Karachi, August 29, 2019: Pakistan Fertilizer Sector posted cumulative growth of 48 percent YoY in their earnings during 2Q2019 due to increase in gross profit margin by 2 percent YoY, lower selling & distribution cost by 13 percent YoY, and increase in other operating income by 31 percent YoY.
Topline in a report revealed that urea sales of four major companies down by 9 percent YoY, whereas, overall sector volumes witnessed a growth of 3 percent YoY to 1.5 million tons in urea sales due to resumption in operation by Agritech and FatimaFert (~181k additional tons).
DAP offtake of three companies (EFERT, FFBL and FFC) depicted growth of 23 percent, while overall sector witnessed a growth of 44 percent YoY to 457k tons.
Our sample size includes four major listed companies namely Fauji fertilizer company (FFC), Engro Fertlizer Company (EFERT), Fatima Fertlizer Company (FATIMA), and Fauji Fertlizer Bin Qasim (FFBL). We have taken consolidated income statement of EFERT and FATIMA, while for rest companies we have taken unconsolidated accounts to depict core fertilizer dynamics.
Net sales of the sector witnessed growth of 35 percent YoY to Rs89.5 billion, despite declining volumetric sales by 11 percent YoY to 1.5 million tons as urea and DAP prices jacked up by 23 percent YoY and 11 percent YoY, respectively.
Gross margin of manufacturers surged to 31 percent during 2Q2019 from 29 percent last year due to better retention on urea. FFC outperformed its peers with margins accretion of 10 points YoY owing to better retention price and decline in relatively lower margin DAP sales by 24 percent YoY during 2Q2019.
Administrative expense increased by 26 percent YoY owing to inflationary pressure while selling and distribution cost was down by 13 percent YoY during 2Q2019 due to decline in volumetric sales.
Other operating expense increased by 155 percent YoY due to exchange loss incurred by companies on foreign payables and increase in WPPF expense amid higher profitability, we believe.
Other income increased by 31 percent YoY, where FFC outperformed its peers (adjusted for subsidy) followed by EFERT due to hefty cash & short term investment and one time gain on sale of land to EPCL, respectively.
Finance cost depicted a growth of 142 percent YoY due to hike in policy rate and increase in borrowings of the sector.
