AKD Securities Limited – Off the Analyst’s Desk (08 August 2023)

Karachi, August 08, 2023 (PPI-OT): FFC 2QCY23 Analyst Briefing Takeaways

Further, the company announced a dividend of PkR3.15/sh taking total interim pay-out to PkR7.41/sh.

Revenues and earnings remained the highest ever during the period on the back of consistent urea offtakes (?2.85%YoY), rising urea prices, increasing GP margins (46.8% achieved in 2CY23), etc. The company managed to sell urea at the lowest price of PkR2,565/bag vs. an average of PkR3,000/bag in the sector.

International urea prices remained on the higher side translating to PkR5,700/bag, maintaining a healthy gap of over PkR3,000/bag. Currently, FFC benefits from the lowest feed gas cost in the sector of PkR302/MMBtu however, the management feels that gas price unification talks at the government level through WACOG mechanism will put the company at a disadvantage due to cost pass on limits.

Overall high inflation, increasing interest rates, PKR devaluation against the US$ are all contributing to increased costs leading to a pressure on the bottom line even though gross and operating margins have remained healthy. However, FFC’s increased focus on cost optimization, increasing gas utilization efficiency, healthy investment income is helping offset the rising cost pressures to some extent. FFC has managed to retain their urea and DAP (FFC + FFBL) market share at 39% (1HCY22: 40%) and 58% (1HCY22: 56%).

There is a planned plant turnaround scheduled for the 2HCY23.

Supertax remained the highlight, resulting in the effective tax rate to clock in at 61.02% for the quarter, averaging at 48.15% for the 1HCY23. To recall, the higher tax charge was owing to a retrospective levy of 6% on the FY23 earnings. Fauji Fresh and Freeze managed to record a net profit after incurring losses since inception. This was owing to 51%YoY increase in sales volumes, leading to revenues rising by a sizeable 109%YoY.

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