Fauji Fertilizer Bin Qasim Corporate Briefing Takeaways

Fauji Fertilizer Bin Qasim (FFBL) DAP plant has resumed operations from 15th February 2021 after the approval by ECC and the Cabinet on extension of gas contract for next five years. Total DAP sales rose to 2.2 million ton in 2020, from 2.0 million tons in 2019, up 10%YoY. The management expects industry sales may not maintain same momentum in 2021 due to higher DAP prices.

Currently (ex-Karachi) FFBL’s DAP price is around Rs4,750/bag. To highlight, FFBL charges a premium of Rs100/bag over imported DAP.

As of today no progress has been made on DAP subsidy. In May 2020 the GoP had announced a subsidy of Rs37 billion to farmers on fertilizers in the form of Rs925/bag on DAP.

Management believes international DAP margins are likely to continue to remain on the higher side for next six months due to shortage of DAP amid closure of plants.

As per IFRS-9, the Company has booked a gain on Gas Infrastructure Development Cess (GIDC) of Rs2,741 million in 4QCY20. To note, FFBL will reverse Rs1.0 billion net of taxes in 2021.

As regarding payment of GIDC, the Company has obtained a stay order from court. When the issue is resolved, the Company is likely ask the GoP to set off its outstanding dues, which includes sales tax, subsidy receivable and income tax adjustment with GIDC.

During 2020, FFBL booked a provision of Rs780 million on account of sales tax disallowance to unregistered dealers.

FFBL booked impairment loss of Rs4.0 billion on Fauji Meat (FML) and Fauji Fauji (FFL). Future impairment will depend on the performance of FML and FFL. As per management, during 2HCY20, both the companies have showed significant improvement in their profitability.

As regarding sale of Wind Power plants, the management expects transaction to close by June 2021.

Regarding FFC‘s DAP plant, the management briefed that it is in initial stages and talks are ongoing with the GoP on gas flows. It will take 4-5 years for the plant to start production.

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