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Multiline Securities (Pvt.

) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

FAUJI FERTILIZER COMPANY LIMITED


Recommendation Buy@117.4
The share is trading at around 6.73% discounts to our DCF based fair value of
Rs. 125.82 per share and PE multiple of 12.50. We recommend a buy.

Contents
Shares outstanding (mn) 493.474
Industry Analysis Market Capitalization 57.933 bn
• Introduction--Fertilizer Industry(2) Market Value Added 44.97 bn
• Introduction
• Product line of Fertilizer Sector Free Float Shares (mn) 246.5
• Chart describing the Production by Free Float Rs (bn) 28.93
Manufacturers
• Demand Analysis(3) BV/ Share 26.25
• Overall demand of Fertilizer
PE (x) 12.50
• Product wise demand
• Future Outlook(4) P/BV 4.47
Company Analysis * prices of 15-May-07 are used

• Fauji Fertilizer Company Limited—Introduction(5)


• Shareholding Pattern.
• Existing Production Facilities.
• FFC Capacity expansion Plans.
• Past Performance(6)
• Market Position(7)
• Market Participation of FFC in Urea Market.
• Dividend Policy(8)
• Valuation(8)
• Income Statements(9)
• Balance Sheet(10)
• Cash Flow Statement(11)
• Key Ratios(12)

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

INDUSTRY ANALYSIS
INTRODUCTION—FERTILIZER INDUSTRY:
Pakistan’s economy is agro-based; however our cultivable land is deficient in nutrient
contents. This deficiency can only be overcome through the balanced use of fertilizer.
Presently, there are ten manufacturing units in Pakistan. Out of these, four units are
located in the public sector and six are operating
in the private sector. The province-wise PRODUCT LINE OF
distribution of units confirms that 5 units are FERTILIZER IN PAKISTAN:
located in Punjab, 3 in Sindh and 2 in the NWFP. Nitrogen 46% (Urea)
. Calcium Ammonium Nitrate (26%
Fertilizer production is concentrated in Nitrogen) (CAN)
nitrogenous fertilizers, which comprises 85% of Nitrophas (23% Nitrogen and 23%
Phosphorus) (NP)
all fertilizers produced in the country. Although
Single Super Phosphate, (18%
other types of fertilizers are also produced in Phosphorus) (SSP)
Pakistan, the bulk of whose demand is imported. Di-Ammonium Phosphate (18%
The main reason for this concentration on Nitrogen and 46% Phosphorus) (DAP)
nitrogenous fertilizers is that its main raw Sulphate of Potash (SOP) - (Potash
material i.e. natural gas is cheaply available in the fertilizer)
country. The raw material for other fertilizers NPK in different ratios - (Mixed
such as potassium and phosphate has to be fertilizer)
imported.

The local fertilizer companies meet almost 80% of Pakistan’s Fertilizer requirement. The
total installed capacity is over 5,124 million tones /annum. It mainly comprises of 4,180
million tonnes for urea and remaining for NP, DAP, CAN and SSP.

Fertilizer De m and
1600
1400
1200
20%
1000 Total
800 Fertilizer
600 Sales
400 Revenue
200
0 80%
2002 2003 2004 2005 2006

Local Manuf acturer Import

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

DEMAND ANALYSIS:
The economic boom in the country has brought about an impressive agricultural growth,
putting pressure on domestic suppliers of fertilizers with demand outstripping supply,
whereas local producers scramble to maximize their production to meet the rising
demand.

Fertilizer demand likely to raise by 5 percent in Pakistan this trend in fertilizer demand
push to the increased availability of cultivation area and farm loans besides the income of
the peasants. Despite rise in demand, local production of fertilizers was expected to
remain raging between 4.7-5.2 million tons, which might spur the import of 1 million
tons of fertilizers in the next fiscal year for meeting the shortfall.

