LAHORE  -  The local urea manufacturers’ profitability surged 67 percent annually to Rs8.3b in 2Q2018, primarily due to higher GP margins of 29 percent in 2Q of 2018.

According to the data, net sales of fertilizer companies depicted improvement due to increase in urea prices by 8 percent YoY and 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 1.06m 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. Other operating expense increased by 61 percent YoY due to exchange losses incurred by companies on foreign exchange payables and foreign loans. While, other income fell 40 percent YoY as cash subsidy was reduced to Rs100/bag on urea vs Rs156/bag in 2Q2017. Further replacement of cash subsidy on DAP with reduced sales tax is also a reason behind lower other income.

Finance cost fell substantially by 32 percent YoY to Rs1.6b due to improved working capital of the manufacturers. Compared to last quarter (1Q2018), profitability of fertilizer companies remained nearly flat.