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Fauji Fertilizer Company is under pressure to keep prices stable

Fauji Fertilizer Company (FFC) reported unconsolidated earnings of Rs6,452 million (EPS of Rs5.07) in the third quarter of fiscal year 2021, up 39 percent year on year and 78 percent quarter on quarter. The agricultural industry grew by 2.8 percent in FY21, and is predicted to expand to 3.5 percent in FY22.

Owing to constrained production capacity due to plant turnaround and increasing market share obtained by LNG facilities, FFC’s Urea market share has decreased from 44 percent to 39 percent in 9M2021. FFC’s DAP market share, on the other hand, remained steady at 10% in 9M2021.

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International urea prices are hovering at US$854 per tonne, equating to Rs9,550 per bag in India. Domestic Urea, on the other hand, is available at a savings of Rs7,832/bag as compared to foreign pricing.

International DAP prices have increased to US$637/ton in Nov-2021 compared to US$338/ton in Jul-2019. Similarly freight cost have also increased to US$45/ton in Nov-2021 to US$30/ton in Jul-2019.

Management told that there is certain pressure from Government to not increase prices which will eventually hit their margins.

Management has expressed their concerns on depleting gas reserves of Mari petroleum (MPCL) and Sui Southern Gas (SSGC).

Company has booked one time accounting gain of Rs5.93bn on account of GIDC in 4Q2020 which is reversed partly by Rs1.82bn till 9M2021. Rest of it will be reverse over the next three years. Currently company have taken stay order from Sindh High Court (SHC) against payment of GIDC.

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Company has completed acquisition of FWEL-1 (stake 100%) and FWEL-2 (stake 80%) at Rs7.49bn and Rs6.02bn respectively. The power generation capacity of each project is 50MW taking FFC total capacity to approx. 480 MW.

Subsidy receivables of Rs6.96bn and Sales Tax refunds of Rs16.67bn is affecting FFC’s working capital and will continue to remain a big challenge for the industry as well.

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