FFBL & ENGRO

Fertilizer Sector – Fly in the Face of Facts

Analyst: Salman Bashir Memon July 2006

Fauji Fertilizer Bin Qasim: Implanting the Seed of Expansion

Witnessing the agriculture stability, robust demand potential of fertilizer products plus its
consumption, and DAP driven fertilizer market, capacity expansion, we recommend to buy Fauji
Fertilizer Bin Qasim with a target price objective of PKR 43 on our fundamentally driven DCF
based fair value of Rs 41.23 per share. Over the next three years we expect the bottom line of the
company to increase by 12% FFBL is currently trading at PKR 29 lower than its calculated DCF
fair value, thus offering PKR 14 upside potential. We also believe that the company is going to
announce a dividend Rs 2.1 per share for FY06 and hopeful about future earnings

ENGRO Chemical Pakistan: Fly in the Face of Facts

Assuming the demand for overall fertilizer products, particularly Nitrogen & Phosphates, has
increasing @ 10% CAGR the 4% Agriculture Sector CAGR, 12% Fertilizer Sector CAGR, 10%
increase in Fertilizer Demand Potential, & 24% rise in ECPL sales revenue & strengthen product
base in locally manufactured and purchased fertilizer products we recommend to Sell on strength
ECPL with a target price of Rs185. Over the next year we expect the bottom line of the company
to increase by 11%. ECPL is currently trading at Rs174 lower than its calculated DCF fair value of
Rs184, thus offering Rs10 upside potential. We also believe that the company is going to
announce a dividend of Rs15 of its prospective earnings which leads to an attractive yield of 7%
making ECPL even more captivating for medium & long term investment.

Agriculture: Engine For Economy

Agriculture performance improved on account of bumper cotton and wheat crops of about 15
million bales and 21 million tones respectively. A 7.8% rise in cultivated area, use of improved
quality pesticide and favorable weather condition are responsible for the rise in cotton production.
The rise in support price, adequate and timely supply of inputs including fertilizer, availability of
certified the widespread and timely winter rains helped in achieving higher than targeted wheat
production. Sugarcane production was down by 15.2 percent due to water shortage during Kharif
season. Rice, another water concentrated crop, grew by 2.9 percent over last year. However, at
best, a 10% to 12% expansion in water resources can be expected, after 8 to 10 years. We are
expecting the 4% per annum sartorial growth for coming three years.

Pakistan Fertilizers Sector – Stimulator For Productivity

Urea industry witnessed healthy growth of around 10% as the market grew from 4.7 million tons
in 2004 to 5.2 million tons in 2005. Production improved to 4.7 million tons in 2005, registering a
growth of 7%. Urea shortage in the country was met by imports of approximately 5.3 million tons
by the Government of Pakistan. Overall industry for phosphates grew by 11% to 1.5 million tons.
The country continues to face urea scarcity which is expected to increase with the passage of time.
Domestic urea production capacity requires enrichment & fortification to accommodate for
growing domestic demand and prevent the need for import of urea at excessive cost to the national
exchequer.

Page 1 of 24
 FFBL & ENGRO

Fair Value: Rs 41.23 FFBL

Buy: Rs 30 Implanting the Seed of Expansion

Witnessing the agriculture stability, robust demand

potential of fertilizer products plus its consumption,
and DAP driven fertilizer market, capacity
expansion, we recommend to buy Fauji Fertilizer Bin
Qasim with a target price objective of PKR 43 on our
fundamentally driven DCF based fair value of Rs
41.23 per share. Over the next three years we expect
the bottom line of the company to increase by 12%
FFBL is currently trading at PKR 29 lower than its
calculated DCF fair value, thus offering PKR 14
upside potential. We also believe that the company is
going to announce a dividend Rs 2.1 per share for
FY06 and hopeful about future earnings.
Fauji Fertilizer Bin Qasim
Overview Investment Justification
Fauji Fertilizer Bin Qasim Limited is a US$
461 Million Project. One of the largest in • Proceeding the growth of overall agricultural
private sector in Pakistan, producing both sector and demand of DAP fertilizer within
DAP and Granular Urea for the first time in agriculture community; FFBL seems attractive for
the country. The largest and well-known medium and short term investment at current level
industrial group of Faujis and Jordan and we believe that FFBL management never
Phosphate Mines Company sponsors the makes any mistake for motion of progress.
project. The factory is strategically located at
Port Qasim, 35 kms south of Karachi City, on • Rehabilitation of FFBL’s DAP plant and cheaper
the banks of the Port Qasim. The plant is well raw material plus possible dividend income from
connected, both by rail and road. The Pak Maroc Phosphore explores the confidence of
National Highway (NH) from Karachi to FFBL’s management and stakeholders
other cities of the country separates FFBL expectations.
from the Bin Qasim.
• BMRE project of ammonia plant to increase its
production capacity and efficiency further
Financial Performance strengthen its position in fertilizer industry,
Face Value: 10 capturing market share thereby increasing wealth
Book Value (2006F): 8.96 of shareholders.
EPS (2006F): 2.8
Outstanding Shares (m): 934.1 • FFBL management marching towards sustainable
growth and we are confident to say that effect of
Price Performance expansion on profitability margins will be added
Market Capitalization (m): 37.457 from CY08 and EPS will increase drastically as
FFBL PE 10.94X DAP production capacity increase up to 50%.
Sector PE 9.4X
Short Term Potential 0.6% • We are positive about the future performance of
Long Term Potential 45.9% FFBL. The net profit after tax is expected to grow
Average Return Potential 23.2% to Rs 2,580 million for FY06 and the expected
earning per share for the same period is Rs2.8.

Page 2 of 24
 FFBL & ENGRO

Agriculture Sector – Intensification Get Nearer

Agriculture accounts for nearly 23% of Pakistan’s

Agriculture Sector Growth GDP and contributes significantly to the country’s
economy by employing about 68% of the rural
8.00%
7.00%
population. Country’s economic expansion continued
6.00% for the third consecutive year registering an annual
5.00%
4.00%
growth rate of 8.4% in 2004-05 as against 6.4% last
3.00% year, widely surpassing the targeted rate of 6.6% and
2.00%
1.00%
exceeding the 8% mark for the fifth time in the
0.00% Country’s history. The growth is supported by
-1.00% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
-2.00%
enhanced performance of 15.4% in large-scale
-3.00% manufacturing, impressive recovery of 7.5% in
agriculture and a strong 7.9% growth in the services
sector.

