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FFBL CY23 Analyst briefing takeaway, (AKD Off the Analyst's Desk Jan 29, 2024)

Fauji Fertilizer Bin Qasim Ltd. (FFBL) conducted analyst briefing earlier today to discuss CY23 financial results and apprise investors about their future outlook. Following are key highlights from briefing:
 To recall, FFBL posted CY23 earnings of PkR4.4bn (EPS: PKR3.4), reflecting a significant increase of 89%YoY compared to PkR2.3bn (EPS: PkR1.8) in the year before. This surge in 
earnings was attributed to a 28% annual increase in gross profit and a substantial 49% rise 
in other income.
 Overall taxation for the period remained high, with an effective tax rate of 69%. Management apprised that company undertook some prior deferred tax asset revisions, leading to 
a deferred tax payment of PkR850mn. Additionally, provisions on subsidy receivables from 
GoP resulted in elevated other expenses, despite the absence of exchange losses. 
 As per the presentation, the availability of gas remains a concern for the company, as it 
received only 42% of the allocated gas by GoP. This concern had a significant impact, leading to a 36% annual reduction in FFBL's Urea production, causing its market share to drop 
to 5% from 8% in CY22. 
 As of now, company received more than 30mmcfd of gas throughout the month of January, 
and the urea plant was operational for the entire month. However, looking ahead, the 
management mentioned that SSGS's gas availability projection indicates lower urea production in the future. 
 Meanwhile, DAP plant is expected to face a shutdown of around a week due to supply 
chain issues arising from the ongoing conflict in the Red Sea. This is expected to delay shipment by additional 10 days. 
 Overall, DAP market sales showed a recovery in CY23, reaching 1.6mn tons compared to 
1.2mn tons in CY22. However, the company's market share dipped to 54% from 56% in the 
preceding year. 
 Management mentioned that the price of Phos acid is currently maintained at US$945/ton 
for 1QCY24. However, it is expected to eventually decrease to US$900/ton. 
 Moving ahead, management anticipates the launch of Boran coated DAP by the first-half of 
CY24.
 Management stated that they intend to mitigate the impact of any gas price hike by passing 
it on to consumers. However, they acknowledged that this may be challenging due to direct 
competition from imports, limiting their ability to implement such price adjustments fully. 
 Regarding the cash position, management guided that the current position of debt and 
cash doesn't accurately represent the long-term situation. They clarified that the future 
sales order book for Jan & Feb’24, along with an increase in creditor payables, has resulted 
in excess cash. However, looking ahead, management anticipates a cash outflow exceeding 
PkR40bn in 1QCY24. Additionally, with the buildup of DAP inventory, they expect an increase in borrowing.
 On the investments front, PMP Morocco incurred substantial losses of approximately 
US$40mn in 9MCY23. However, is anticipated to break even in full-year (with the books not 
yet closed). Consequently, no dividends from the said associate are expected in CY24.