FATIMA CY13E bottom-line to surge by 51%YoY – InvestCap Research
By: Avinash Rajani,
+92-21-35205520-22 (Ext 8628)
Invest Capital Markets Limited
Fatima Fertilizer’s (Fatima) Board of Directors is scheduled to meet on March 27, 2014 to discuss its CY13 financial results. In today’s Value Seeker, we present company’s results preview along with our outlook on the same.
FATIMA: benefiting from changing industry dynamics
Fatima Fertilizer is the only company in fertilizer universe which is immune to sector’s headwinds driven by gas cost hike and GIDC. It is enjoying fixed feed gas cost structure coupled with diversified product portfolio. In CY13E, the company is expected to post net profit of PKR4.39bn (EPS: Rs4.39) up by 51%YoY as compared to CY12. Rising trend in prices of fertilizers (Urea, NP & CAN) along with improvement in sales quantum of CAN and NP would improve topline by 17%YoY to Rs34.66bn in CY13E from Rs29.52bn in CY12. This upsurge in sales of NP & CAN is attributable to decline in sales of similar products by its sister concern, Pak Arab Fertilizer, caused by unavailability of gas from SNGPL network. Furthermore, net margin is expected to improve by a healthy 600bps to 27% in CY13E from 21% in CY12; thanks to declining interest. We expect company to pay a final cash dividend of Rs2.5/share alongwith the CY13E results.
4QCY13E: QoQ earnings to scale up on better sales
We anticipate, Fatima to post net earnings of PKR 3.426bn (EPS: PKR 1.63) in 4QCY13 up by 40% QoQ from PKR 2.439bn in 3QCY13. Such hefty increase in bottom-line is supported by company’s strategic diversion to its other products (CAN & NP), decline in interest charges and rise in other income. On QoQ, net sales will trend up by 21% on the back of surge in sales quantity of NP and CAN. During the same period, sales of NP increased by 18% and CAN showed slight improvement of 2% QoQ. Meanwhile, interest charges will show slight decline of 7% QoQ, due to downward trajectory of interest rates in the country and deleveraging trend of its long term loans. Other income is likely to show a mammoth increase of 77% from PKR 70 mn in 3QCY13 to PKR 124 mn in 4QCY13E due to improved cash position and decline in interest charges along with bit support of CER receipts.
Recommendation & outlook
Fatima Fertilizer’s stock has already rallied by 10% since Jan 14 to date. We maintain ‘Hold’ stance with target price of Rs31.92 for Dec-14 showing a meager upside potential of 2% from last closing price of Rs 31.32/sh.