Risk Factors: Future & Forecast

There are number of risk factor involved in
the agriculture production growth such as: Agriculture performance improved on account of
limited availability of quality seed, bumper cotton and wheat crops of about 15 million
disbursement of agricultural credit, no use of bales and 21 million tones respectively. A 7.8% rise in
modern technology in agricultural extension, cultivated area, use of improved quality pesticide and
soil degradation (soil salinity, erosion and favorable weather condition are responsible for the rise
soil fertility depletion), depletion of water in cotton production. The rise in support price,
resources, & mismanagement of irrigation
systems.
adequate and timely supply of inputs including
fertilizer, availability of certified the widespread and
timely winter rains helped in achieving higher than
Indicators: targeted wheat production. Sugarcane production was
down by 15.2 percent due to water shortage during
Economy Value: PRs1, 034,292 mn Kharif season. Rice, another water concentrated crop,
Share in GDP: 23.09% grew by 2.9 percent over last year.
Cultivated Area: 22.17 mn hectors
However, at best, a 10% to 12% expansion in water
Irrigation Sources: resources can be expected, after 8 to 10 years. We are
• Canals expecting the 4% per annum sartorial growth for
• Ground water coming three years.

Water Supply: Agri-Credit for Farmers & Growers

• Indus River 60%
• Rainfall 15% Agriculture credit is one of the key factors to boost the
• Ground Water 25% agriculture sector. Accessibility of easy and low cost
agriculture loans plays an important role in increasing
Agricultural Products
HT TH
farm output and productivity. Since last couple of
Cotton, Wheat, Rice, Sugarcane, years government has been emphasizing on providing
Vegetables, Fruit, Food grain. agri-loans at affordable interest rates to farmers on
regular basis. In this purpose, Rs 130 billion agri-loan
target for FY06-07 has been approved, as compared to
Rs 100 billion last year

Page 3 of 24

Pakistan Fertilizer Market – Keep Abreast Of
Sector Sketch
There are nine fertilizer-producing plants in
Pakistan. Five factories are located in the
Punjab and two each in Sindh and the
Northwest Frontier Province. Out of nine
factories, 6 are in private sector whereas 4
are under Federal Government control. The
primary criterion for the location of
fertilizer plants is access to natural gas.
Natural gas and phosphate rock serve as the
primary raw material for nitrogen-based
and phosphate-based fertilizers. Local
fertilizer production is concentrated in
nitrogenous fertilizers, which comprises
85% of all fertilizers produced in the
country. The main reason for this
concentration on nitrogenous fertilizers is
that its main raw material i.e. natural gas is
cheaply available in the country.
Spot Trends
Number of Units
• Public 4
• Private 6
• Total 10
Sector Capital: PRs 14,983mn
Sector Market Cap: PRs108, 384mn
Total Investment: PRs 87bn
Installed Capacities (000 Tons)
• Public Sector 1,373
• Private Sector 4,384
• Total 5,753
Contribution to GDP
• 0.40%
Weight age in KSE-100 index
• 6%
Employment
• More than 7,563
Technology
• High Technology Imported from Italy,
England, Denmark, USA, Japan and
Local
FFBL & ENGRO
Contemporary Sight
Urea industry witnessed healthy growth of around 10%
as the market grew from 4.7 million tons in 2004 to 5.2
million tons in 2005. Production improved to 4.7
million tons in 2005, registering a growth of 7%. Urea
shortage in the country was met by imports of
approximately 5.3 million tons by the Government of
Pakistan. Overall industry for phosphates grew by 11%
to 1.5 million tons. The country continues to face urea
scarcity which is expected to increase with the passage
of time. Domestic urea production capacity requires
enrichment & fortification to accommodate for
growing domestic demand and prevent the need for
import of urea at excessive cost to the national
exchequer.
Urea Market
The urea market has exhibited tendency towards
increase throughout the year as a result of favorable
economic conditions. The FY06 commenced with a
low inventory of 403 thousand tones which was 5%
lower than that of FY05. The fertilizer off-take during
month of June 2006 increasing slightly and will
increases in the medium term. The domestic
production of fertilizer during the first two months
(June-July, FY06-07) was up by 7%. On the other
hand, the import of fertilizer also increased
considerably by 6%, hence total availability of
fertilizer was increased by 10% in the current FY. The
off-take of fertilizer was therefore, higher by 6.1%.
Phosphates Fertilizers Market
The industry phosphates fertilizers (DAP, MAP and
TSP) sales of 440 thousand tones during the year FY06
(Jan-July) were 7% higher than sales for same period
last year. This was in spite of an upward revision in
domestic prices resulting from an increase in
international prices and local freight cost. Local DAP
production of 452 thousand tones during the year was
3% higher as compared to production in FY05.
To meet the local requirements 1,415 thousand tones
phosphates fertilizers (1,152 thousand tones DAP, 154
thousand tones MAP and 109 thousand tones TSP)
were imported. Due to the high level of imports during
Page 4 of 24
 FFBL & ENGRO

the last quarter, the year ended with a huge phosphates

fertilizer inventory of 200 thousand tones; as compared
Manufacturers Urea Phosphates to an inventory of 50 thousand tones at end December
Production Capacity (000’ MT)
FFC 1,904 Production Capacity
ENGRO 850 100
FFBQ 550 450 The local fertilizer companies get together almost 80%
NFC 92 755 of Pakistan’s Fertilizer requirement. The total installed
DHCL 445 capacity is 5,124 million tones per annum. It mainly
comprises of 4,180 million tones for urea and
remaining for single super phosphate (SSP), calcium
ammonium nitrate (CAN), nitro phosphate (NP) and
ammonium sulfate (AS)

Sector Breakup
Sector Break up
Fertilizer sector is comprised of a number of
DH manufacturers which are engaged in the production,
NFC marketing and imports of fertilizer products. Currently
there are five major fertilizer producing plants in
FFBQ
FFC Pakistan.

