Fauji Fertilizer Company Limited (FFL) - August 2023

Fauji Fertilizer Company Limited (FFL) – August 2023

Research Team

Table of Contents

On a Consolidated basis, FFC’s profits surged by an impressive 35% YoY, achieving an all-time high profitability of PKR 20.76 billion (EPS: PKR 15.97) in the 1HCY23, compared to the previous year’s PAT of PKR 15.37 billion (EPS: PKR 11.86). This surge in profitability was primarily a result of enhanced efficiency and strategic cost-cutting measures undertaken amidst significant challenges posed by substantial devaluation and high inflation. A notable boost in other income (PKR 6.84 billion) also contributed substantially to the enhanced net income.

However, in dollar terms, the company’s profitability witnessed a decrease of 8%, amounting to $48 million in the first half of CY23, compared to $52 million in the same period last year.

FFC’s top-line performance displayed remarkable growth, with revenues reaching PKR 82.51 billion, a significant 33% increase YoY, compared to PKR 62.06 billion in the corresponding period. Moreover, the company’s margins showed improvement, rising to 46% in the 1HCY23 from
41.24% in SPLY.

Operating expenses and financial costs experienced an upward movement due to higher inflation and increased borrowing costs, recording a 36% YoY and 33% YoY increase, respectively, during the stated period. From a standalone perspective, FFC reported revenues of PKR 71.96 billion in 1HCY23, compared to PKR 54.71 billion in SPLY. The company’s standalone profitability reached PKR 13.08 billion (EPS: PKR 10.28), marking a 36% YoY increase, compared to PKR 9.59 billion (EPS: PKR 7.55) in SPLY.

During the first six months of this year, FFC demonstrated robust operational efficiency by producing 1,278KT of Sona Urea at a consistent operating efficiency rate of 125%, in line with the previous year’s performance. However, DAP sales remained stagnant at 50KT.

Management highlighted FFC’s achievement of selling urea at a competitively lower price of PKR 2,565 per bag compared to industry and international urea prices (PKR 3,000 per bag and PKR 5,700 per bag, respectively).

Key Challenges faced by FFC include: (1) Gas Price Unification, (2) High Inflation, (3) Elevated Interest Rates, (4) Devaluation, (5) Increased Super Tax, (6) Profitability
Dip in Dollar Terms, (7) Natural Gas Depletion, and (9) Aging Plant Maintenance.

FFC continued to dominate the local urea industry with the highest market share of 40% in the 1HCY23, achieving sales of 1,248KT, while the industry witnessed a 4.5% YoY decline in Urea sales. FFC also held an 11% DAP market share, with FFBL (58%) and Engro (17%) leading the
market in the same period.

Management emphasized that inventory levels are optimized for the coming months. The debt-to-equity ratio stands at 24:76.

Renewable and wind energy projects contributed 142.8GWh of energy to the national grid in 1HCY23. Additionally, Fauji Fresh Freeze witnessed remarkable growth, with sales volume increasing by 51% YoY and revenue growing by 109% YoY.

Looking ahead, FFC’s focus remains on optimizing operations and controlling costs, enabling the company to navigate the upcoming challenges effectively. The company plans to undertake the second plant maintenance activity in the latter half of this year.

Important Disclosures



This report has been prepared by Chase Securities Pakistan (Private) Limited and is provided for
information purposes only. Under no circumstances, this is to be used or considered as an offer to sell or solicitation or any offer to buy. While reasonable care has been taken to ensure that the information contained in this report is not untrue or misleading at the time of its publication, Chase Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. From time to time, Chase Securities and/or any of its officers or directors may, as permitted by applicable laws, have a position, or otherwise be interested in any transaction, in any securities directly or indirectly subject of this report Chase Securities as a firm may have business relationships, including investment banking relationships with the companies referred to in this report This report is provided only for the information of professional advisers who are expected to make their own investment decisions without undue reliance on this report and Chase Securities accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents At the same time, it should be noted that investments in capital markets are also subject to market risks This report may not be reproduced, distributed or published by any recipient for any purpose.

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