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AKD Securities Limited – Off the Analyst’s Desk (May 12, 2022)

Karachi, May 12, 2022 (PPI-OT): FFBL: 1QCY22 Corporate Briefing Session

Fauji Fertilizer Bin Qasim Limited (FFBL) held its corporate briefing session today to discuss its 1QCY22 results and future outlook. To recall, the company posted NPAT of PkR1.6bn (EPS: PkR1.26) compared to PkR1.3bn (EPS: PkR1.01) in same period last year (+29.5%YoY).

During the quarter, local DAP market shrank 24%YoY on account of higher prices since the demand for this chemical is highly price sensitive and affordability determines the market size. Higher DAP prices coupled with lower urea prices (compared to international prices) had incentivized the farmers towards higher consumption of nitrogenous fertilizers.

Global DAP prices continued to inflate where the average import price averaged at US$946/MT in 1QCY22 vs US$473/MT in same period last year (+100%YoY). The key reasons behind this enormous change is due to i) energy shortages, ii) China’s export restrictions, iii) prices and availability of raw materials. The cherry on top are the sanctions on of the largest exporters of fertilizer – Russia, due to its invasion in Ukraine.

FFBL’s plant so far has been running on full capacity YTD as the company has been receiving ample amount of gas (+55% higher than last year) since the fertilizer sector remains very high on gas priority order. Due to this reason, the management will most probably defer its annual turnaround and important maintenance processes are being done on the go.

Although the operations have remained smooth throughout the last quarter, the sharp devaluation of PkR has resulted in exchange losses. In addition to this, fuel costs have gone up significantly due to higher coal prices.

The import price for DAP in 2QCY22 is US$1,025/MT which translates into ~PkR9,740/bag. On the flipside, phosphoric acid prices have shot up to US$2,050/MT, translating FFBL’s DAP margin at ~US$82/MT (PkR780/bag).

Regarding the govt.’s intention to reduce the urea prices, the industry players are in negotiations and communicating the problems. The management of FFBL believes that the govt. will understand their rationale. The current retention price of urea is PkR1,875/bag for FFBL and FFC. The price of EFERT’s urea is PkR1,975/bag.