Market Share
ENGRO

The market is divided among five major players which

include Fauji Fertilizers, Fauji Fertilizer Bin Qasim,
Engro Chemical, Dawood Hercules, and National
Fertilizer Company. FFC is certainly the market sales
and production leader having production capacity of
1,904 (000’MT) which is followed by Engro, FFBQ,
NFC, and DHCL.

Engro Chemical Pakistan Limited is the second

leading producer of Urea fertilizer in Pakistan with
production capacity of 850 (000’MT) of Urea and opt
the 20% market share. Engro accomplished significant
progress not only in its base urea fertilizer business but
also in diversification projects. Company has made
significant progress in developing its own hybrid seeds
of maize and sunflower crops and launched two new
maize hybrids of imported origin of Bemisal.

Fauji Fertilizer Bin Qasim Limited is lead the ways of

premium quality DAP manufacturing in Pakistan and
it has a 13% market share in fertilizer industry. Being
a subsidiary company of FFC overall market share
stands 62%.

Page 5 of 24
 FFBL & ENGRO

Another main involvement in the sector is from

National Fertilizer Company which has capacity of
438 (000 MT) and 9% market share. Dawood Hercules
is the Urea producer and its boilerplate capacity is 445
(000MT) and market share stands at 9%.

Fertilizer Off-take
Urea off-take in June registered a decline of 15.2% as
compared with same time frame of last season. 276
thousand tons, against 238 thousand tones in the same
month last year while DAP off-take in April remained
at 65.5 thousand tones witnessing an increase of
Fertilizer Supply-Demand 38.5%. Total nutrient off take during June 2006 was
about 197 thousand tones, which went down by 9.6%
4000 compared with same month of the last year. The total
3000 nutrient off-take rose by only 4.7% YoY during July-
January FY06, as compared to a 6.3% YoY rise in
2000 FY05.
1000

0 Outlook
FY0 1- FY0 2 - FY0 3 - FY0 4 - FY0 5- FY0 6 -
02 03 04 05 06 P 07 P
The fertilizers industry is in front of capacity
Domestic Production ('000' N/tons) constraints. Fertilizer demand has been fundamentally
T otal Sector Import strong on account of improved farm income, and more
Country Off-take credit availability to growers. In order to fill the
supply/demand gap, around 1.6 metric tons fertilizer
was imported during July-January FY06, up 56.7%
YoY. Compared with previous years fertilizer
manufacturers on the back of enhancement of
production capacity and rising urea prices for end
users, higher support prices for wheat and cottonseeds
and enhanced agriculture credit would be a trigger to
high urea off takes.

Page 6 of 24
 FFBL & ENGRO

Fauji Fertilizer Bin Qasim – An Inside Observation

KATS Code The Past

FFBL
By the early nineties, Pakistan was importing almost
one million tons of urea and 800,000 tons of DAP per
Current Price
annum. At that time management of Fauji Fertilizer
PKR 29
embarked on the FFC-Jordan Fertilizer Project in order
52 weeks High-Low to make Pakistan self-sufficient in Urea fertilizer and
Rs43.90 – Rs25.55 to drastically reduce the import of DAP fertilizer. After
the initial discussions with the Jordan Phosphate Mines
3 months ADV Company, a preliminary feasibility was undertaken in
18.5 Million Shares 1992 Two other new plants of DAP and urea were
installed and the first production of DAP commenced
Shares Outstanding in Nov 1998, followed by Urea in April 1999. The
934.11Million Shares complex is now in normal operation and supplying
high quality fertilizer urea (G) and DAP to the farmers
Market Capitalization of Pakistan.
Rs37, 457Million

Free Float
Production Capacity
27.56% (approx)
Presently FFBL has capacity to manufacture 551
thousand tones of Urea and 445 thousand tones of
Distribution Cash Dividend:
Rs 2.00 (FY05) DAP annually. The company is in process to increases
Rs: 0.50 (1st Interim FY06) P P
its design capacity through BMRE. After successful
implementation of the project design capacity of
Dividend Yield ammonia plant will be increased and therefore
6% increases current production capacity of DAP to 681
thousand tones and Urea capacity to 676 thousand
tones per annum approximately by 1H07. The
completion of revamping process will provide better
capacity utilization and enhanced gas efficiencies to
the company.
50
45 Raw Material Get Cheaper
40
35
30
For sake of non-stop cheap supply of Phosphoric Acid,
25 which is a basic raw material for producing DAP, a
20 long term agreement was signed between Morocco
15 Phosphorus and, Fauji Group together with Fauji
10
5
Foundation, FFC and FFBL with 25% equity stake of
0
800 Million Moroccan Dirhams. This Project would
have a production capacity of 375, KT Phosphoric
7/29/2005

8/29/2005

9/29/2005

10/29/2005

11/29/2005

12/29/2005

1/29/2006

2/28/2006

3/29/2006

4/29/2006

Acid per year by consuming 1,300, KT Phosphate

Rock and 370, KT Granular Sulfur. It will meet total
KSE FFBL Price requirement of phosphoric acid for the DAP
production in FFBL plant at Bin Qasim. At present
total demand of DAP in a country stands at 80%.
FFBL contribution is 60% in total DAP market.

Page 7 of 24
 FFBL & ENGRO

Moving ahead, being the only manufacturer of DAP in

local market FFBL would be in a position to capture
the market if growth comes in a particular commodity.

