May 12, 2022 (MLN): The management of Fauji Fertilizer Bin Qasim (FFBL) has not agreed to the government’s recent price reduction of urea to Rs1,768 per bag, however, discussions are underway for a workable solution with the concerned ministry, the company said in a corporate briefing today.

To note, current FFBL’s Urea prices are at Rs1,900/bag which is Rs100/bag lower than Engro Fertilizers (EFERT’s) prices of around Rs2,000/bag, the topline Securities’ research cited.

On a financial front, the company’s net income surged by a massive 2.6x YoY to Rs3.2 billion (EPS: Rs2.47) during 1QCY22 compared to Rs1.2bn (EPS: Rs0.87) reported in 1QCY21.

This splendid performance of FFBL is mainly due to an increase in Urea offtake amid better retention prices, higher DAP primary margins, and a 129% increase in other income due to a strong cash position and higher share of profit from associates.

The management of the company believes that the urea demand is expected to clock in at 6.4mn metric tons in 2022 compared to 6.3mn metric tons in 2021. However, DAP demand is expected to be down by 15% YoY to 1.6mn metric tons in 2022 compared to 1.9mn metric tons in 2021, if prices are to remain on the higher side. While management expects demand to remain at 2021 levels (1.9mn metric tons) if prices start to soften after 2Q2022, it noted.

International DAP price continued its upward momentum and averaged around $946/ton in 1QCY22 vs. $473/ton in 1QCY21. The increase in DAP price is attributable to higher commodity prices, Chinese export restrictions and the Russia-Ukraine war.

Amid higher DAP prices and shifting of farmers towards nitrogenous fertilizer, DAP offtake remained under pressure, according to a report by Insight Securities.

Currently, FFBL’s DTP (Dealer Transfer Price) for DAP stands at Rs10,600/bag, while urea price is Rs1,868/bag.

With regards to a key challenge i.e., long-standing general sales tax refunds (GST), the report is of the view that talks with the government are underway for resolution of this matter.

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