Why Fatima Fertilizer remains a buy despite sluggish topline?
Key takeaways:
- Earnings remained flat at Rs. 8.4 billion (EPS: Rs. 3.99) despite a 21% drop in revenue
- Gross margins slightly narrowed to 40.4%, still robust due to gas pricing at the base plant
- BUY stance maintained with Dec-25 target price of Rs. 103/share
Fatima Fertilizer Company Ltd. (FATIMA) posted consolidated earnings of Rs. 8.4 billion for the first quarter of CY25, almost unchanged compared to the same period last year. While revenue was down sharply, the company managed to sustain its profitability thanks to lower expenses and a favorable tax impact. Revenue Drop Driven by Lower Sales
Revenue for 1QCY25 fell by 21% YoY to Rs. 52.0 billion, down from Rs. 66.0 billion in 1QCY24. This decline was largely due to lower product offtakes across all key fertilizer categories:
- Urea sales down 10% YoY
- CAN sales down 21% YoY
- NP sales down 23% YoY
Despite the revenue decline, gross profit remained healthy at Rs. 20.97 billion, with margins at 40.4%, only slightly lower than last year’s 41.5%. The minor dip in margins was due to a reduced contribution from the base plant, which benefits from preferential gas pricing.
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Costs and expenses in focus
Operating expenses grew by 9% YoY to Rs. 6.6 billion, but this was offset by a sharp 82% YoY drop in other expenses. This drop was primarily due to the absence of a one-off brand impairment charge recorded in 1QCY24.
Other income came in at Rs. 2.2 billion, slightly lower than last year. While cash and short-term investments more than doubled YoY, lower yields weighed on income.
One area of concern was the finance cost, which surged to Rs. 1.9 billion, more than doubling from last year. This increase was a result of a 7.3x rise in total borrowings, although the impact was cushioned somewhat by falling interest rates.
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The effective tax rate dropped to 39%, down from 49% in 1QCY24, which helped maintain bottom-line stability.
Sequential performance shows seasonal weakness
Compared to 4QCY24, FATIMA’s performance weakened sequentially:
- Sales dropped 40% QoQ
- Net profit declined by 39%
- No interim dividend was announced this quarter, compared to Rs. 4.25 in 4QCY24
This was expected given seasonal slowdowns and inventory adjustments.
Investment outlook: still fertile
AKD Securities Limited continues to maintain our ‘BUY’ rating on FATIMA with a Dec-25 target price of Rs. 103/share, underpinned by three key drivers:
- Recovery in offtakes is expected in the coming quarters due to high carryover inventory
- Gas price advantage at the base plant continues to support high gross margins
- Improved liquidity may support healthy dividends going forward
Despite a challenging quarter marked by lower sales and higher finance costs, Fatima Fertilizer managed to protect its earnings. With strong fundamentals, favorable input pricing, and room for demand recovery, the stock remains attractive for long-term investors.
Source: AKD Securities Limited
⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →
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