Urea DesignCapacity Fixed Cost

640 108%
Fixed cost of feedstock gives FFBL an edge over its
620 106%
competitors as it enjoys 10-year gas subsidy provided
600 104%
by the government under the fertilizer policy 2001.
580 102%
560 100%
According to this policy feed stock prices would
540 98%
remain fixed till 2009, which implies that FFBL can
520 96%
reap the maximum benefit of hike in urea prices and
500 94% stable margin.
FY02 FY03 FY04 FY05 FY06 FY07 FY08

Urea Design Capacity Utilization (%) Unique Product

FFBL is the only producer of two distinctive products

namely Granular Urea (Sona Urea) and DAP in
Pakistan. Granular urea is expanding its base owing to
its unique characteristics over the standard prilled urea
and brand recognition. Granular urea is the cheapest
among all nitrogenous fertilizers based on per unit
DAPDesignCapacity cost of nutrient, less acidifying than many other
nitrogenous fertilizers hence most suited for high pH
800 120% soils and it is easier to spread in the field with
700
600
100% minimum losses in the air. Diammonium Phosphate
500
80% (DAP) as a fertilizer provides essential nutrients for
400 60% crops along with an elevated nitrogen level and it is
300
40% favored on more acidic soils. Added to the soil, DAP
200 provides plant nutrients that are naturally lacking or
20%
100
that have been removed by harvesting or grazing.
- 0%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 DAP constitutes 21% of total fertilizer consumption in
the market out of which 67% of DAP produced by
DAPDesign Capacity Utilization (%) FFBL, being the only manufacturer in Pakistan.
Although currently it produces only 454 thousand
tones due to the capacity constraint however with the
coming capacity expansion FFBL is well placed to
increase the market share and improve the top line
growth.

International DAP/Urea Prices

On account of high demand of urea in country,

increasing urea prices are the main driver of the
profitability of the urea manufacturing companies.
FFBL is the main beneficiary of high prices as it has
an advantage of fixed stock prices, this enjoying the
comparatively healthy margins.

Page 8 of 24
 FFBL & ENGRO

Profitability Analysis
Sale s
For the first quarter, FFBL reported 16% decline in
25,000 gross profit as company earned a gross profit of Rs
20,000 758 million, while judge against to Rs 878 million
15,000
during the same period last year. Owing to the plant
shut down for BMR and gas curtailment and higher
10,000
cost of goods manufactured, during the quarter, urea
5,000
and DAP production remained low.
0
FY02 FY03 FY04 FY05 FY06 FY07 FY08

FFBL has been experiencing a remarkable surge in

profitability in the last couple of years. FY05 saw
FFBL reap prosperous windfalls on all counts; healthy
PAT Growth
growth rates in revenues, operating profits, net profits
and earnings per share. Further FFBL has been
operating at more than 100% capacity utilization rate
due to high demand in the country. On account of feed
1.5
stock subsidy and higher urea prices margins has also
1 improved. Moreover compensation from GOP has
0.5 resulted in improvement of bottom line growth.
0
-0.5 FY02 FY03 FY04 FY05 FY06 FY07 FY08 On the basis of strong agriculture fundamentals and
-1 growing demand of fertilizer nutrients, unique product
of Granular Urea (Sona Urea) and DAP in Pakistan.
Growth in PAT Excluding GoP Compensation
and ammonia plant BMR last 4-years have shown a
Growth in PAT Including GoP Compensation
sustained and stable growth in FFBL production
volumes and urea production volumes are remained
sustained at cumulative average growth rate 2% and
company achieved the 149% CAGR for DAP
production volume

Retention ratio
International prices of urea and DAP likely to grow @
26%
5% in FY06, 10% in FY07 and FY08 respectively.
Volatile behavior of fertilizer prices is the major
25%
reason behind FFBL profitability and we believe that
24%
increasing trend of international fertilizer prices will
23% remain in coming years FFBL’s Gross Profit Margin
22% has strongly improved. Company total sales are
21% increased by 35% on basis of 3-years CAGR and urea
20%
sales growth stands at 10% for 4-year CAGR and
FY02 FY03 FY04 FY05 FY06 FY07 FY08 161% for DAP.
Further more FFBL is the only company in the sector
with fixed gas feedstock prices till 2009. As indicated
distribution cost is being increased by 17% due to
increase in fuel cost (i-e, from Rs 272 million to Rs
317 million).

Page 9 of 24
 FFBL & ENGRO

We expect that margins will decreased by 10%

EPS during FY06.Financial cost increased by 98%, (i-e
from Rs 50 million to Rs 99 million) and its
3.50
percentage of sales is 2% mainly due to higher
3.00
interest and KIBOR rates. We are expecting further
2.50
increase in financial charges as company borrowed
2.00
heavily due of under going expansion plan.
1.50
1.00
However, six years other income CAGR is 46%
0.50
which is a remarkable growth in dividend income
0.00
FY02 FY03 FY04 FY05 FY06 FY07 FY08
and it is increased from (Rs 87 million to Rs 137
million) due to increased profit rates, while contrast
to 1QFY05.We foresee FFBL will maintain bottom
line growth at the constant pace but due 27 days
DPS production shut down for BMR they will unable to
achieve any remarkable growth. Average (FY02-05)
3.00 was 27.6% and it is being increased 1% in FY05 as
2.50 compared o FY04.
2.00

1.50
Recommendations
1.00
We are positive about the future performance of
0.50 FFBL. The net profit after tax is expected to grow to
0.00 Rs 2,580 million for FY06 and the expected earning
FY02 FY03 FY04 FY05 FY06 FY07 FY08 per share for the same period is Rs 2.8. We are also
positive about the dividends. The company has
maintained a good payout ratio of 75% percent.
Keeping in view a 5 percent increase in EPS, we
Payout Ratio
expect 20 percent final dividend for the company to
be announced for FY06.
90%
80%
70% Valuations
60%
50%
40%
We have assumed a 3 percent risk premium for our
30% valuations. The risk free rate is assumed at 9.35
20% percent in line with current PIB yields. Our
10% calculated beta is 0.81 and our rate of return on
0%
equity is thus calculated as 11.79 percent. With these
FY02 FY03 FY04 FY05 FY06 FY07 FY08
variables, our calculation of the weighted average
cost of capital reveal a rate of 5.5 percent. After
Dividend Yield discounting the projected free cash flows we have
calculated the firm's cost of capital in which each
9% category of capital is proportionately weighted. All
8%
7%
capital sources, common stock, and long-term debt -
HT TH HT TH

6% are included in a WACC calculation. With our

5% calculated WACC and keeping in view the growth
4% rate, we have arrived at a fair value of Rs 41.23 for
3%
2%
FFBL. On the basis of this fair value, we
1% recommend a buy for the company scrip. The upside
0% potential is currently around Rs 30 and the potential
FY02 FY03 FY04 FY05 FY06 FY07 FY08 return is 37 percent at current levels.

