{"id":4491,"date":"2024-04-30T11:42:18","date_gmt":"2024-04-30T06:42:18","guid":{"rendered":"https:\/\/ksestocks.com\/blog\/?p=4491"},"modified":"2024-04-30T11:42:22","modified_gmt":"2024-04-30T06:42:22","slug":"fauji-fertilizer-company-limited-ffc-announces-q3-financial-results","status":"publish","type":"post","link":"https:\/\/ksestocks.com\/blog\/fauji-fertilizer-company-limited-ffc-announces-q3-financial-results\/","title":{"rendered":"Fauji Fertilizer Company Limited (FFC) announces Q3 financial results"},"content":{"rendered":"\n

Akseer Research has just released an update on FFC’s recent quarterly results. Here are the important points from the FFC earnings announcement:<\/p>\n\n\n\n

Strong Growth in Net Sales and Profit<\/h2>\n\n\n\n

FFC, a leading fertilizer company, reported robust performance in the first quarter of CY24. The company’s unconsolidated EPS increased by 24%<\/strong> year-over-year (YoY) to PKR 8.27<\/strong>. Alongside this, FFC declared an interim cash dividend of PKR 5.50 per share<\/strong> for the quarter.<\/p>\n\n\n\n

Net sales surged by an impressive 60% YoY<\/strong>, reaching PKR 58.4 billion<\/strong>. This significant increase was driven by better urea prices (up 41%<\/strong> YoY) and higher volumetric sales. Notably, urea sales rose by 5%<\/strong> YoY, with the company also handling 94,000 tons of imported urea during the quarter.<\/p>\n\n\n\n

Margin Pressure Due to Cost Factors<\/h2>\n\n\n\n

Despite the strong revenue growth, gross margins declined to 29.6%<\/strong> in 1QCY24, down by 2.0 percentage points from the previous year. This reduction was attributed to the contribution of lower-margin imported urea sales and higher gas prices, despite a notable increase in fertilizer prices.<\/p>\n\n\n\n

Distribution costs rose sharply by 70% YoY<\/strong> to PKR 5.2 billion<\/strong> during the quarter. This increase was mainly due to higher transportation expenses, driven by the implementation of axle weight regulations and rising fuel charges.<\/p>\n\n\n\n

Other Income Boosts Bottom Line<\/h2>\n\n\n\n

FFC saw a substantial increase in other income, reaching PKR 10.2 billion<\/strong>, up by 2.9 times YoY. This growth was attributed to better returns on investment portfolios and higher dividend income from power ventures, including the commencement of dividends from AKBL and FFBL.<\/p>\n\n\n\n

Financial Costs and Tax Impact<\/h2>\n\n\n\n

Finance costs grew modestly by 3%<\/strong> YoY to PKR 1.5 billion<\/strong> in 1QCY24, reflecting increased borrowing and higher interest rates. The effective tax rate increased to 42%<\/strong> compared to 34%<\/strong> in the previous year’s first quarter, primarily due to higher super tax charges.<\/p>\n\n\n\n

Analyst Recommendation<\/h2>\n\n\n\n

Despite the margin pressures and rising costs, Akseer Research maintains a ‘BUY’ recommendation on FFC. The report sets a December 2024 price target (PT) of PKR 162 per share<\/strong>, offering an upside potential of 14%<\/strong> along with a dividend yield of 17%<\/strong>.<\/p>\n\n\n\n

Financial Performance Overview<\/h2>\n\n\n\n

The summary of FFC’s financial performance for the first quarter of CY24 compared to the same period last year:<\/p>\n\n\n\n

