Byline: Shabbir Kazmi
Profit of fertilizer manufacturers of Pakistan has declined by 31%YoY to Rs8.6 billion for 3Q2019, primarily due to 1) decrease in gross profit margins, 2) increase in administrative expense up by 33%YoY, and 3) spike in finance cost by 110%YoY. The analysis is based on sample of 4 largest listed companies, namely Fauji Fertilizer (FFC), Engro Fertilizer (EFERT), Fatima Fertilizer (FATIMA) and Fauji Fertilizer Bin Qasim (FFBL). The analysis is based on unconsolidated statements of FFBL and FFC and consolidated statements of EFERT and FATIMA for true depiction of their fertilizer business.
During the period, Urea sales of these companies witnessed a growth of 6%YoY to 1.5 million tons due to pre buying by farmers/dealers amid hike in urea prices along with resumption in operation by Agritech and FatimaFert, contributing 179,000 additional tons. DAP offtake of three companies (EFERT, FFBL and FFC) posted a decline of 10%YoY, in-line with sector's volumetric decline of 11%YoY to 517,000 tons. Net sales of the sector witnessed a growth of 8%YoY to Rs93 billion during 3Q2019, despite decline in volumetric sales due to increase in Urea and DAP prices. Gross margin of the manufacturers declined to 25% during 3Q2019, from 33% last year due to higher input cost. Government of Pakistan (GoP) has increased feed and fuel prices by 62% and 31% respectively which translate into increase in cost by Rs210 per bag.
Fertilizer manufactures tried to pass on the full cost to end consumer, but the GoP only allowed companies to increase urea price by Rs10 per bag, while the rest of amount would be offset by 50% waiver in GIDC. Due to media criticism and political reasons Prime Minister, Imran Khan withdrew the ordinance and directed the Attorney General to move the Supreme Court for an early decision on the matter in accordance with relevant laws. As the ordinance was withdrawn, manufactures increased urea prices by Rs200 per bag effective 8th September 2019. Finance cost increased by 110%YoY due to the hike in policy rate and increase in borrowings of the sector Effective tax rate during 3Q2019 rose to 44% as compared to 33% last year, effective tax rate for FFBL increased by 141% amid implementation of minimum tax.
Fauji Fertilizer Company (FFC) posted profit after tax of Rs4.6 billion (EPS: Rs3.63) for 3QCY19, up 21%YoY but down 11%QoQ. Cumulative profit for 9MCY19 rose to Rs13.5 billion (EPS: Rs10.63), up 58%YoY. FFC also announced its...