Page 10 of 24
 FFBL & ENGRO

7-Years at a Glance
FY02 FY03 FY04 FY05 FY06 FY07 FY08
Net Sales Revenue 3,953 5,167 11,462 14,254 16,179 17,597 19,514
Operating Profit 435 499 2,240 3,191 3,429 3,519 3,903
PBT 154 367 2,150 3,217 3,241 3,428 3,840
PAT 1133 502 1133 1752 1880 2057 2304
PAT Incl: Compensation 2,133 1,202 1,833 2,452 2,580 2,657 2,904
Taxation 979 135 1,017 1,465 1,361 1,371 1,536
Production/Sales Performance (000 Tones)
FFBL Urea Production 547 560 574 588 588 676 676
FFBL Urea Sales 530 575 580 588 593 605 623
FFBL DAP Production - 73 380 454 454 681 681
FFBL DAP Sales - 71 381 430 434 447 469
FFBL DAP Import Sales - 947 836 64 64 65 69
Financial Performance
Total Number of Shares 809.9 909.9 934.1 934.1 934.1 934.1 934.1
EPS 2.6 1.3 2.0 2.6 2.8 2.8 3.1
EPS - Adjusted 2.3 1.3 2.0 2.6 2.8 2.8 3.1
DPS - - - 2.00 2.07 2.22 2.42
DPS - Adjusted - - - 2.00 2.07 2.22 2.42
BVPS 4.70 6.60 7.65 8.27 8.96 9.59 10.27
BVPS- Adjusted 4.08 6.43 7.65 8.27 8.96 9.59 10.27

ROE 56% 20% 26% 32% 31% 30% 30%

ROA 11% 6% 8% 10% 10% 11% 12%
ROFA 13% 7% 12% 16% 17% 18% 21%
ROCE 13% 7% 11% 15% 15% 18% 19%
Retention ratio - - - 24% 25% 22 22
Payout Ratio - - - 76 75 78 78
EBITDA 1,353.0 1,417.3 3,170.1 4,130 4,302.5 4,393.0 4,756.3
Growth
PAT Growth - -44% 53% 34% 5% 3% 9%
PAT Growth Excluding - -56% 126% 55% 7% 9% 12%
GoP Compensation
PAT Growth Including - -44% 53% 34% 5% 3% 9%
GoP Compensation
Sales Growth - 31% 122% 24% 14% 9% 11%
EBITDA Growth - 5% 124% 30% 4% 2% 8%
EPS Growth - -50% 49% 34% 5% 3% 9%
Sustainable Growth - 0% 0% 8% 8% 7% 7%

Page 11 of 24
 FFBL & ENGRO

Share holder value

FY02 FY03 FY04 FY05 FY06 FY07 FY08
EPS 2.63 1.32 1.96 2.62 2.76 2.84 3.11
DPS 0.00 0.00 0.00 2.00 2.07 2.22 2.42
GCFPS 3.77 2.33 2.96 3.63 3.70 3.78 4.02
FCFPS 1.25 0.84 4.30 3.62 1.59 4.38 2.96
BVPS 4.70 6.60 7.65 8.27 8.96 9.59 10.27
EBITDA Per Share 1.45 1.52 3.39 4.42 4.61 4.70 5.09
Profitability
Gross Margin 26% 23% 28% 32% 31% 31% 32%
Operating Margin 11% 10% 20% 22% 21% 20% 20%
EBITDA Margin 34% 27% 28% 29% 27% 25% 24%
EBIT Margin 11% 10% 20% 22% 21% 20% 20%
Net Margin 54% 23% 16% 17% 16% 15% 15%
Interest Cover 1.36% 3.20% 26.6% 12.% 9.23% 13.02% 24.94%
Dividend Yield 0% 0% 0% 7% 7% 7% 8%
Equity Valuation
PE (x) 11.77 23.47 15.80 11.81 10.94 - -
PE Market (x) - - - - 9.70 - -
PE relative to market (%) - - - - 1.12 - -
P/GCFPS (x) 8.23 13.30 10.48 8.54 8.39 8.20 7.71
P/FCFPS (x) 24.09 35.81 7.02 8.34 18.95 6.90 10.20
P/BVPS (x) 6.60 6.60 4.05 3.75 3.46 3.23 3.02

DuPont Analysis
EBIT Margin 11% 10% 20% 22% 21% 20% 20%
1 - tax rate -535% 63% 53% 54% 58% 60% 60%
1 - (1/ interest cover) 26% 69% 96% 92% 89% 92% 96%
Assets Turnover
Financial Leverage 4.92 3.22 3.07 3.18 3.04 2.65 2.49
Return on Equity 56% 20% 26% 32% 31% 30% 30%
Return on Assets 11% 6% 8% 10% 10% 11% 12%

Page 12 of 24
 FFBL & ENGRO

Sell on Strength Fly in the Face of Facts

Fair Value: Rs 184

Recommendations

Assuming the 4% YoY Agriculture Sector Growth, 6%

Fertilizer Sector YoY Growth, 10% Fertilizer products,
particularly Nitrogen & Phosphates Demand, & 24%
ECPL sales revenue & strengthen product base in locally
manufactured and purchased fertilizer products we
recommend to Sell on Strength ECPL with a target price of
Rs185 over the next three years we expect the bottom line
of the company to increase by 11% ECPL is currently
trading at Rs 174 lower than its calculated DCF fair values
Rs184 thus offering of Rs10 upside potential. We also
believe that the company is going to announce a dividend
of Rs16 of its prospective earnings which leads to an
attractive yield of 7% making ECPL even more captivating
for medium & long term investment.

