Pakistani fertilizer companies to post disappointing financial results

Pakistan Stock Exchange enjoys substantial foreign investment. With the commencement of results season investors await earnings forecast/results anxiously. Listed fertilizer manufacturing companies have always remained in focus. Previews financial results of the two leading fertilizer manufacturing companies namely Fauji Fertilizer Bin Qasim (FFBL) and Engro Fertilizer (EFERT) for July-September 2016 quarter (3QCY16) exhibits a dismal picture.

FFBL is scheduled to announce its results on 24th October. According to a report by AKD Securities, the Company is forecast to post profit after tax of Rs127 million for 3QCY16 as compared to net profit of Rs181 million for 3QCY15, down 30%YoY. This decline in earnings is expected on the back of: 1) gross margin of company declining to 18% (including subsidy) on account of significant reduction in DAP prices. There has been a decline of 14%YoY due to depressed international price trends. There has also been a decline of 81%YoY in other income (excluding subsidy) in the absence of dividend from associated companies (AKBL & FCCL) and reduction in term deposit placements. The brokerage house expect the Company to post net profit of Rs127 million (EPS: Rs0.14) for 3QCY16 as against a net loss of R381 million (LPS: Rs0.41) on the back of 60%QoQ growth in topline to Rs11.91 billion caused by likely 50%QoQ/36%QoQ increase in DAP/Urea offtake to 143,000/164,000 tons post subsidy announcement in budget FY17. On a cumulative basis, the brokerage house expects FFBL to post net loss of Rs768 million (LPS: Rs0.82) for 9MCY16 as against a net profit of Rs939 million (EPS: Rs1.01) for 9MCY15. While core business outlook remains bleak, FFBL’s impressive diversification strategy and investment in dividend yielding group companies (AKBL & FCCL) is likely to drive earnings of the Company.

EFERT is scheduled to announce its quarterly financial results on 25th October. The Company is expected to post profit after tax of Rs2.98 billion (EPS: Rs2.24) for 3QCY16 as against net profit of Rs2.79 billion (EPS: Rs2.10) for 3QCY15. The recovery in earnings is expected on the back of: 1) strong 51%YoY growth in topline to Rs21.01 billion caused by likely 39%YoY increase in Urea offtake to 502,000 tons post subsidy in budget FY17 and 2) a 28%YoY decrease in finance cost on account of swift deleveraging and low interest rate environment. On a cumulative basis, projected earnings for 9MCY16F are to be around Rs5.77 billion (EPS: Rs4.34) as compared to Rs9.91 billion (EPS: Rs7.44) for 9MCY15, down 41%YoY on account of unprecedented adverse market conditions caused by weak farm economics (urea offtake: down 16%YoY in 8MCY16) and delayed implementation of subsidy on urea by the GoP. Moreover, on the arrival of Rabi season, manufacturers are offering hefty dealer discount to clear out high inventory levels.


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