LAHORE: Fertilizer manufacturers’ profitability surged 67 percent annually to Rs8.3b in 2Q2018, primarily due to higher GP margins of 29 percent in 2Q2018, up by 7ppts coupled with increase in revenue by 15 percent to Rs66b.
The profitability analysis is based on sample of 4 largest listed companies, namely Fauji Fertilizer (FFC), Engro Fertilizer (EFERT), Fatima Fertilizer (FATIMA) and Fauji Fertilizer Bin Qasim (FFBL), which make above 90 percent of the fertilizer production in Pakistan.
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Net sales of fertilizer companies depicted improvement due to 1) increase in urea prices by 8 percent YoY, and 2) increase in DAP sales and prices by 14 percent YoY and 20 percent YoY respectively. On the other hand, urea sales volume went down by 19 percent YoY during 2Q2018 which was primarily due to high base effect of 2Q2017, wherein 1.06mn tons were sold alone in Jun 2017 in anticipation of cut down in cash subsidy.
Gross margins of the industry improved to 29 percent, up by 7ppts YoY due to higher retention prices coupled with minimal discounts amidst tight supply. To recall, during 2Q2017 fertilizer manufacturers offered heavy discounts to sell their stock in market as NFML was offloading its old stock of urea at discounted rate of Rs1300/bag, that forced manufacturers to offer discounts. Selling and distribution cost of the industry is down by 3 percent YoY due to lower handling cost amid normalized inventory level.