Investment Foundation
ENGRO CHEMICAL PAKISTAN
Overview   The year 2006 brings inspiring opportunities for the
Engro Chemical Pakistan Limited is the
country. Improvement in the economic fundamentals
second largest producer of Urea fertilizer in
and the attitude of hopeful agriculture augmentation,
Pakistan. The company was incorporated in
growing fertilizer make use of and scene of better water
1965 and was formerly Exxon Chemical
accessibility for irrigation in this angle ENGRO
Pakistan Limited until 1991, when Exxon
Chemical would play a dynamic role in upcoming years.
decided to divest their fertilizer business on a
global basis and sold off its equity of 75%
  ENGRO effectively materialize a diversification
shares in our company. The Employees of
strategy which will generate profits and operating
Engro, in partnership with leading
strategies focal point is to acquire dependability, good
international and local financial institutions
organization and productivity to humanizing the
bought out Exxon’s equity and the company
production methodology.
was renamed as Engro Chemical Pakistan
Limited. Engro is a public limited company
  To envisage the elevated demand of fertilizer, ECPL has
listed on the Stock Exchanges of Karachi,
been on track with respect to twofold the existing
Lahore and Islamabad.
capacity all the way through establishing the state of the
art ammonia plant.

Financial Performance   Engro chemical as part of its vision to diversify its

Face Value: 10 business has successfully launched of its first product
Book Value (2006F): 74 UHT milk under the brand name ‘OLPERS’. We seem
EPS (2006F): 26.9 that Pakistan dairy industry is less saturated and Engro
Outstanding Shares (mn): 152.94 foresees great opportunities in the dairy market
industry. In the medium and longer term EFL’s business
Price Performance is expected to be a high growth and profitable business.
Market Capitalization (mn): 21.794
ECPL PE 6.5X   We are positive about the future performance of ECPL
Sector PE 12.7X The net profit after tax is expected to grow to Rs…
ECPL PB 3.37X million for FY06 and the expected earning per share for
Sector PB 5.20X the same period is Rs28.89.

Page 13 of 24
 FFBL & ENGRO

ENGRO CHEMICAL PAKISTAN LIMITED

Historical Events

• The construction of a urea plant was started with the annual capacity of 173,000
tons in 1966.
• The construction of a urea plant was completed and commissioned at a cost of
US$ 43 million in 1968.
• A full-fledged marketing organization was established and given the important
task of effective marketing and commencing agronomic programs to educate the
farmers of Pakistan in 1968.
• The plant capacity was debottlenecked in low cost steps to 268,000 tons in 1990.
• The Pakven Project was launched, to increase its capacity to more than double
i.e. 600,000 tons in 1993. This also helped to relocate urea/ammonia plants from
UK/USA, with an investment of US$ 130 million.
• The plant capacity was further increased to 750,000 tons per annum with an
investment of US$ 23 million in 1995.
• Engro entered into first 50/50 joint venture with Royal Vopak of Netherlands to
form and built a fully-integrated state-of-the-art jetty and bulk liquid chemical
and LPG storage facility at a cost of US$ 65 million in 1995.
• The company successfully engineered and implemented an expansion program
that gave a major boost to the urea production and its capacity increased to
850,000 ton per annum in 1996.
• On October 10th 1997, entered into its second 50/50 joint venture called Engro
P P

Asahi Polymer & Chemical Limited (EAPCL) Company in collaboration with

Asahi Glass Company and Mitsubishi Corporation of Japan to build the first
world scale PVC resin manufacturing facility at a cost of US$ 80 million.
• Another innovative and modernization project called “Energy Conservation and
Expansion Strep” (ECES-850) was successfully implemented in 1998.The project
was constructed at a cost of US$ 72 million and had increased Engro’s annual
urea production capacity from 750,000 to 850,000 tons.
• On March 9, 1999 the Prime Minister of Pakistan Mian Muhammad Nawaz Sharif
formally inaugurates the 850KT expansion project at Daharki urea plant.
• On February 9th, 2000 General Parvez Musharaf, the Chief Executive of Pakistan
inaugurates Engro Asahi Polymer & Chemicals PVC resin manufacturing plant at
Port Qasim.
• On August 9th, 2002 Engro’s NPK fertilizer plant at Port Qasim inaugurated by
two Federal Ministers and on October 9th, Engro signs an MoU with Oman Oil
Company to build an ammonia urea fertilizer complex in Oman.
• April 28, 2003 Engro acquired controlling interest in the Automation & control
Division of Innovative Private Ltd. (INET). The new company will be called
Innovative Automation & Engineering (Private) Limited headquartered in
Lahore.
• Engro Foods (Private) Limited launched UHT Milk under the brand name of
Olper's in first quarter 2006. The plant has been erected at Sukkur at a cost of
approximately Rs 1 Billion.
• Engro Energy (Private) Limited formed. The plant capacity is expected to be
approximately 200 MW. Gas allocation has been made by the government from
Qadirpur field.

