Karachi, April 1, 2019: Thanks to Pakistan Tehreek e Insaf (PTI) fertilizer manufacturers in Pakistan has posted a cumulative rise of 41 percent YoY in their earnings during 2018 due to increase in urea prices by around Rs300-330 per bag to Rs1,730 per bag.
Rise in urea prices was attributed to the removal of Rs100 cash subsidy on urea and increase in gas prices from Oct 2018 by 30 percent and 50 percent in Fuel and Feed respectively, that had an impact of Rs130/bag.
Topline in its report has revealed that adjusted for these cost/subsidy factors, the remaining amount of around Rs100 per bag was retained by manufacturers to compensate inflationary cost pressure and to improve gross margins.
As a result of the increase in urea prices, gross margins of manufacturers surged to 30 percent during 2018 from 25 percent last year.
Net sales of companies witnessed improvement of 23 percent YoY to Rs328 billion despite flattish growth in urea volume YoY and 4 percent YoY decline in DAP offtake. Rise in sales could be attributed to increase in urea and DAP prices by around 16 percent and 25 percent YoY respectively.
Other operating expense increased by 55 percent YoY due to exchange loss incurred by companies on foreign payables and increase in WPPF expense amid higher profitability.
Other income was down 42 percent YoY as cash subsidy of Rs100 per bag was removed from May 2018.
Finance cost of the sector was down 20 percent YoY despite 400bps hike in policy rate during 2018. Lower finance cost could be attributed to decline in overall borrowings of sector on back of improved cash flows from accrual of GIDC to the tune of Rs30bn per annum (for sector).
Among Companies, Engro Fertilizer (EFERT) posted highest profitability growth of 56 percent YoY due to 14 percent YoY increase in urea sales and around 16 percent increase in urea prices.
Further, effective tax rate of company was also lower at 28 percent vs. 33 percent in 2017 as company availed tax rebates of Rs2bn due to reduction in future corporate tax rates. Gross margins of the company improved to 32% (+2ppts) during 2018.
FFBL profitability growth was around 43 percent YoY on back of rise in GP margins by 2ppts YoY and 17 percent YoY growth in net sales as urea offtake and prices increased by 3 percent and 16 percent YoY respectively.
While, DAP offtake fell 17 percent YoY during 2018. Other expenses of the company were 197 percent YoY up due to exchange losses of Rs1.1bn in 2018.
FFC posted growth of 35 percent YoY in its profitability during 2018 due to increase in GP margins by 6.4ppts YoY to 26 percent and a decline in finance cost 33 percent YoY.
FATIMA Fertilizer’s profit was up 29 percent YoY on the back of 9ppts YoY increase in GP margins and 33 percent YoY decline in finance cost.
