Pakistan's largest fertilizer company sold 15 percent more urea in 1HCY17 over previous year, but made far less profits. In yesteryears, a 15 percent yearly increase in top line would have easily meant a bigger jump in profits. But things have changed in the past two years. Fertilizer business does not anymore generate the E&P-esque margins it once used to.

The pricing power has been tested, and even the mightiest have wilted. All said, FFC's is still a sizeable profit, as it continues to expand its wings as a conglomerate. The non-core income, which once used to be an icing on the cake for FFC through dividend income from FFBL – is fast becoming a saviour.

Granted that a sizeable element in other income reflects the subsidy income under the subsidy mechanism adopted by the government. But the gross margins too have reduced a great deal, as international prices have come down significantly, and the ever present threat of imported urea availability at cheap rates, has kept local fertilizers players on toes – compelling them to absorb some of the cost increase. Recall that, every cost increase once used to be an easy pass-on event.

FFC announced an interim dividend of Rs1/share, in addition to Rs1.5/share already paid in the 1QCY17. The dividend payout has also come down gradually for FFC to 50 percent now, from the highs of near 100 percent in the heydays.

Going ahead, it is not a lost cause for FFC by any stretch of imagination. The company still produces urea at over 100 percent plant efficiency, and expects to sell it all. Should the international prices increase, it could offer a breather to the company in terms of contribution margins. Even without it, strong contribution from other income is likely to be a constant stream from the diversified investment portfolio, which FFC now boasts of.

Copyright Business Recorder, 2017