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Fauji Jordan Fertiliser turns profit earner
KARACHI (August 25 2003) : Fauji Jordan Fertiliser Company (FJFC) during the first six months of 2003 has turned into profit earner which has enabled the urea manufacturer to keep its head above troubled waters.
During the first half of the current fiscal year the company posted after-tax profit of Rs 19.8 million, as compared to a loss of Rs 236 million previously.
However, if Government of Pakistan's compensation is adjusted, the net profitability of the company during 1H-FY03 would come to Rs 720 million registering a decline of 6 percent from its previous level of Rs 763 million posted during 1H-FY02 (Compensation received by GoP during 1H-FY03: Rs 700 million; 1H-FY02 GoP package: Rs 1000 million), a report by Humaira Zaheer, research analyst at Capital One Equities, said.
Weighing up the 1H-FY03 result of FJFC across the board, its sales stood at Rs 1.57 billion as compared to Rs 1.65 billion during the same period last year.
This was mainly on account of a decline in the average retail price of urea during the current fiscal year due to heavy stockpiles of urea inventories with the dealers which resulted in curtailment in the transfer price by almost Rs 8-10 per bag during the second quarter of 2003.
Cost margin also increased by 12 percent due to an increase in the input cost which plunged the gross margin by 40 percent year-on-year basis.
The net loss of the company took a U-turn during the discussed period due to the significant reduction in the financial charges of the company as a result of the injection of funds by company sponsors, which are now materialising.
During the discussed period, FJFC's financial charges stood at Rs 108 million as compared to Rs 1.2 billion during the same period of last year (YoY: -91 percent).
Under the financial charges head, the repayment of the company's foreign currency loan as an interest-free rupee loan is now ensuing in substantial savings and this has reduced FJFC's exposure on account of foreign exchange risk.
In addition to this, the rescheduling of long term rupee debt (approved in 2002) would further reduce the financial charges of the company in the years to come.
FJFC scrip is likely to perform better as an outcome of the agreement between GoP and Fauji group signed in 2002 and positives arising from the expected re-commencement of the DAP plant in mid-September 2003 (this would certainly give tough time to Engro and FFC's DAP market).
For FY03, maiden profits are foreseen for the company while any announcement of a cash payout cannot be ruled out.
The scrip is currently trading at Rs 17.90 and has outperformed the 100 index by 32 percent.
Zaheeruddin Khalid, head of research at Elixir Securities, said that the result compares favourably to the company's performance during first half of 2002, when it reported an after-tax loss of Rs 1,013 million.
The main reason for the improvement in profits has been the impact of financial restructuring of the company which reduced interest cost by 91 percent.
During the period under review the company also received Rs 700 million compensation from the government of Pakistan for non-implementation of DAP floor price.
A quarterly comparison of numbers shows that the company recorded Rs 29.6 million pre-tax profit during 2QCY03 against a pre-tax loss of Rs 98.8 million in 1QCY03.
This profitability trend is expected to continue going forward, with FFC-Jordan reporting Rs 100-125 million pre-tax income during the remaining two quarters of the year.
For the full year, the company is expected to report after-tax earnings of Rs 200 to Rs 225 million, excluding the impact of Government of Pakistan's compensation.
Courtesy Business Recorder
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Pakissan.com; Advisory Point
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