FAUJI FERTILIZER COMPANY LTD

S.KAMAL HAYDER KAZMI
Research Analyst
, PAGE
Feb 16 - 22, 2009

Fauji Fertilizer Company Ltd (FFC) is a Pakistan-based and holds a prime position in the fertilizer sector. The FFC engaged in the manufacturing, purchasing, marketing of fertilizers and chemicals, including investments in other fertilizers and chemical manufacturing operations. FFC has an ISO-9002 certification for its manufacturing division at Goth Machhi. Quality in all areas has been a hallmark of the Company right from the beginning and the product "Sona Urea" has already established its rightful place in the market.

FINANCIAL PERFORMANCE

FINANCIAL PERFORMANCE
(Rs. Millions)

Indicators

2006

2007

2008

Sales

29,951

28,429

30,593

Cost of Sales

20,242

18,312

18,235

Gross profit

9,709

10,117

12,358

Finance cost

501

704

695

Net profit before taxation

6,985

7,815

10,041

Provision for taxation

2,349

2,454

3,516

Net profit after taxation

4,636

5,361

6,525

EPS

9.39

10.86

13.22

Source: FFC

FFC is committed to play its leading role in industrial and agricultural advancements in Pakistan by providing quality fertilizer to its customers. In 2008, Company’s profitability witnessed record levels with aggregate sales revenue of Rs. 30.59 bn demonstrating a growth of 8% over last year. The enhancement in Revenue is attributable primarily to improved Sona urea sales volume and prices. The cost of sales-to-revenue ratio improved to 60% as compared to 64% last year, owing to lower sales of high cost-low profitability imported fertilizers, which enabled the Company to improve its gross margin to 40% as compared to 36% in 2007. The Gross Profit was recorded at Rs. 12.34 bn with improvement of 22% over last year.   Distribution of fertilizers to Company warehouses for our customers cost the Company Rs. 2.67 bn with an increase of 10% compared to last year. The increase is in part attributable to transportation cost inflation during the first half of the year.  Profit before tax was recorded at Rs. 10,041 mn higher by 28% compared to last year. Earnings per share (EPS) therefore, rose by Rs. 2.36 to Rs. 13.22 due to 22% growth in after tax profitability recorded at Rs. 6.53 bn. Return on equity was 53%, compared with 42% in 2007.

UREA

The Urea industry witnessed an exceptional growth of 11% in demand. However, the imports did not satisfy the demand and supply gap resulting in shortage and price increase. The year started with a 32% lower inventory of 159 thousand tonnes as compared to last year. Indigenous urea production during 2008 is estimated at 4,978 thousand tonnes with a growth of 4.7% while 504 thousand tonnes were imported during 2008.

DI AMMONIUM PHOSPHATE

Unlike urea, the domestic Di Ammonium Phosphate (DAP) market remained depressed owing to high international prices which touched an all time high (1,230 US$ per tonne FOB ex- US Gulf) in May 2008. The domestic DAP prices, despite being cheaper, were still very high for the farmers and the industry faced a dire need for enhancement in the subsidy by the Government to make DAP affordable. DAP manufacturing costs of the Company's subsidiary Fauji Fertilizer Bin Qasim Limited (FFBL) were negatively affected by soaring prices of Phosphoric Acid which shot up to $ 2,200 per tonne. FFBL, the sole producer of indigenous DAP, had to bear the major burden of the delay in subsidy payments as it carried large inventories during the period, with a closing inventory of 172 thousand tonnes at end Dec 2008. Sona DAP production by FFBL was recorded at 471 thousand tonnes while 352 thousand tonnes were imported during 2008, 71% lower as compared to 2007. The Industry carried DAP inventory of 340 thousand tonnes at the end of 2008, 23% higher than last year.

FERTILIZER

The year 2008 witnessed an abnormal escalation in fertilizers and raw materials prices including Urea, DAP, Sulphur and Phosphoric acid. This was driven by demand, increased production of biofuels, and imposition of export tax on fertilizers by China and shortage of vessels to carry fertilizers around the world. The manufacturing costs pertaining to fertilizer industry were impacted by inflationary factors combined with a 5.5% escalation in fuel gas price from January 2008 and escalation of 31% effective July 1, 2008. The Finance Act 2008 abolished GST on marketing of locally produced and imported fertilizers for the benefit of the farming community.

FFC’s FIVE YEARS PERFORMANCE

KEY INDICATORS

 

2004

2005

2006

2007

2008

Return on assets

%

23.08

25.36

25.47

26.73

31.46

Total assets turnover

Times

0.80

0.90

1.09

0.97

0.96

Fixed assets turnover

Times

2.29

2.77

3.12

2.74

2.40

Debtors turnover

Times

12.81

24.65

36.95

21.19

27.58

Debtors turnover

Days

29

15

10

17

13

Inventory turnover

Times

31.93

47.47

29.31

25.54

55.20

Inventory turnover

Days

11

8

12

14

7

Operating cycle

Days

30

4

9

24

12

Return on equity

%

32.57

39.36

35.78

42.11

53.11

Debt: Equity

 

19:81

7:93

8:92

17:83

30:70

Current ratio

 

1.09

0.91

0.90

0.94

0.82

Quick/Acid test ratio

 

0.87

0.69

0.61

0.68

0.54

Earnings per share (after tax)

Rs.

8.11

9.92

9.39

10.86

13.22

Earnings growth

%

27.33

22.31

(5.34)

15.64

21.71

Dividend per share – Interim cash

Rs.

12.00

9.75

6.10

7.50

10.50

Price earning ratio

 

17.19

13.80

11.23

10.93

4.44

Source: FFC

FUTURE OUTLOOK

FFC is committed to attaining excellence in all areas of its operation. Recently, it is estimated that the Fauji Fertilizers Daharki power plant would generate 175 MW of electricity and will run on gas supplied from Marri Gas Field. However, all arrangements for power generation were being finalized and work would start with operation of gas turbine on March 15, while power generation will commence from Sep 2009. The project would be completed in two phases and with start of generation, it would be linked with national grid. The matter pertaining to Fauji Fertilizers Power Plant came under consideration. It is also estimated that the project would be completed on time and maximum local people be recruited so that poor and deserving people of the area could earn their livelihood. The Sindh Irrigation and Power department provide 5.5 cusecs of water for the project. No doubt, the FFC always looks into the future prospects of growth through innovation and diversification.