Fatima Fertilizer profit declines on higher than expected tax

Fatima Fertilizer (FATIMA) has posted a 2QCY22 profit after tax of PKR0.2 billion (EPS: PKR0.08), down a sharp 97% both sequentially and as compared to the same period last year SPLY, missing projected EPS of PKR2.03. The variance primarily stems from higher-than-expected taxation and other expenses. This drags down 1HCY22 EPS by 37% YoY to PKR2.79.

Net revenues increased by 30%YoY owing to both higher fertilizer prices and volumes (ex-CAN, which declined by 23%). Topline came in lower than the estimate, likely due to lower retention prices and DAP volumes.

Gross margins increased by 3pptYoY to 48%, higher than anticipated margin of 42%. The increase in gross margin is potentially due to receipt of government subsidy for Fatima Fert (which is presently operational on RLNG).

Distribution expenses surged to PKR1.9 billion, owing to higher product offtake, whereas Admin expenses rose by 28%YoY. Quarterly accounts are awaited for more clarity.

Among other line items: 1) taxation touched PKR10.4 billion (ETR: 98%) significantly higher than the estimated rate of 61% and 2) other expenses surged to PKR2.0 billion, potentially due to exchange losses.

Going forward, recent floods are likely to keep offtake depressed for 3QCY22, before rebounding in 4QCY22. However, gross margins are likely to remain healthy amid recent prices hike across the board and subsidy disbursements.

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