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(FFC) Urea price differential may lead to higher offtake for FFC

A 3pc YoY decline in urea offtake has neutralised the impact of higher urea prices (Rs260 per bag over 2019 vs. gas price hike impact of Rs180 per bag), keeping the gross profit flattish.

 Results remained below their expectations due to one-off.

Naeem shared that Fauji Fertilizer Company FFC posted 19pc YoY higher profit after tax of Rs17.1 billion (EPS: Rs13.45). Higher other income, up 85pc YoY, led by interest earned on cash reserves (GIDC accumulation) was the major earnings growth driver during CY19 while major drags included (i) 51pc YoY higher finance cost and, (ii) 62pc YoY higher other expenses, led by Rs1.1bn of impairment of FFL recorded (-ve EPS impact: Rs0.61/share) during 4QCY19.

HIGHER OFFTAKE



She recalled that the ECC had approved the removal of Gas Infrastructure Development Cess on feed/fuel gas supply for the fertilizer sector on January 20, in a move to make urea prices more affordable.

Following the GIDC waiver, FFC announced Rs300/bag urea price cut w.e.f. February 1 2020, passing only a partial impact of GIDC reduction (Rs400/bag) in anticipation of gas price hikes. With gas price hike delayed till June 2020, FFC passed on the full impact of GIDC elimination w.e.f March 2, 2020, taking the cumulative reduction in urea price to Rs375/bag CYTD.

She opined that while the current urea price has neutralised the earnings impact for GIDC elimination for FFC, the price differential of Rs215 per bag between FFC and Engro Fertilizers Limited (EFERT) could lead to higher urea offtake for the former.

“Note that FFC’s urea offtake declined 3pc YoY to 2.46 million tonnes in CY19 vs. average 1pc per annum growth over the previous five years,
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