FFBL: Turnaround story of the year, (AKD Daily, Mar 16, 2021)
AKD Daily
FFBL: Turnaround story of the year
- We revisit our investment case on Fauji Fertilizer Bin Qasim Ltd (FFBL) post release of detailed CY20 financial statements. To recall, the company posted a remarkable turnaround during CY20 (EPS: PkR1.70 vs. LPS: PkR4.59 in CY19), with particular emphasis in 2HCY20 (EPS: PkR6.85/sh) led by higher offtakes and GIDC elimination.
- Amid COVID-19 led supply chain disruptions and resurging demand, international DAP prices have increased 49/89% CYTD/FYTD, currently standing at US$580/MT, translating into local DAP price of PkR5,750/bag. These are still above the current dealer transfer price of PkR5,400-5,500/ bag in local arena.
- Meanwhile, lagged increase in phosphoric acid prices has led DAP primary margins to average at US$206/MT in Mar’21 vs. 5 year historical average of US$140/MT. Our DAP primary margins for FFBL are assumed at a lower clip of US$150/MT for CY21, which are expected to normalize to US$120/MT CY22 onwards as supply disruptions smoothen out post vaccine roll-out.
- We incorporate retail DAP prices at approximately PkR4,500/bag in CY21, where we expect DAP prices to normalize from current levels in 2HCY20 where 70% of total annual DAP offtake takes place. Based on earnings turnaround expected in CY21, we maintain Buy stance on FFBL, where our revised TP of PkR31.4/sh (previously PkR25.7/sh) implies an upside of 18% at last close.
AKD Research
Fauji Fertilizer Bin Qasim Limited is a Pakistan-based holding company. The Company manufactures, purchases and markets fertilizers. It is involved in meat, dairy and coal based energy generation sectors. It has identified its potential business segments and has undertaken investments in the areas of food, financial, power sector and wind energy projects. Its products include Granular Urea, such as Sona Urea, and Di Ammonium Phosphate (DAP), such as Sona DAP. Sona Urea is a synthetic organic compound containing nitrogen in amide form available in the form of white solid prills. It is applied to soil and also suitable in solution form as spray application. Sona DAP contains nutrient element, phosphorous besides nitrogen available in flowing granular form Granules are stronger, harder and of uniform size. It is suitable for various crops and soils recommended for initial application. It produces over 791,260 metric tons (MT) of DAP and approximately 433,610 MT of Urea.
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