The Board of Directors (BoD) of Fauji Fertilizer Bin Qasim Limited on Friday released its financial results for the second quarter of 2020 (2Q2020), ended June 30, 2020 announcing an unconsolidated loss after tax of Rs1.16 billion compared to a loss after tax of Rs84million during the same period of last year.
According to Topline Securities Limited Research Analyst Sunny Kumar, the loss is higher than the industry’s expectations due to lower than expected gross margins and higher than expected other expenses.
He added that the revenues of the company declined by 15 per cent Year on Year (YoY) to Rs15,224 million compared to Rs17,998 million in 2Q2019 amid a decline in Urea and DAP offtake by 1 per cent YoY and 13 per cent YoY, respectively.
Kumar maintained that other expenses were up by 43 per cent YoY to Rs1,391 million because of exchange loss. He added that despite a decline in interest rates, Other income increased by 21 per cent YoY to Rs1,372 million mainly due to dividend income from power companies. Sequentially, the company losses reduced owing to an increase in revenues by 59 per cent Quarter on Quarter amidst a significant increase in Urea and DAP offtake of 149 per cent and 32 per cent respectively. Finance costs also declined by 20 per cent QoQ.
The company booked taxation expenses of Rs314 million in 2Q2020 versus a tax reversal of Rs533 million in the same period last year.
However, Ailia Naeem, a senior research analyst at AKD Securities Ltd, stated that FFBL posted 2QCY20 Net Loss after taxation (NLAT) of Rs1.2 billion compared to 2QCY19 NLAT of Rs84 million. This takes 1HCY20 NLAT to Rs4.2 billion compared to Rs1.9 billion in the same period last year.
Naeem maintained that the YoY increase in losses in 2QCY20 came on the back of a 43 per cent YoY higher other expenses, courtesy of exchange losses and a higher effective tax rate of 37 per cent compared to tax credit of Rs533 million booked in the same period last year.
She added that a 15 per cent YoY decline in topline in 2QCY20 was neutralised by higher gross margins of 13 per cent which kept gross profits flat.
On a sequential basis, Naeem said the decline in losses came on the back of a 59 per cent QoQ higher topline led a higher urea/DAP offtake, double digits gross margins as opposed to negative 6 per cent in 1QCY20 and a 20 per cent QoQ decline in finance cost due to a lower discount rate.
Naeem predicted that gas prices are also expected to remain at current levels over FY21, given the decline in global oil prices.
“This may be a big positive for FFBL, which struggles to pass on cost-inflation due to import parity-based pricing,” Naeem added.