Pakistan's listed fertiliser companies are set to experience an impressive 104% increase in profits, soaring to Rs 25 billion for the fourth quarter of FY2023, as forecasted by Topline Securities.
This substantial growth is primarily driven by higher retention prices, boosting the sector's gross margins.
The comprehensive analysis by the brokerage firm projects an escalation in the fertiliser sector's after-tax earnings for the entire year 2023. These earnings are expected to rise by 63% compared to the previous year, reaching Rs 63 billion. The underlying factors for this surge include increased prices and a significant jump in Diammonium Phosphate (DAP) sales.
Sales volume, however, presents a mixed scenario. The report predicts a decrease in Urea sales by 8% in both year-on-year and quarter-on-quarter terms, totaling 1.7 million tons in the last quarter of 2023.
In contrast, DAP sales are expected to rise by 24% year-on-year and 20% quarter-on-quarter, with 576,000 tons anticipated in Q4 2023. Overall, the year 2023 is expected to close with Urea and DAP sales volumes of 6.64 million tons and 1.57 million tons, respectively.
A rise in the average Maximum Retail Price (MRP) of Urea is also noted, increasing by 35% year-on-year to Rs. 3,349 per bag. DAP prices similarly increased, aligning with global market trends and currency devaluations.
The report also references the government's decision to raise gas prices for fertiliser plants from October 2023, influencing the sector's profitability.
The gross margin for the sector in Q4 2023 is expected to increase to 28%, up from 20% in the same quarter of the previous year. The full year's gross margin for 2023 is projected at 27%, slightly higher than the 26% in 2022.
A notable positive trend is the anticipated decrease in finance costs for the sector by 45% year-on-year in Q4 2023, mainly due to reduced borrowing. The sector's total debt decreased significantly from Rs. 152 billion in December 2022 to Rs. 58 billion by September 2023.
Focusing on individual companies, Fauji Fertilizer Company (FFC) is expected to report a 100% increase in unconsolidated EPS to Rs. 8.2 in Q4 2023. Engro Fertilizers (EFERT) is projected to show a 51% increase in consolidated EPS to Rs. 7.2 for the same period. Fauji Fertilizer Bin Qasim (FFBL) is anticipated to report an unconsolidated EPS of Rs. 3.8 in Q4 2023, a dramatic increase from the EPS of Rs. 0.5 in Q4 2022.
In summary, the latter part of 2023 is set to mark a significant profitability boost for Pakistan's fertilizer sector, driven by strategic pricing and operational efficiencies.