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

Urea Market
The urea market posted a modest growth
of 1% over last year with off-take of 5,236 6000
thousand tonnes as compared to 5,179 5000
thousand tonnes during 2005. Industry Off takes
4000
urea production of 4,803 thousand tonnes
3000 Im ports
during the year improved by 2% over last
year’s production of 4,693 thousand 2000
Dom estic
tonnes. 1000
Production
0
2002 2004 2006

Di - Ammonium Phosphate (DAP)


- Market
The industry carried 292 thousand tonnes of DAP at the beginning of the year. 846
thousand tonnes were imported during 2006 while 450 thousand tonnes, at almost last
year’s level, were supplied by FFBL. DAP market during the year was recorded at 1,517
thousand tonnes, comprising imported stock and indigenous production, which improved
by 11% over last year’s sales of 1,367 thousand tonnes.

FUTURE OUTLOOK:
The future outlook of the fertilizer sector is very strong because of supportive
government policies, favorable climatic conditions and gas pricing. The Economic
Coordination Committee (ECC) has directed Sui Northern Gas Pipelines Limited
(SNGPL) to market an additional 100 million cubic feet a day (mmcfd) of natural gas
from the Qadirpur gas field, close to both Engro and the FFC.

Short term outlook appears encouraging with significant projections for strong demand
for our fertilizers. In the long term, the Company is committed to achieve sustained levels
of operations at demonstrated operating efficiencies through focus on their fundamental
strengths.

Customs duty of 5% was withdrawn from imported urea. A similar withdrawal was done
on imported DAP fertilizer last year this will not affect local manufacturers The medium
to long term projected demand supply gap situation together with commissioning of their
BMR projects with enhanced urea production capacities would further consolidate their
market presence and allow improved returns to the Company and its stakeholders.

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

COMPANY ANALYSIS
FAUJI FERTILIZER COMPANY LIMITED:
FFC was incorporated in 1978 as a private limited company. This was a joint venture
between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S
of Denmark.
The initial authorized capital of the company was 813.9 Million Rupees. Additionally,
FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited
(formerly FFC-Jordan Fertilizer Company Limited).
FFC commenced commercial production of urea in 1982 with annual capacity of 570,000
metric tons.
• Through De-Bottle Necking (DBN) program, the production capacity of the
existing plant increased to 695,000 metric tons per year.
• Production capacity was enhanced by establishing a second plant in 1993 with
annual capacity of 635,000 metric tons of urea.
• FFC participated as major
shareholders in a new DAP/Urea Shareholding Pattern
manufacturing complex with 10% 13% Indivisual
participation of major Investment
international/national institutions. 10% Company
Joint Stock
The new company Fauji Fertilizer 1% Company
Bin Qasim Limited (formerly FFC- 6% Financial
Institutions
Jordan Fertilizer Company Others
Limited) commenced commercial 48% 12%
production with effect from Charitable
Trust
January 01, 2000. The facility is Insurance
designed to produce 551,000 Companies

metric tons of urea and 445,500


metric tons of DAP.
• In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea
Plant situated at Mirpur Mathelo. This acquisition at Rs. 8,151 million represents
one of the largest industrial sector transactions in Pakistan

EXISITING PRODUCTION FACILITIES:


Plants I & II (Goth Machhi):
The Plants delivered stellar performance during the year with aggregate "Sona" urea
output of 1,570 thousand tonnes despite maintenance turnarounds of both plants. Plant I

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

delivered 809 thousand tonnes operating at 116%of design while Plant II produced 761
thousand tonnes of urea at 120% of designed capacity.
BMR of Plant I and II at Goth Machi was being prepared. Unit 1 at Goth Machi was
contributing 37 per cent and Unit II was making 32 per cent contribution to the total
capacity. Energy revamp project at Plant-I was successfully and safely implemented
during Turnaround 2006 resulting in energy conservation estimated at over Rs 50 million
per annum. Plant II Debottlenecking study report on aMDEA section has been finalized
with licensor, BASF, for 115% and 120% plant load and contract is under review
especially for performance guarantees & liabilities.

