Karachi, April 21, 2014 (PPI-OT): Fauji Fertilizer Bin Qasim is set to announce its 1QCY14 result on Apr 2214. The company is expected to record Net Loss after Tax (NLAT) of PkR197mn, translating into LPS of PkR0.21 as against NPAT of PkR492mn (EPS of PkR0.53) posted during the same period last year.
The loss is likely to stem from massive loss posted by its associate (AKBL) during 4QCY13. During the aforementioned quarter, the associate posted NLAT of PkR1.5bn and with FFBL having 21% stake, loss of PkR320mn will be realized under the head of income from associates.
On the operational front, dispatches are likely to be hampered during 1QCY14, mainly owing to seasonal gas curtailment. AKD Securities expected the company’s DAP dispatches to be down 7%YoY to 88k tons against 95k tons sold during the same period last year while urea sales are likely to be subdued by 37%YoY to 34k tons vs. 54k tons sold during the same period last year.
Owing to these reasons, the company’s top line is estimated to decline by 21%YoY to PkR6.0bn as against PkR7.7bn during 1QCY13. A sliding top line is likely to translate into dampened margins; AKD Securities believes during 1QCY14 the company’s gross margins will be realized at 8%, 13ppt lower than 21% the company posted during the same period last year. At current levels AKD Securities has Accumulate stance on FFBL where the scrip offers 19% upside to AKD Securities Limited’s Jun14 target price of PkR49/share.
EFERT: 1QCY2014 Result Preview
Engro Fertilizers Limited (EFERT) is scheduled to announce its 1QCY14 result on Apr 2314. AKD Securities expects the company to record NPAT of PkR1.81bn (EPS: PkR1.41) vs. PkR646mn (EPS: PkR0.50) in 1QCY13, stellar growth of 183%YoY.
Buoyed by improved production (with additional gas being diverted from Guddu Power plant the company has been operating both its urea plants), AKD Securities believes the company has sold 450k tons of urea as against sale of 299k tons during the same period last year, depicting impressive 51%YoY rise in urea off take. The company’s top line is expected to grow by 39%YoY to PkR13.5bn vs. 9.7bn in the same period last year.
Although price of urea inched up by 4%YoY, ~50% increase in Gas Infrastructure Developmental Cess (GIDC) kept margins at bay. AKD Securities believes gross margins for 1QCY14 will be stagnant at 43%. The company’s finance cost is likely to go down by 14%YoY to PkR1.9bn vs. PkR2.2bn in 1QCY13.
AKD Securities has Reduce stance on EFERT, where at current level the company offers downside of 15%. Outlook: AKD Securities has Market Weight stance on the Fertilizer Sector. In this regard, the sectors hallmark pricing power has been significantly reduced and there are fears within the sector that margins are might not sustain the current levels and can go down if EFERT gets gas at US$0.7/mmbtu and in effect reduces the urea price.
Furthermore, declining intl urea prices coupled with PkR appreciation against the US$ has also pilled pressure on this sectors pricing power, as discount between local and intl urea prices has gone down to 12% from recent high of 26%.