Dear Clients,

Fauji Fertilizer Company Limited (FFC) held its analyst briefing today to discuss financial performance for CY20 and company outlook going forward.

Key Highlights

– The company’s market share in urea increased by 200bps to 42% in CY20 as opposed to 40% in CY19. Combined share of FFC and FFBL improved to 51% in CY20 as against 48% in SPLY.

– Current dealers transfer price for urea stands at PKR1,667/bag, a discount discount of 48% to the imported price.

– In DAP market, FFC’s market share decreased by 200bps to 10% due to lower imports in CY20 because of trade restrictions in pandemic. Combined share of FFC and FFBL clocked in at 51% as opposed to 46% in SPLY.

– Dealers transfer price for DAP has increased to PKR4,500/bag because of i) lower opening inventory and ii) rising international DAP prices.

– FFC recorded expected credit loss amounting to PKR987mn on account of delays in subsidy receivable from GoP. However, this would recover completely once the government settles it.

– The company recorded a re-measurement gain of PKR3.9bn (after tax) in 4QCY20 as a result of accounting treatment. This temporary gain would reverse during 2022-2024 over the repayment of GIDC.

– To highlight, the company has obtained stay order by Sindh High Court for now against the collection of GIDC before factual determination.

– Additionally, the company is planning to install a new DAP plant (estimated capacity of 1.0mn MT) since 1/3rd of the demand is met through imports. FFC is currently analyzing the economic viability of DAP plant and discussing with the government for the allocation of gas.

– FFC is also evaluating the acquisition of majority stakes in FWEL I and II and considering to increase equity investment in TEL by USD14.4mn from 2021 onwards.

– We have a BUY stance on the stock and our target price stands at PKR125/sh. The stock offers an attractive dividend yield of 10%.

FFC’s report attached:

https://kasb.blog/wp-content/uploads/2021/02/FFC-Analyst-Briefing-Takeaways.pdf

Regards,
KASB Research