All suffered declining fortunes except FFC in 1HCY09

DAP packed down Urea’s SalesThe improved DAP sales of 172%YoY in 1HCY09 conveyed a reversal impact on fertilizer Sector’s sales and brought its 15.1% decrease to PKR 4.9 Billion during 1HCY09. The industry sales’ grew by 45.0%YoY to PKR 45.9 billion and gave a far-fetched performance in DAP sales by 172%YoY increase but a reversal impact in Urea sales by 7%YoY decrease. The negative sales growth in the Urea was in response to decrease in DAP prices (Economy of scale) and in reflection of reduction in Urea’s production which declined by 0.6%YoY to 2 Million tons. The DAP production drove an addition by 42%YoY to 213k tons.
Industry Performance
1HCY09 for Fertilizer sector has appeared to roll into the downward side. Fauji Fertilizer Bin Qasim (FFBL) declared the profit of PKR 497.8 million and EPS of PKR 0.53 in 1HCY09 compared to the profits of PKR 718.2 million and EPS of PkR0.77 during the same period in last year which means a decline of 30.689%YoY. Engro Chemical declared the profit of PKR 1.043 billion along with an EPS of PKR 3.95 compared to the profit of PKR 1.556 billion and EPS of PKR 3.95 in the same period a year back. Dawood Hercules has posted an after tax loss of PKR 615.284 million and Per Share Loss of PKR 5.63 in the period under review against a profit of PKR 1,213.997 million and EPS of PKR 11.10 in the same period year back. Fauji Fertilizer Company (FFC) was the only company who has increased its profitability from the same period last year. It disclosed the profit of PKR 4.547billion and EPS of PKR 6.70 as compared to PKR 3.286 billion profits and PKR 4.84 EPS previously.
Fauji Fertilizer Bin Qasim
FFBL, being the only DAP producer was the leading recipient of the said DAP Sales Growth. FFBL’s DAP sales evidenced a 207%YoY increase – highest in the sector by growth of 164.3%YoY. The company sold 279k tons of DAP having a shoot of 6.5xYoY as a result of this a PKR 15 Billion in 1HCY09 compared to PKR 5.7 Billion during the corresponding period last year. The Urea sales for the company took a dip of 20%YoY and stood at 281k tons in 1HCY09.
In 2QCY09, the company stationed NPAT of PKR 485.3 Million and the EPS of PKR 0.52 compared to NPAT of PKR 556.1 Million and the EPS of PKR0.60 in 2QCY08 which booked a decline of 12.7%YoY. Apart from the Core operation, the faced a loss from associate Pak Maroc Phosphor (PMP) due to shutdown of their operations for 3 months during the period of 16-Nov-08 – 19-Feb-09 as well as a considerable inventory jot down by the company to bring its stocks at NRV; additionally, it was largely in loss from the Joint Venture project booked mainly in resulting to NRV adjustment recorded by PMP.
Engro ChemicalEngro Chemicals had again a drastic performance in DAP sales which grew by 1.8x in 1HCY09 to plunk at 71.6k tons. The DAP sales increased by 1.7x in 2QCY09 at 28.2k tons whereas the Urea sales declined by 24.1%YoY to 419.2k tons in effect of emphasize on DAP Sales by the industry compared to last year.
In 2QCY09, Engro's Urea sales were 183.3k tons compared to 245.2k tons during the same period last year which put a decline of 25.2%YoY. The gross profit margin of the company declined to 20.3% in 2QCY09 in contrast of 40.7% in 2QCY08.
Fauji Fertilizer Company
The company made an NPAT of PKR 1.9 Billion in 2QCY09 and EPS of PKR 2.74 compared to NPAT of PKR 1.5Billion and EPS of PKR 2.28 during 2QCY08 which brought the growth of 20.5%YoY.
The chief explanation behind the enlarged profitability in the 1HCY09 was due to increase in Urea sales including the increase in Price and Quantity and the higher other income principally in 1QCY09 in the shape of higher dividend from FFBL.
Outlook
Based on my analysis the reasons for lower profitability during the year were decrease in profit margins mainly in DAP, and higher interest rates in 1HCY09. I strongly expect the profitability of fertilizer companies to progress due to continued strong DAP and Urea sales, continuously increase in dividends paid by the industry and lower financial charges which are in the reason of decreasing interest rate environment.