Update Pulse April 22, 2011

Fertilizer Sector: FFBL Result (PKR m) 1QCY10 1QCY11 % Chg

Sales 6,566 8,205 25%

Preview… Cost of Sales 4,756 5,508 16%
HOLD
Pakistan Research

Synopsis… Gross Profit 1,810 2,697 49%

Fauji Fertilizer Bin Qasim Limited (FFBL) is scheduled to
S & D expenses 418 477 14%
announce 1QCY11 results on Monday, 25th April 2011. As
per our expectations, FFBL is likely to post Profit After Tax Administrative expenses 95 112 17% Market Snapshot
(PAT) of PKR1.46bn for 1QCY11 translating into an EPS of Index Chg %
Operating Profit 1,296 2,108 63% KSE 30 11579.97 135.02 1.18
PKR1.56, posting substantial rise of 81% over the KSE 100 11923.59 178.53 1.52
Finance Cost 99 79 -20%
corresponding period of last year when company had KSE ALL 8302.16 115.45 1.41
recorded PAT of PKR809m and EPS of PKR0.87 Other operating Expenses 95 123 29%
respectively. We also expect the company to announce a Other Operating Income 135 307 128%
dividend of PKR1.25/share. In this report we will discuss Profit Before Tax 1,237 2,214 79% Key Data
1QCY11 earnings expectations and future outlook. Market Cap(PRs bn) 39.20
Taxation 428 753 76% Shares Outstanding (m) 934.110
Expected rise of 25% YoY in top line is likely to Profit After Tax 809 1,461 81% Bloomberg FFBL.PA
strengthen gross margins... 12M Avg. Volume (m) 3.50
We expect FFBL to post 25% YoY jump at its top line to EPS (PKR) 0.87 1.56
PKR8.21bn in 1QCY11 against PKR6.57bn in the Gross profit margin 28% 33%
corresponding period of the last year. The main reason Operating profit margin 20% 26%
behind this substantial upsurge in top line is attributed to the 12M FFBL relative performance vs KSE
Net profit margin 12% 18%
sharp rise in prices of both urea and DAP fertilizers. Average 155%
FFBL KSE-100
prices of the both, urea and DAP have increased by 37% Source: Company Financials, Summit Capital Research 137%

YoY and 40% YoY respectively. We expect gross profit to 119%

increase substantially by 49% YoY to PKR2.69bn against Recommendation and outlook… 101%
PKR1.81bn in 1QCY10. Gross profit margin is likely to be at We believe that the demand of both urea and DAP will grow 83%
33% against 28% in 1QCY10. sharply owing to upcoming Kharif sowing season. However, 65%

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Substantial rise in other income and decline in financial
cost expected to add further weight in earnings…
We anticipate other income of company to post generous
growth of 128% to PKR307m in CY11 as against PKR135m
in 1QCY10. Our expectation for the massive upsurge in other
income is backed by higher expected share of profit from
Pakistan Maroc Phosphore (PMP) coupled with improved
return on the cash balance. On the other hand, financial
charges are expected to decline by 20% to PKR79m against
PKR99m in 1QCY10. This impact of lower financial charges
is expected come through loan payback as the company has
offloaded around PRs2.91bn loans from its balance sheet in
CY10. This anticipated rise in other income and fall in
financial charges is likely to give a boost to bottom line.
Nov-10
increasing prices for both Urea and DAP fertilizers because
of gas curtailment and imposition of GST has made the
prices quite exorbitant. Moreover, as per the latest media
reports, government plans to supply gas to the fertilizer
industry for 15 days a month. We believe if government
sticks to gas curtailment plan this would open a new chapter
of cost push era as gas curtailment leads to production
losses and to mitigate losses producers raise prices. We
believe, any further hike in urea prices will put adverse
impact on agricultural production.
Muhammad Sarfraz Abbasi
Our DCF based target price for FFBL is PKR45. The scrip is Sarfraz.abbasi@summitcapital.com.pk
currently trading at a 7% discount to its fair value based on 021-35376125
yesterday’s closing. We recommend HOLD. B-209, Park Towers, Clifton, Karachi

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