Islamabad October 24 2023: Fauji Fertilizer Bin Qasim post highest quarterly profit of PKR 5.3 billion for the Q3 2023 on better phosphate fertilizer margins and currency stability, according to company filing to the exchange.
During Q3 of 2023, high inflation and unprecedented policy rate continued to affect the business. The Rupee, however, managed to settle at strength against the US Dollar after quite some volatility earlier in the quarter. The Company received 3,392 MMSCF gas supply during Q3 as compared to 4,936 MMSCF in the same quarter of last year (SQL Y) and as against 6,256 MMSCF of allocation by the Government, representing a decline in gas supplies by 31 % and 46% respectively. Consequently, Urea and DAP production declined by 43% and 7% respectively in comparison to SQLY.
“As FFBL is the only local producer of DAP, which is necessary for better yield, and is also a leading producer of Urea, we strongly urge that the Government should take immediate steps to prioritize the fertilizer sector for gas supply to avoid such shortages in the country and save scarce foreign exchange on import of DAP and Urea” says Company Chairman Waqar Malik.
“The Company is well positioned to continue its financial performance in Q4 2023. However, supply of allocated volumes of gas in the coming winter season and stability of PKR against the US Dollar will remain critical for the Company” Waqar added.
The international phosphate fertilizer margins improved in the later part of Q3. DAP availability remained tight in the local market. At first, importers were reluctant to import DAP due to volatility of prices in the international market along with uncertainty of foreign exchange parity. Later on during the quarter, DAP was not available for prompt shipment in the international market. FFBL was the only entity with inventory to serve the market.
Management strategized early liquidation of DAP inventory at optimal margins and exercised prudent financial management. During Q3, the Company also concluded the sale of its entire shareholding (95 .07%) in Fauji Meat Limited to Fauji Foundation as part of its strategic divestment plan, to focus on the core business. This transaction has resulted in a gain of PKR 268 million and cash inflow of PKR 4.3 billion, which will save significant finance cost in times to come.
During the quarter, revenue clocked in at PKR 70 billion as compared to PKR 23 billion in SQL Y, a growth of21 0%. The gross profit, operating profit and profit before tax have also increased significantly by 176%, 205% and 431 % respectively as compared with SQL Y. The Company has posted a profit after tax of PKR 5.3 billion for Q3 as compared to the loss after tax of PKR 1.7 billion in SQL Y.
During the nine months period January - September 2023, the Company received gas supply of 9,882 MMSCF as compared to 14,661 MMSCF in the same period of last year (SPL V), and 18,564 MMSCF of Government allocation, representing gas supply shortfall of 33% and 47% respectively. DAP plant was also shut down for an additional 33 days during the current nine-month period for better management of DAP inventory carried forward from last year. As a result, Urea and DAP production was lower by 134 KT and 229 KT respectively, representing 35% and 34% decrease respectively in comparison to SPLY.
The financial performance of Q3 has offset the impact of the exogenous shock of severe devaluation that the Company faced in Q 1, as well as the exorbitant finance cost borne in first six months of the year on account of high interest rates. During the nine-month period, the Company achieved revenue of PKR 137 billion as compared to PKR 94 billion in SPL Y, an increase of 46%. The Company earned gross profit of PKR 17 billion (SPL Y PKR 18 billion), operating profit of PKR 11 billion (SPL Y PKR 13 billion) and profit afie r tax of PKR 0.35 billion (SPL Y PKR 1.7 billion).
Lower profitability is due to the additional cost of PKR 2.5 billion (up to June 30,2023) on account of Government's GST policy, which was discriminatory to domestic DAP producer (resolved since July 2023), and the exchange loss of PKR 3.6 billion on foreign payments due in 2022, which could not be paid till Q 1, 2023 due to State Bank restrictions.
On a Consolidated basis, during the nine-month period, the Company reported gross profit of PKR 26 billion (SPL Y: PKR 24 billion) and operating profit of PKR 18.2 billion (SPL Y: PKR 17.6 billion). However, the profit after tax declined to PKR 163 million from PKR 3.6 billion reported in SPL Y. This decrease is primarily attributed to the reduced earnings of FFBL. On the other hand, there is a significant improvement in the financial results of Fauji Foods Limited (FFL) to the tune of PKR 1.8 billion.
FFL is pursuing the strategy of margin assertive growth with focus on internal efficiencies with consistency. During the nine-months period, FFL has achieved 83% increase in sales revenue (PKR 15 billion as against PKR 8 billion in SPL Y) and 3.5 times growth in gross margins, 12.3% as compared to 3.5% in SPL Y. FFL has achieved its highest ever quarterly profit after tax of PKR 38.5 million (SPL Y loss after tax of PKR 690 million).