Page 14 of 24

Product Categories
Engro Urea is an excellent source of
Nitrogen for the vast majority of cultivated
soils of Pakistan.
Engro DAP contains 46% P2O5 and 18% N.
On an overall basis it suits to about 90% soils
of the country
Engro Zorawar is one of the highest grade
phosphate fertilizers. It is a good fertilizer for
all crops on all soils of Pakistan and produces
excellent results on alkaline soils.
NPK fertilizer is applied at various times
during crop's life cycle, Fertilizer application
at the time of seed sowing is called "basal",
whereas fertilizer application on the standing
crop is called "top dressing". Engro NPK was
re-launched as Engro Zarkhez in May 2004.
EZingro is a powerful brand whose product
attributes help in increasing the number of
flowers and fruit in a plant and is an essential
nutrient for all crops
Zingro Danedar Zingro Danedar is used for
soil application and is widely used on a
majority of crops. It is available in a 3kg
SKU and contains guaranteed 33%
(minimum) water soluble zinc content.
Zingro Spray is used for foliar application
and is used on crops that are best suited for
spray applications. It is available in a 350gm
SKU and contains guaranteed 33%
(minimum) water soluble zinc content, which
is higher than any other available brand in the
market.
Various Grades of Zarkhez
Grades Blends Crops used on
Green 08 : 23 : 18 Potato, Maize
Sugar cane, Chillies,
Pink 08 : 18 : 20
Vegetables
Blue 17 : 17 : 17 Citrus, Other fruits
White 12 : 15 : 20 Tobacco
Yellow 10 : 28 : 10 Rice, cotton, Wheat
Mangoes, Apples,
Grey 18 : 09 : 18
Bananas
FFBL & ENGRO
Subsidiaries, Joint Ventures & Diversification
Plans
Engro Vopak Terminal Limited (EVTL) is a 50/50
HU UH
joint venture with Royal Vopak of the Netherlands, a global
provider of independent tank terminal capacity for chemical
and oil products. EVTL owns and operates a jetty and
integrated bulk liquid chemical and LPG storage at Port
Qasim The company has facilitated investments of US$ 1
Billion in the Pakistani chemical industry and is ISO 9001 /
14001 / 18001 and CDI-T certified. The company continues
to actively pursue opportunities to expand and diversify its
terminal operations in the region through value added
services. EVTL has a developed experience and
specialization in handling different types of chemicals and
liquefied gases.
Engro Asahi Polymer & Chemicals Limited
HTU
(EAPCL) is a 50/50 joint venture with Asahi Glass
UTH
Company and Mitsubishi Corporation of Japan. A PVC resin
manufacturing facility plant with an initial capacity of
100,000 tons per annum at Port Qasim. Engro Asahi
Polymer & Chemicals Limited (EAPCL) is a joint Venture
Company set up by Engro Chemicals Pakistan Limited,
Asahi Glass Company (AGC) and Mitsubishi Corporation
(MC). The equity stakes of the above mentioned companies
are 50%, 30%, and 20% respectively. This is the first Project
undertaken by any company in the manufacturing of PVC.
The plant is located at Port Qasim, which is a little over
50km from the city of Karachi in Pakistan.
Innovative Automation & Engineering (Private)
HTU
Limited (IAEL) was acquired in April 2003 with 51%
UTH
interest in the Automation & Control Division of Innovative
(Private) Limited, a Lahore (Pakistan) based company that
provides process control industrial solutions in the
knowledge based services sector. The joint venture has been
named as Innovative Automation & Engineering (Private)
Limited (IAEL). The acquisition was part of Engro’s
diversification strategy. IAEL commenced as a business
T
division of Innovative Pvt. Ltd. (IPL) in July 1995 to
implement industrial automation, electric engineering &
process control systems for the local industry. In April 2003,
it was acquired by Engro Chemical Pakistan Ltd (ECPL) to
T T
form an ECPL subsidiary. T
UHT Milk Plant Engro has set up a milk processing facility
U U
to produce and market branded UHT milk, cream and other
milk products. The plant to be located in Sukkur is expected
to cost Rs 1 billion and will be completed by March end
2006. All major equipment is on order and civil construction
is expected to commence soon. Engro plans to procure raw
milk supplies from Sindh and lower Punjab.
Page 15 of 24

ENGRO Core Business Strategies
Engro is an agri based company. Core
business of ECPL is manufacturing and
marketing of chemical fertilizers. Engro is
Pakistan’s one of the largest producers of
urea fertilizer which is manufactured at
Daharki and marketed under brand name
Engro. They also produce crop specific NPK
fertilizers at plant of Port Qasim Karachi
and these are marketed under the brand
name of "Zarkhez". Engro also markets
imported MAP fertilizer under the brand
name of "Zorawar" and imported DAP
fertilizer. The company also markets
micronutrients Zinc Sulphate branded as
"Zingro" and Boron branded as "Zoron".
Key Statistics
Bloomberg: ENGRO PA
KATS: ENGRO
Price: PKR 177 (Prices on 25th July 2006)
P P
Estimated Free Float: 69%
3m Avg. Traded Value: PKR …Million
12 Month High/Low: PKR 150/89.30
Major Shareholder: Dawood Group 24%
KSE-100 Index Weight: 1.1%
Total Gas Allocation: 103 MSCFD
Engro Share Performance
300
250
200
150
100
50
0
1 52 103 154 205 256 307 358 409 460 511 562
Engro Pices KSE 100 Index
FFBL & ENGRO
History
Engro Chemical Pakistan Ltd (ECPL) was established
to help farmers, maximizing their farm produce by
providing quality plant nutrients and technical services
upon which they can depend. To make sure, sustained
and efficient fertilizer plant operations and to cater to
the proposed expansion and diversification, ECPL
involved in an annual purchases of over US $ 55
million, for the base plant alone. Purchasing by far one
of the largest single functions performed at ENGRO.
Gas Allotment – Better Late Than Never
Engro obeyed the rule of Fertilizers Policy 2001 and
applied first for feedstock provision. GoP has asked the
interested parties to submit statement of Qualification
(SoQs) latest by 15th Aug 2006 which must include the
P P
detail of financial position, technical expertise, total
cost of project, major shareholding infrastructure, and
debt/equity ratio.
Furthermore as for as our financial projections are
concerned, we have not incorporated expansion impact
in our hypothetical assumption and model but we
believe that, after decision of gas allocation to Engro
for setting up a Ammonia plant in Daharki would more
or less twice over Engro’s urea production capacity by
3rd quarter FY09.
P P
Latest Climb of Feed stock
The fertilizer sector is the second largest gas end user
in the country after the energy sector, utilizing roughly
23% of annual gas production and continues to be
affected by gas price revisions. Gas prices have been
increased twice during the year and feedstock gas rates
total surge in gas rates (feed and fuel) for the fertilizer
industry stood at 22.5%.
Page 16 of 24

