JS Securities Limited - JS Research.

Karachi -- November 04, 2022 (PPI-OT)

FFBL: Hopes pinned on normalized commodity prices

After enjoying better primary margins during 1HCY22, Fauji Fertilizer Bin Qasim Limited (FFBL) witnessed a decline at gross level during 3QCY22 due to cost side pressures despite higher retention prices. The company posted a loss of Rs1.7bn in 3QCY22 translating into an LPS of Rs1.31.

Management, in its Corporate Briefing yesterday, remained hopeful for improvement in 4QCY22 in light of consistent decline in global commodity prices.

Lower expected Phosphoric acid prices are expected to offset impact of lower DAP prices announced by Prime Minister in the recently shared Kissan Package. To recall, the Kissan Package offers DAP at a price of Rs11,250/bag, 18% lower than company's price.

Management hopeful for a better quarter ahead

Fauji Fertilizer Bin Qasim Limited (FFBL), the largest and only DAP manufacturer in the country, enjoys a market of share of 54% in the segment, in addition to 8% market share in Urea. During 3QCY22, volumes remained dull due to floods and higher cost of fertilizers. Management, in its Corporate Briefing session held yesterday, however apprised its expectations of revival in sales volume for both Urea and DAP during 4QCY22. Phosphoric acid prices, key raw material for DAP, are also expected to come down as provisional rates have reduced from US$1,715/ton to US$1,200/ton. Lower raw material costs will likely assist in offsetting impact of lower DAP prices offered in the recent Kissan Package announced by the Prime Minister.

Furthermore, as per the management, the annual plant shutdown is expected in January 2023, coinciding with highest potential gas shortage. Gas supply is also expected to face disruptions in the month of December, however management has apprised it plans to manage the same through excess DAP inventory currently available.

3QCY22 recap - Higher costs drag earnings

In comparison to a profit of Rs 1.76/sh during the SPLY, FFBL reported a loss of Rs 1.31/sh in its 3QCY22 results. The lower-than-expected outcome was mostly caused by decreased volumetric sales and higher costs of production. Recall that the Finance Act of 2022 made input tax a component of cost and eliminated output tax on...