WEB DESK: Fauji Fertilizer Company (FFC) announced Rs1.75/share as interim dividend yesterday announcing its 1HCY15 results.
That is a 95 percent payout – FFC staying true to its form. But shareholders are not accustomed to anything in the tune of under Rs2/share as dividends from FFC. That is only because the profits did not swell as they once used to.
FFC still produces and sells more urea than anyone else in the market. Its plant efficiencies continue to be remarkably high at around 120 percent. They sell all what they make. The urea prices have stayed rather flattish throughout the year so far. But all of it never was a concern for FFC and many others in the market. But times have changed and the variable that has changed along is the unit cost.
The pricing power has time and again been tested and FFC has shed a significant portion of its primary contribution margins, succumbing to market pressures. That said, gross margins as they are, are still decent enough and there is good money to be made. This is what FFC had seen coming, when it diversified its investment portfolio.
All thanks to the other income contribution, from its subsidiaries and associates, that kept the bottom line from staying flattish. On the fertilizer front, the market stays competitive. Revision in feedstock gas prices have once again been delayed for the umpteenth time. It is now only a matter of when and not if and FFC along with other market players will again face a stiff challenge of passing through the cost increase.
Although the market players have sounded confident of their ability to easily pass through whatever increase they face, it will only be tested once it happens.
Source: BR research