Fertilizer companies profits drop by 31% in 3Q19

ISLAMABAD, Nov. 12 (Gwadar Pro) - The profit of fertilizer manufacturers in Pakistan dropped by 31% to 8.6 billion rupees in Q3 2019 as compared to last year.

This was primarily due to a decrease in gross profit margins, an increase in administrative expenses by 33%, and a spike in finance cost by 110% as compared to Q3 2018, reported the Business Recorder.

According to fertilizer industry sources, the analysis is based on sample of four largest listed companies - Fauji Fertilizer (FFC), Engro Fertilizer (EFERT), Fatima Fertilizer (FATIMA) and Fauji Fertilizer Bin Qasim (FFBL). The analysis is based on unconsolidated statements of FFBL and FFC and consolidated statements of EFERT and FATIMA for true depiction of their fertilizer business.

During the period, urea sales of these companies witnessed a growth of 6% to 1.5 million tons due to pre-buying by farmers/dealers amid a hike in urea prices along with resumption in operations by Agritech and Fatima Fertilizer, contributing an additional 179,000 tons.

DAP off-take of three companies (EFERT, FFBL, and FFC) declined 10% YoY, in-line with the sector’s volumetric decline of 11% to 517,000 tons. Net sales witnessed a growth of 8% to Rs. 93 billion during Q3 2019, despite a decline in volumetric sales due to an increase in urea and DAP prices. The gross margins of the manufacturers declined to 25% during the period, down from 33% last year due to higher input costs.

The finance cost increased by 110% YoY due to the hike in the policy rate and an increase in borrowings of the sector. Effective tax rate during Q3 2019 rose 44% as compared to 33% last year, the effective tax rate for FFBL increased by 141% amid the implementation of a minimum tax.

Application of the axle load management laws has also contributed to a higher cost of doing business, with an impact of Rs. 35-70 per bag across the country. The companies also suffered a loss of approximately Rs. 4 billion due to price intervention by the government in anticipation of GIDC settlement during July 1 to September, when the GIDC Amendment Ordinance was retracted by the government.

The fertilizer industry has paid a total of Rs. 250 billion as GIDC up till now.