Fertiliser sector’s quarterly profit jumps 47 percent

KARACHI: Fertiliser sector earned Rs8.252 billion in profit in January-March, up a noteworthy 47 percent over the same quarter a year earlier, as sales increased during the period, a brokerage said on Thursday.

Fertiliser sector’s profit amounted to Rs5.608 billion in the January-March period of last year, according to Topline Securities.

Urea sales increased 43 percent year on year to 1.2 million tons during the three months, while sale of diammonium phosphate (DAP) rose 14 percent to 517,000 tons during the period.

“Higher urea sales is attributed to continuation of subsidised prices in 1Q2018 at Rs1,400 per bag, improved purchasing power of farmers amid better prices of rice and cotton crop and early procurement by farmers/dealers to avoid urea shortage (or expensive buying) in kharif (summer) season,” Shankar Talreja, an analyst at Topline Securities said.

Talreja said productions of some urea manufacturers, such as Agritech, Fatima Fertilizer and Pak Arab are intermittent amid unavailability of gas and higher cost of liquefied natural gas. Gross margins of the manufacturers went up five percentage points year on year to 31 percent in January-March as urea retention prices grew two to three percent (or Rs25-35/bag).

“Urea prices improved after inventory depletion, where manufacturers successfully exported surplus stock of 635,000 tons of urea,” Talreja said. “Lower urea production due to short supply of natural gas further strengthened retention prices.”

Other income of the manufacturers, during the quarter, fell 37 percent to Rs3.7 billion due to removal of cash subsidy on DAP, which was replaced with reduced sales tax of Rs100/bag, and decline of Rs56/bag on urea cash subsidy to Rs100/bag.

Finance cost fell 25 percent year on year to Rs1.7 billion due to availability of gas infrastructure development cess accrual amount, resulting in higher free cash flows.

Fauji Fertilizer Company recorded a healthy growth of 84 percent in its revenue to Rs21 billion owing to a 52 percent increase in urea and 142 percent rise in DAP sales. Fauji Fertilizer Bin Qasim turned around to gross profit ratio of seven percent in 1Q2018 from gross loss ratio of three percent in 1Q2017 as DAP prices were capped at Rs2,500/bag last year.

Engro Fertilizer’s margins improved five percentage points to 40 percent owing to higher urea prices and better DAP trading margins. Finance cost of the company fell 24 percent to Rs524 million due to re-pricing of various loans and continuous deleveraging of balance sheet.

Fatima Fertilizer’s gross profit margins increased 14 percentage points to 57

percent as the company enjoys concessionary gas tariffs like Engro Fertilizer’s Enven plant.