Plant III (Mirpur Mathelo):


Highest ever daily urea production of 2.2 thousand tones was achieved in January 2006
through technical excellence, dedication and coordinated team work. Total output by the
plant was recorded at 726 thousand tonnes, the highest ever, which represented 126% of
design and improved by 2 % over last year’s production.

Basic Engineering Design Package of Plant III Debottlenecking project has been
approved in consultation with the licensor M/s Snamprogetti, Italy. Work on detailed
engineering and ordering of equipment/ material is in progress to improve plant
profitability through capacity enhancement and reliability improvement.

FFC CAPACITY EXPANSION PROJECT:

Fertiliser companies are pursuing plans to expand capacity in order to benefit from higher
urea demand. FFC is currently conducting de-bottlenecking of its existing plant III
(situated at Mirpur Mathelo), which, analyst estimate would add between 60,000 to
75,000 tons to its total urea capacity. Analysts’ reports suggest that the exercise would be
completed by the end of 2007.

Unit 3 Mirpur Mathelo contributes 574,000 tons, representing 30 per cent to the capacity.
Estimated cost of the project amounts to somewhere around Rs2bn. With the completion
of this expansion, total capacity of the company would increase to 1,964,000 tons.

PAST PERFORMANCE: 12
10
20

15
8
Rs.

The overall financial position of the company 6 10


is stable, over the year which is one of the 4
5
reason of high efficiency and profitability of 2
0 0
FFC. All the profitability ratios are also
2003 2004 2005 2006
showing increasing trend on the back of
EPS P/E Ratio

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

increasing Sales as well as Gross profit which is because of good investments by the
company in high yielding projects. Leverage and Liquidity ratios related to FFC are also
improving from past to present. If the company would be able to continue its current
stability and investments in profitable projects then the company would be able to
increase its market share as well as Profitability.

40
30000
35
25000
30
20000 25

In Billion 15000 %age 20

10000 15

10
5000
5
0
0
2003 2004 2005 2006
2003 2004 2005 2006

Sales Gross Profit ROA ROE

MARKET POSITION:
Marke t Share of Phos phatic Marke t Share of Urea
Fertlizer

46% 49%
54% 51%

FFC+FFBL OTHERS FFC OTHERS

MARKET PARTICIPATION OF FFC IN UREA MARKET:

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

DIVIDEND POLICY:
The dividend per share is expected to increase in the year to come because of following
2003 2004 2005 2006
DIVIDEND PER SHARE (Rs.) 10.00 15.00 12.00 10.00
DIVIDEND PAYOUT (% age) 81.57 123.48 133.12 106.44
points, BMR projects, Capacity expansion plans and equity investment in Local as well
as Overseas, high yielding projects ( FFBL, PMP). The DPS is also expected to increase
because Sales and PAT are also showing increasing trend on year on year basis.

Dividend Yeild MV/Share

140
18
16 120

14
100
12
80
10
%age Rs.
8 60
6
40
4
20
2
0 0
2003 2004 2005 2006
2003 2004 2005 2006

Dividend Yeild MV/Share

VALUATION:

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

INCOME STATEMENT:

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

BALANCE SHEET:

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

CASH FLOW STATEMENT :

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Multiline Securities (Pvt.) Ltd
Stock Exchange Office: Room No. 622, 6th Floor KSE Building, Stock Exchange Road, Karachi. Tel: 2440191-94
Corporate Office: A-1001, 10th Floor, Saima Trade Tower, I.I. Chundrigar Road, Karachi. Tel: 111-111-675

KEY RATIOS:

Report prepared by : Syed Iflahuddin Danish


Research Department: Multiline Securities (Pvt.) Ltd.
Email: info@multilinetrade.com Website: www.multilinetrade.com

Disclaimer: This document has been prepared by Multiline Securities (Pvt.) Ltd. This document should not be
constructed as, an offer to sell or solicitation to buy any securities. This information has been complied from
sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. We
accept no liability whatsoever for any loss arising from any use of these levels.

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