Financial Highlights (PKR mn)<\/strong><\/th>1QCY23<\/th>1QCY24<\/th>YoY Change<\/th><\/tr><\/thead>
Net Sales<\/td>36,406<\/td>58,407<\/td>+60%<\/td><\/tr>
Gross Profit<\/td>14,575<\/td>17,287<\/td>+19%<\/td><\/tr>
Distribution Cost<\/td>3,056<\/td>5,193<\/td>+70%<\/td><\/tr>
Other Income<\/td>3,545<\/td>10,276<\/td>+190%<\/td><\/tr>
Finance Cost<\/td>1,464<\/td>1,505<\/td>+3%<\/td><\/tr>
Profit Before Taxation<\/td>11,943<\/td>18,027<\/td>+51%<\/td><\/tr>
Taxation<\/td>4,213<\/td>7,505<\/td>+78%<\/td><\/tr>
Net Income<\/td>7,730<\/td>10,522<\/td>+36%<\/td><\/tr>
EPS<\/td>6.08<\/td>8.27<\/td>+36%<\/td><\/tr>
DPS<\/td>4.26<\/td>5.50<\/td>+29%<\/td><\/tr><\/tbody><\/table>
Source<\/strong>: Company Accounts, Akseer Research<\/em><\/figcaption><\/figure>\n\n\n\n

Key Financial Ratios<\/h2>\n\n\n\n
Key Financial Ratios<\/strong><\/th>CY21A<\/th>CY22A<\/th>CY23A<\/th>CY24E<\/th>CY25F<\/th>CY26F<\/th><\/tr><\/thead>
EPS<\/td>17.2<\/td>15.8<\/td>23.3<\/td>31.2<\/td>30.1<\/td>32.7<\/td><\/tr>
EPS Growth<\/td>5.2%<\/td>-8.4%<\/td>48.0%<\/td>33.9%<\/td>-3.8%<\/td>8.7%<\/td><\/tr>
DPS<\/td>14.5<\/td>12.1<\/td>15.5<\/td>23.5<\/td>22.5<\/td>26.3<\/td><\/tr>
PER<\/td>8.4<\/td>9.2<\/td>6.2<\/td>4.6<\/td>4.7<\/td>4.4<\/td><\/tr>
Dividend Yield<\/td>10.0%<\/td>8.4%<\/td>10.7%<\/td>16.5%<\/td>15.8%<\/td>18.4%<\/td><\/tr>
EV\/EBITDA<\/td>4.5<\/td>5.0<\/td>2.6<\/td>2.3<\/td>2.4<\/td>2.3<\/td><\/tr>
P\/B<\/td>3.9<\/td>3.6<\/td>3.0<\/td>2.6<\/td>2.3<\/td>2.0<\/td><\/tr>
ROE<\/td>46.1%<\/td>39.4%<\/td>48.8%<\/td>56.1%<\/td>47.5%<\/td>46.9%<\/td><\/tr><\/tbody><\/table>
Source<\/strong>: Company Accounts, Akseer Research<\/em><\/figcaption><\/figure>\n\n\n\n

Valuation Basis<\/h2>\n\n\n\n

Our price target (PT) for Fauji Fertilizer Company Limited (FFC) is based on the Sum of the Parts (SOTP) method, where the Free Cash Flow to Equity (FCFE) is used to value the core fertilizer business. To calculate the cost of equity, we used a risk-free rate of 15%<\/strong>, a beta of 1.0, and a market risk premium of 6%<\/strong>, resulting in a cost of equity of 21%<\/strong>.<\/p>\n\n\n\n

Investment Thesis<\/h2>\n\n\n\n

We maintain a ‘BUY’ recommendation on FFC with a PT of PKR 162 per share<\/strong>, offering an upside potential of 14%<\/strong> along with a dividend yield of 17%<\/strong>. Our positive outlook is driven by:<\/p>\n\n\n\n

    \n
  1. Higher fertilizer prices<\/li>\n\n\n\n
  2. Sustainable volume growth<\/li>\n<\/ol>\n\n\n\n

    Risks<\/h2>\n\n\n\n

    Despite our bullish stance, it’s important to consider potential risks:<\/p>\n\n\n\n

      \n
    1. Gas supply curtailment<\/li>\n\n\n\n
    2. Lower-than-estimated fertilizer demand<\/li>\n\n\n\n
    3. Decrease in fertilizer prices below expectations<\/li>\n<\/ol>\n\n\n\n

