FFC records Rs 4.6 billion profit
Fauji Fertilizer Company Limited (FFC) profitability clocked in at Rs4.6 billion 3QCY20.
The FFC profitability is up 30% YoY against Rs3.6billion in 2QCY19. As a result, a dividend payout is Rs2.55 per share. The result is in line with expectations.
Furthermore, in a notice filed to PSX, FFC has disclosed that BOD has approved the submission of Expression of Interest (EOI) to acquire majority shares.
Fauji Foundation (FF) and Fauji Fertilizer Bin Qasim Limited (FFBL) hold them collectively in two wind power projects.
Increase in Profitability
The increase in FFC profitability is due to higher DAP offtake amid better margins. A 7% YoY increase in Urea prices barred the impact of Rs400 per bag GIDC in 3QCY20 and lower finance cost.
Gross Margins
FFC gross margins increased by 7.8/1.6 ppt YoY/QoQ to 33.6% in 3QCY20 due to GIDC reduction and better DAP trading margins.
Company’s finance cost reduced by 51% YoY in 3QCY20 given the retirement of short term debt in response to 625bps cut in the policy rate.
The interest rate charged on loans has a lagged impact of any change in the base rate, while interest income on deposits is based on the prevailing base rate in the time period.
FFC distribution cost declined by 18% YoY among other major heads, while other expenses increased by 20% YoY in 3QCY20.
READ FFC records Rs 9.14 billion profit
However, the company’s other income decreased by 39% YoY in 3QCY20 due to a lower interest rate on deposits. FFC holds Rs48.4 billion cash and short-term investment at the end of 2QCY20.
Acquisition of power projects
Besides, BOD approved the submission of an Expression of Interest (EOI) to acquire the majority shareholding in Foundation Wind Energy – I and Foundation Wind Energy – II limited.
The acquisition is subject to the detailed due diligence of these projects, completion of procedural formalities, and requisite approvals from the FFC PA board of directors and relevant Regulatory Authorities.
FF and FFBL hold stakes of 30% and 35%, respectively, in FWE-I. Foundation Wind Energy-I was established with an investment of US$128mn and achieved COD in 2015.
Total Fauji Group holding stands at 55% in FWE-II, with FFBL holding 35% while the rest lies with FF. They established a project with an investment of US$127 million and achieved COD in December 2014.
The principal place of both these wind power plants is in Gharo, District Thatta, Sindh. Foundation Wind Energy I & II are 49.5MW each and offer a US$ based ROE of 17%.
Company’s future outlook
The company is likely to remain a beneficiary of the government’s food security efforts, as evidenced by continuous monitoring of locust outbreaks and Rs50 billion package for agriculture. Furthermore, better pricing for wheat and sugarcane crop would also provide additional support to farmers’ liquidity positions.
Besides, FFC is expanding into power and offshore fertilizer. FFC has acquired a 30% stake in the 330MW coal mine-mouth power plant of Thar Energy Limited (TEL). Moreover, FFC is also planning to set up a 1.3 million ton fertilizer complex in Tanzania.
