FFBL: Dividend resumption on the cards

September 30, 2021 (MLN): Owing to healthy cash generation since last 1.5 years, Cash balance of Fauji Fertilizer Bin Qasim Limited (FFBL) has jumped to Rs19bn in 1HCY21 against Rs5.3bn in Dec-19.

By end of Dec’21, it is expected to reach Rs22bn (17/sh). Even after adjusting for GIDC liability (net of receivables from Govt.), there would be a surplus cash balance of Rs9.5/share.

“Thus, payouts are expected to resume from CY21 onwards,” Ismail Iqbal Securities in its latest report highlighted.

According to the report, Covid-19 has proved to be a blessing in disguise for country’s sole DAP producer, as it provided much needed improvement in company’s core business profitability.

During CY20, FFBL recorded unconsolidated profit of Rs2.2 bn, a 5Yr high. The company has surpassed that number in 1HCY21 (PAT of Rs3.9bn), and it is estimated to post a decade high profit of Rs8.5bn in CY21 (including a capital gain of PKR3bn on sale of a stake in wind plants).

The DAP margins which currently stand at $130/ton, are expected to average at around $90/ton in CY21, the highest since $112/ton in CY14. However, even after normalization of commodities super cycle, FFBL is expected to post higher profits in CY22 and CY23. The company has been able to bring down debt to asset ratio to 36% in 1H vs 51% at Dec-19, which would bring down the finance cost even as interest rates rise. It would also allow the company to resume payouts.

Moreover, FBBL has successfully completed of sale and transfer of its entire shareholding in Foundation Wind Energy-I Limited (FWEL-1) and Foundation Wind Energy-II Limited (FWEL-II). This recent deal of FFBL with FFC to sell FWEL-I & FWEL-II projects for Rs5.4bn is expected to further strengthen company’s cash position, which would offset expected cash outflow of Rs5.3bn for 97% rights share issuance by its subsidiary company FFL, the report quoted.

With regards to Company’s Meat and Food Business, the management has decided to sell some of the segments and improve operations of others as both Fauji Meat and Fauji Foods performance has taken toll on FFBL in the form of equity injections & loans, the report said.

Fauji Meat posted heavy losses before tax worth Rs6bn during CY17 to CY20. However, Fauji Foods witnessed a turnaround in profitability during 1HCY21 owing to significant improvement in topline and gross margins. The topline of FFL was up by 39% YoY and gross margins expanded to 12.12% compared to 3.37% in 1HCY20, showing a growth of 8.75ppts YoY. In addition, for the first time in operating history of FFL, company has recorded positive EBITDA of Rs110mn during 1HCY21, however for Meat business things remain gloomy.

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