Question 1: What will happen to FFC's profits if its gas price goes up by 50%?
Question 2: Will they be able to increase urea prices to cover the increase in the cost?
Answer
This was a trick question. I asked this to explain to you the concept of pricing power!
See if the gas prices for the entire industry (FFBL + EFERT etc.) are increased by 50%, there will be none or very little impact on the profitability of FFC. This is because all of them will raise prices by the same amount, securing FFC's bumper profits.
Farmers need urea to produce crops
The government needs more crops for inflation to come down and hence
Where else they will buy it from? Import is not an option right now!
So should we safely assume that this new profit isn't going away? What do you think?
Founder at InvestKaar.com. 15 years of investing and wealth management experience. Worked at most renowned brokerage houses in Pakistan. Won the best sales trader award for 2021 by CFA Society of Pakistan.
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