      Company Description<\/h2>\n\n\n\n

      Fauji Fertilizer Company Limited (FFC) engages in manufacturing, purchasing, and marketing fertilizers and chemicals. Additionally, the company invests in other sectors including energy generation, food processing, and banking operations.<\/p>\n\n\n\n

      \n\n\n\n

      Income Statement (PKR million)<\/h3>\n\n\n\n
      Income Statement (PKR million)<\/th>CY21A<\/th>CY22A<\/th>CY23A<\/th>CY24E<\/th>CY25F<\/th>CY26F<\/th><\/tr><\/thead>
      Net Sales<\/td>108,651<\/td>109,364<\/td>159,472<\/td>236,252<\/td>251,464<\/td>260,703<\/td><\/tr>
      Cost of Sales<\/td>69,772<\/td>69,317<\/td>95,220<\/td>162,772<\/td>177,891<\/td>183,705<\/td><\/tr>
      Gross Profit<\/td>38,879<\/td>40,046<\/td>64,252<\/td>73,480<\/td>73,573<\/td>76,997<\/td><\/tr>
      SG & A<\/td>8,409<\/td>10,108<\/td>12,684<\/td>16,345<\/td>15,337<\/td>16,123<\/td><\/tr>
      Operating Profit<\/td>30,470<\/td>29,939<\/td>51,568<\/td>57,135<\/td>58,235<\/td>60,874<\/td><\/tr>
      Other Income<\/td>7,919<\/td>14,442<\/td>17,097<\/td>21,079<\/td>14,586<\/td>16,686<\/td><\/tr>
      Other Charges<\/td>2,946<\/td>3,037<\/td>5,434<\/td>5,570<\/td>5,391<\/td>5,826<\/td><\/tr>
      Finance Cost<\/td>2,292<\/td>4,868<\/td>5,624<\/td>6,590<\/td>4,746<\/td>3,622<\/td><\/tr>
      Unwinding of GIDC Liability<\/td>2,441<\/td>2,119<\/td>1,160<\/td>755<\/td>0<\/td>0<\/td><\/tr>
      Profit before Tax<\/td>30,339<\/td>33,687<\/td>53,547<\/td>65,300<\/td>62,685<\/td>68,112<\/td><\/tr>
      Taxation<\/td>8,443<\/td>13,637<\/td>23,874<\/td>25,562<\/td>24,447<\/td>26,564<\/td><\/tr>
      Profit after Tax<\/td>21,896<\/td>20,050<\/td>29,673<\/td>39,738<\/td>38,238<\/td>41,548<\/td><\/tr><\/tbody><\/table>
      Source<\/strong>: Company Accounts, Akseer Research<\/em><\/figcaption><\/figure>\n\n\n\n

      Balance Sheet (PKR million)<\/h3>\n\n\n\n
      Balance Sheet (PKR million)<\/th>CY21A<\/th>CY22A<\/th>CY23A<\/th>CY24E<\/th>CY25F<\/th>CY26F<\/th><\/tr><\/thead>
      PPE<\/td>23,987<\/td>27,631<\/td>36,139<\/td>45,847<\/td>57,300<\/td>56,123<\/td><\/tr>
      Other LT Assets<\/td>50,750<\/td>56,666<\/td>55,477<\/td>55,482<\/td>54,936<\/td>54,847<\/td><\/tr>
      Non-Current Assets<\/td>74,737<\/td>84,297<\/td>91,617<\/td>101,329<\/td>112,237<\/td>110,970<\/td><\/tr>
      Current Assets<\/td>126,270<\/td>155,825<\/td>109,502<\/td>132,203<\/td>117,348<\/td>108,519<\/td><\/tr>
      Total Assets<\/td>201,007<\/td>240,122<\/td>201,118<\/td>233,532<\/td>229,585<\/td>219,489<\/td><\/tr>
      Non-Current Liabilities<\/td>41,323<\/td>27,525<\/td>12,746<\/td>4,096<\/td>4,548<\/td>5,034<\/td><\/tr>
      Current Liabilities<\/td>112,169<\/td>161,762<\/td>127,548<\/td>158,629<\/td>144,602<\/td>125,848<\/td><\/tr>
      Total Liabilities<\/td>153,492<\/td>189,287<\/td>140,294<\/td>162,725<\/td>149,150<\/td>130,882<\/td><\/tr>
      Equity<\/td>47,514<\/td>50,835<\/td>60,824<\/td>70,807<\/td>80,435<\/td>88,606<\/td><\/tr>
      Total Equity & Liabilities<\/td>201,007<\/td>240,122<\/td>201,118<\/td>233,532<\/td>229,585<\/td>219,489<\/td><\/tr><\/tbody><\/table>
      Source<\/strong>: Company Accounts, Akseer Research<\/em><\/figcaption><\/figure>\n\n\n\n

