Dear Clients,

The fertilizer sector is set to post a growth in profitability during 2QCY21 supported by: 1) higher off-take, 2) improved urea/DAP prices and 3) lower financial charges amidst favorable interest rate.

Fauji Fertilizers (FFC) – Earnings to remain flat on YoY basis: FFC’s earnings are expected to clock in at PKR 4,853mn (EPS: PKR 3.81) during 2QCY21, down 1% YoY. During the period under review, urea offtakes decreased by 19% YoY that was partially offset by rise in urea prices by 6% YoY. We expect the company’s gross margin to improve by 4.5ppts amidst better urea and DAP prices. During 1HCY21, FFC’s profitability would increase by 17% YoY to PKR 8.4/sh, up by 17% YoY primarily driven by better fertilizer prices. Along with the result, we expect the company to announce an interim cash dividend of PKR 2.75/sh.

Engro Fertilizers (EFERT) – EPS to clock in at PKR 3.4 in 2QCY21: EFERT’s earnings are projected to increase by 15% YoY to PKR 4,492mn (EPS: PKR 3.4) during 2QCY21. This is led by improvement in gross margins by 2.6ppt YoY accredited to better prices as urea price increased by 6% YoY and DAP price improved by 62% YoY. Sequentially, the profitability is expected to decrease by 22% due to decrease in urea offtake by 6% QoQ. Along with the result, we expect the company to announce an interim cash dividend of PKR 3.0/sh.

Fauji Fertilizer Bin Qasim (FFBL) – Rise in DAP prices to enhance profits: FFBL’s profitability is expected to land in positive territory in 2QCY21 after 5yrs of consecutive losses in second quarter. We anticipate the company to post earnings of PKR 1,756mn (EPS: PKR 1.36) as against a loss of PKR 1,160mn (LPS: PKR 1.2) during 2QCY20. Recovering profitability is estimated because of a 62% YoY increase in domestic DAP prices that would keep margin afloat. Additionally, lower financial charges emanating from its debt-laden balance sheet would further provide support to the bottomline. We do not expect any payout from the company due to its overall leverage (DE ratio: 1.8x as of Mar 31’21).

Regards,
KASB Research