In Focus: Fauji Fertilizer Bin Qasim Limited (25112008)

FFBL urea sales remained aggressive while DAP remained depressive during 9M
During 9M08, FFBL urea off-takes increased by 83 percent to 512.1k tones while DAP sales declined by 74 percent to 46.6k tones. The reason behind this scenario was the substitution affect due to high prices of DAP and other phosphate products, which led down the DAP demand and increased the urea sales.
DAP subsidy will revive the DAP off takes
After the announcement of increase in DAP subsidy in the month of Aug, DAP sales showed reviving trend as in the month of Sept, DAP off takes stood at 72.4 k tones, 2.5 percent less than off takes of Sept 07. With this subsidy increment and high wheat support prices, we maintain bullish outlook of DAP sales for this Rabi season.
Rabi stand next, DAP to push up while urea continue bullish trend
As Ex-factory price for DAP has been fixed on Rs3050 per 50kg bag, DAP sales are expected to improve during 4Q08 in Rabi season. Due to increase in wheat procurement prices and healthy liquidity position of farmers because of good output of BT cotton, we foresee a breakthrough in this low DAP off takes condition during Rabi season. While FFBL also held huge DAP inventory of 252.8k tones during Sept 08, which will give the company an extra advantage of increased subsidy and demand increase. In the same time, urea off-takes will continue their bullish trend during 4Q08 owing to high domestic demand and huge price difference between discounted locally produced and imported urea fertilizers.
High Financial Cost will cling down the bottom line earnings
With the increasing pressure on monetary aggregates, FFBL financial cost is expected to stand high during FY08, owing to high cost on short term financing to cover up the raw material concerns of the company. On the other side, since PMP subsidiary has recently started its operation, not much significant inflows are expected from that in short run.
9M08 result highlights
Sales revenue during 9M increased by 16 percent to Rs9.07 billion, owing to robust growth in urea sales as well as urea prices, however, the sales growth was not supported by the phosphate as sales remained dried off during the period, but company's margins remained intact with these low DAP sales. Gross margins decreased by 3ppt to 31 percent during 9M08 compared to 34 percent during same period last year. After tax profit stood at Rs544 million during 9M which included the loss after tax of Rs173.8 million during 3Q, financial cost was the main factor which stood at Rs1.32 billion that contributed in loss during 3Q.