      These tables summarize the financial performance and position of the company across various years, as well as the projected figures for future years.<\/p>\n\n\n\n

      Cashflow Statement (PKR million)<\/h3>\n\n\n\n
      Cashflow Statement (PKR million)<\/th>CY21A<\/th>CY22A<\/th>CY23A<\/th>CY24E<\/th>CY25F<\/th>CY26F<\/th><\/tr><\/thead>
      Net Income<\/td>21,896<\/td>20,050<\/td>29,673<\/td>39,738<\/td>38,238<\/td>41,548<\/td><\/tr>
      Non-cash Charges<\/td>2,435<\/td>2,415<\/td>2,914<\/td>3,228<\/td>4,965<\/td>5,594<\/td><\/tr>
      Operating Cash Flows<\/td>37,332<\/td>25,994<\/td>54,043<\/td>44,957<\/td>32,871<\/td>38,372<\/td><\/tr>
      FCFF<\/td>10,667<\/td>13,352<\/td>86,352<\/td>54,135<\/td>32,587<\/td>45,157<\/td><\/tr>
      Net Borrowings<\/td>7,941<\/td>6,605<\/td>-62,632<\/td>12,361<\/td>-1,859<\/td>-8,022<\/td><\/tr>
      FCFE<\/td>16,954<\/td>17,059<\/td>20,604<\/td>62,486<\/td>27,832<\/td>34,926<\/td><\/tr>
      Net Change in Cash<\/td>1,153<\/td>1,190<\/td>1,520<\/td>2,440<\/td>35,170<\/td>34,392<\/td><\/tr>
      Closing Cash<\/td>1,190<\/td>1,520<\/td>2,440<\/td>35,170<\/td>34,392<\/td>35,941<\/td><\/tr><\/tbody><\/table>
      Source<\/strong>: Company Accounts, Akseer Research<\/em><\/figcaption><\/figure>\n\n\n\n

      Disclaimer<\/h2>\n\n\n\n

      The information in this article is based on research by Akseer Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

      Akseer Research has just released an update on FFC’s recent quarterly results<\/p>\n","protected":false},"author":8,"featured_media":4509,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[138],"tags":[89],"class_list":["post-4491","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financials","tag-ffc"],"featured_image_src":{"landsacpe":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2024\/04\/FFC-Financials-1140x445.png",1140,445,true],"list":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2024\/04\/FFC-Financials-463x348.png",463,348,true],"medium":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2024\/04\/FFC-Financials-300x188.png",300,188,true],"full":["https:\/\/ksestocks.com\/blog\/wp-content\/uploads\/2024\/04\/FFC-Financials.png",1920,1200,false]},"_links":{"self":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts\/4491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/comments?post=4491"}],"version-history":[{"count":0,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/posts\/4491\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/media\/4509"}],"wp:attachment":[{"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/media?parent=4491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/categories?post=4491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ksestocks.com\/blog\/wp-json\/wp\/v2\/tags?post=4491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}