2012


Pakistan's Fauji Fertilizer profits increase two-fold



Fauji Fertilizer Company (FFC) reports two-fold increase in net profit at PKR22.5 billion (US$0.25 billion) despite a dip in core business in 2011.


The company's urea sales fell 3% to 2.4 million tonnes, however, 54% surge in urea prices did the trick, says Summit Capital analyst Muhammad Sarfraz Abbasi. Hence, gross margin grew 19% to a healthy level of 62.2% against the preceding year's 44%.


The result is at least 9% higher than market expectation as analysts expected the net profit to stand, on average, PKR20.5 billion (US$0.22 billion).


In the final three months of the year, sales plummeted a massive 26% which led to a slowdown in net sales. However, they still managed to grow by 23% to PKR55.2 billion (US$0.6 billion) in 2011 against PKR44.9 billion (US$0.5 billion) in the preceding year. FFC also announced a dividend payout of PKR5.25 (US$0.06) per share for the fourth quarter, taking cumulative dividend to PKR20 (US$0.2) per share for 2011.


Urea pricing remains the key risk to profit in the near future. The resumption of gas supply to Engro new plant Enven after the winter season and consequent reduction in urea prices due to regulatory pressure may dampen urea margins for the industry. Additionally, imposition of equalisation tax is likely to result in depressed margins going forward.