Analyst Briefing: FFBL expects healthy profits in Q2 of CY21

May 26, 2021 (MLN): Fauji Fertilizer Bin Qasim Limited (FFBL) held its analyst briefing session yesterday to discuss the financial performance of the company and different businesses associated with it.

For anamnesis, the company posted earnings of Rs1.3 billion (EPS: PKR 0.98) against a loss of Rs3 billion (LPS: PKR 2.4). The profitability in 1QCY21 after a span of 5-years came on the back of 35% YoY higher DAP prices, 8% YoY jump in DAP offtake, improved operations due to restructuring and lower finance cost.

“Gaining profits in 1Q of CY21 was very unusual, because the way DAP business moves, it is very hard to make profits in the Q1,” Sarfaraz Ahmed Rehman, CEO of FFBL said.

According to the management, the Q1 of the company started with some hurdles as the five-year gas agreement was on the table with SSGC, for which the strategy was designed in the mid-last year, therefore company faced some tough times in the allocation of gas and dealing with the agreement.

“The process was very difficult as at first it had to go through 5 ministries for the approval, then it goes through ECC for their acceptance, further it needs cabinets approval and last but not the least, the Prime Minister have to approve it.”

The gas allocation was handed to FFBL in the early February for a five-year time. Further the management claimed that they have worked on the plant and infrastructure, making it even better.

Entering the middle of the Q1, company’s 4 ships carrying phos acid get stuck on Suez Canal due to Evergreen incident. However, the matter got sorted within a week resulting in no production loss for the company. 

For the ongoing quarter, the management of FFBL is expecting healthy profits just like Q1, as the second quarter looks pretty good.

In terms of strategy there has been talks that a DAP plant should be made in Pakistan, according to the CEO, the plant could be in FFBL facility. Regarding DAP price, management believes that it will remain firm for next 1.5-2 years due to supply/demand dynamics and global food security issues.

Currently, DAP price in international market is hovering around USD580/ton while phos acid price is USD1000/ton. In local market, DAP is trading around ~PKR5,350/bag.

The company has also invested in Askari banks from where it is receiving good dividends as the bank holds strong position in the market.

As per the management, FWEL plants (I-II both) of the company are both going through tax flow nonetheless, they are profitable and the decision to divest FFBL’s stake is not yet finalized. The possible spin-off will improve the cash-flows of FFBL and will help it to deleverage, management said.

Regarding the Fauji Meat Ltd business the company informed that it is evaluating three options: i) To re-organize the business, ii) To enter into joint venture agreement with a potential buyer and iii) To sell-off the entire company.

While shedding light on the performance of Fauji Fertilizer Company (FFL), the management stated that it also had great 1QCY21 performance, where it posted impressive growth (15%) in topline. Company also added new products to its portfolio during the quarter and has produced great results compared to previous years.

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