April 2, 2019 (MLN): As the curtains drop on another earnings season, the financial picture of fertilizer sector comes into clearer view providing plenty of scope for analysis of the individual companies’ performances and its subsequent impact on their position within the sector as well as the equity market.
The year 2018 has proven to be exceedingly favorable for Fertilizer companies, the broad responsibility for which falls upon higher prices as they more than sufficiently made up for the otherwise 5% decline in total offtakes.
Subsequently, this brought along benefits for the equity market as well, since the sector is amongst the key drivers of the benchmark KSE – 100 Index, holding around 14.95% weightage.
As can be seen in the table below, the sector’s overall revenue broadened by over 28% annually despite a rather diminished production of DAP (4%, YoY decline) and an insignificant growth in urea production. As mentioned above, the inflated revenue is an outcome of improved prices of urea (which increased by 16%, YoY) and DAP (which increased by 25%, YoY).
Other than that, operating expenses within the sector increased due to exchange loss sustained by companies on foreign payables and increase in Worker’s Profit Participation Fund expense amid higher profitability.
In addition to this, due to the removal of cash subsidy (Rs.100 per bag) from May 2018, the non-core income of the sector declined slightly.
On the other hand, the sector witnessed a drop in finance cost owing to decline in overall borrowing of sector, in light of improved inflow from accrual of GIDC.
After accounting for all these components, the total earnings of the sector improved by 58% on an annual basis.
|
Cumulative annual Profit and Loss statement of Fertilizer Sector (Jan-Dec 2018) |
|||
|---|---|---|---|
|
Dec-18 |
Dec-17 |
% Change |
|
|
Revenue |
690,631,708 |
537,657,674 |
28.45% |
|
Gross Profit |
206,574,248 |
140,199,557 |
47.34% |
|
Total Expenses |
102,908,681 |
89,320,846 |
15.21% |
|
Operating income |
46,301,453 |
49,649,458 |
-6.74% |
|
Pre-Tax Profit |
149,967,020 |
100,528,169 |
49.18% |
|
Taxation |
46,643,017 |
35,146,558 |
32.71% |
|
Net Income |
103,324,003 |
65,381,611 |
58.03% |
*Amount in thousands
Based on individual evaluation, EFERT outperformed all the companies within the sector, having realized a 41% rise in its annual earnings.
EFERT’s net profits were lifted on the back of higher realized prices, adequate off-take of urea and DAP and one-off tax effects. Although, other income of the company fell 65% YoY due to conclusion of the fertilizer subsidy scheme, the finance costs registered decline due to continued deleveraging which offset the impact of rising interest.
|
Constituent |
Dec-18 |
Dec-17 |
% Change |
|---|---|---|---|
|
EFERT |
17,413,518 |
11,155,622 |
56.10% |
|
FFC |
16,438,204 |
11,495,900 |
42.99% |
|
FFBL |
778,104 |
925,238 |
-15.90% |
|
DAWH |
33,148,889 |
16,247,161 |
104.03% |
|
FATIMA |
11,913,555 |
9,267,943 |
28.55% |
|
ENGRO |
23,631,733 |
16,289,747 |
45.07% |
*Amount in thousands
FFC: FFC’s earnings expanded in the wake of 9% rise in topline due to return of pricing power to the sector, improved gross margins as better retention prices more than offset decline in Urea offtakes, lower finance cost due to deleveraging and higher other income due to dividend from subsidy.
FFBL: FFBL experienced noticeable decline in gross margins due to internationally surging prices of phosphoric acid and coal coupled with PKR devaluation.
DAWH: The massive growth in DAWH’s bottom-line gains was a result of an equally impressive increase in company’s revenue by 33.42%, and non-core income by 96.54%.
FATIMA: The upward trajectory in the net earnings was a result of improved sales revenue (13.09%), as well as reduced cost of sales (3.92%) of the company. In spite of a massive increase in the taxation expense from Rs.852 million to Rs.4.8 billion, the company still managed to perform remarkably.
ENGRO: The company’s improved earnings were again attributed to higher sales (Rs.171.6 billion) which increased by 33.4%, while cost of sales (Rs.120.5 billion) expanded by a smaller margin of Rs.28.4%.
In absolute terms, DAWH’s net profit for the year is bigger than the rest of the companies, standing at Rs.33 billion, it accounts for 32% of the overall profit.
Following right behind is ENGRO which has a net income of Rs.23.6 billion and a profit size of 22.87% within the sector.
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