ENGRO SWOT Breakdown
Strengths
• Performance based management
• Multidimensional diversification
strategies
• Strong marketing activities
• Continuous improvement & quality
management
Opportunities
• Rising industry demand trends
• Higher fertilizer prices
• Export opportunity in Asian
countries
Weaknesses
• Shareholder influence
• Burning candle from both ends
Threats
• Strong competition
• Commencement of Fatima
Fertilizers
• Rising Feed stock & Fuel prices
• Gas Curtailment
• Delay in Gas Allocation
• Weather & Environmental
Conditions
• Use of substitute products
FFBL & ENGRO
ENGRO Urea Production Capacity
ECPL has remained in the midst of the industry when
it comes to enhancing the production capacity. True
that the demand has been towering and the local
industry was not able to convene the demand. ENGRO
urea production design capacity is 850 thousands tones
but its production during FY05 was 912 thousands
tones represents 5% increase over FY04. ECPL
continuously has undertaken a harmonizing measure
to attain maximum utilization capacity.
Zarkhez Production Capacity
Boiler plate Zarkhez plant capacity is 100 thousand
tones. During the FY05, the production was 157
thousand tones stand for an increase of 30% while
compared to Zarkhez production achieved last year.
For this percentage Zarkhez plant at present utilizing
157% production capacity, 57% above to name plate
capacity.
Expansion (1FY09) – Consciousness Continues
Expansion of world scale urea plant in Daharki is not
yet to be decided and its construction is mainly subject
to gas allocation decision by the GoP. ENGRO eagerly
linger for the final decision. Unquestionably, NPAT
will be considerably enlarged and market share of
ENGRO will jumps to 50% just after expansion.
Page 17 of 24
 FFBL & ENGRO

ENGRO - Engage in Recreation

Urea Design Capacity Since, last 10-years ENGRO is being engaged in
uninterrupted enlargement of its share value and have
1,000 115%
shown unrelenting and solid ideas. In 1966 company
800 110%
600 105%
had annual urea design capacity was 173 thousand
400 100% tones but on hand ECPL per annum urea design
200 95% capacity is 850 thousand tones.
0 90%
FY0 2 FY0 3 FY0 4 FY0 5 FY0 6 FY0 7 FY0 8
Witnessing the balanced used of fertilizer nutrients in
Urea Design Capacity Utilization(%) the country and increasing demand/supply gape creates
intense opportunity for fertilizer manufacturers to reap
profit margins. Engro takes an opportunity of
capitalizing on the huge unexplored potential of NPK
fertilizer and on August 9th, 2002 Engro’s NPK
fertilizer plant at Port Qasim had started its production
with initial production capacity of 100 thousand tones
Zarkhez Design Capacity per annum.
120 200%
100
150%
Over a decade, the cumulative average growth rate of
80 urea production stands at 2% and company achieved
60 100%
40
the 38% CAGR of Zarkhez (NPK) production volume.
50%
20
- 0% As for as company sales growth is concerned ECPL’s
FY0 2 FY0 3 FY0 4 FY0 5 FY0 6 FY0 7 FY0 8
10-year sales volume CAGR is 2% and 43% for
Zarkhez Design Capacity Utilization(%) Zarkhez (NPK).

ECPL also markets the imported MAP fertilizer under

the brand name ‘Zorawar’ and imported DAP fertilizer.
The CAGR of the purchased volume for the past ten
years stand at 5%..

Success Story

Witnessing the fertilizer demand and its shortfall in the

country creates intense opening for fertilizer
manufacturers to reap vigorous windfalls. The gross
margins on ENGRO manufacturing business have been
all time higher than that of its trading and marketing
business.

For 1QCY06 profit margins register a enlargement of

22% as compared to same period last year. Likewise,
Gross margin for FY05 stands at 21 percent 5 percent
less than that for gross margins achieved by FY04.
Decline in the manufacturing gross margins indicate
that cost of sales is increased at very high rate.

Page 18 of 24
 FFBL & ENGRO

ECL research forecast the same growth pattern of

Gross Margin- Top Line ENGRO bottom line. We view that, company will
obtained the target of Rs 20,344 million profit after tax
35%
for FY06 and PAT CAGR (FY06-08) should be 8.94
30%
percent.
25%
20%
To ensure, unrelenting and proficient operations of the
15%
fertilizer plant and trade with suppliers and
10%
manufacturers for improving effectiveness of its
5%
Supply Chain Management and building a long term
0%
business partnership. ENGRO 6 Years revenue CAGR
FY02 FY03 FY04 FY05 FY06 FY07 FY08
is 16% and sales for the FY05 grew by 11%.

Operating Margin For 1QCY06 net sales registered a growth of 19% as

compared to same period last year.
25%

20% We view that, company has to register a 12% increase

in sales during FY06.
15%

10% Earning commencing from EVTL, EACPL,

5% IAEL
0%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 EVTL showed the 3 year 25% CAGR. Company
achieved the Profit after tax for FY05 ….million ….%
higher than FY04. EVTL has paid 60% average
dividend to Engro so far. We expect the positive
Net Margin - Bottom Line growth of EVTL in coming years and dividend income
will increase the earnings of Engro.
14%
12% EACPL registered a ….year …% CAGR and paid
10% cumulative share amounted to Rs 134 million in FY05
8%
first time. EACPL is making feasibility for expansion
6%
and back integration which is likely to be completed
4%
2%
during FY06.
0%
Disbursement
02

03

04

05

06

07

08
FY

FY

FY

FY

FY

FY

FY

The company has maintained a balanced payout ratio

EBITDA Margin at an average of 45 percent. The company for the FY05
declared 50 percent final dividend compared to 40
30% percent in FY04.
25%
20% We expect that the company would keep up this ratio
15% in the get up of rising EPS for FY06 and the expected
10% earning per share for the same period is Rs16.74. We
5% are also optimistic about the dividends and according
0% to our expectations ENGRO will declare 55 percent
FY02 FY03 FY04 FY05 FY06 FY07 FY08
final dividend for FY06.

Page 19 of 24
 FFBL & ENGRO

Assessment
EPS
We have assumed a 3 percent risk premium for our
20 valuations. The risk free rate is assumed at 8 percent in
line with current PIB yields. Our calculated beta is
15 0.18 and our rate of return on equity is thus calculated
10 as 8.54 percent. With these variables, our calculation
of the weighted average cost of capital make known a
5 rate of 6.7 percent. A growth rate of 4 percent is
0 assumed for valuations.
FY02 FY03 FY04 FY05 FY06 FY07 FY08

After discounting the projected free cash flows we

DPS have calculated the firm's cost of capital in which each
category of capital is proportionately weighted. All
25 capital sources, common stock, and long-term debt -
HT TH HT TH

are included in a WACC calculation. With our

20
calculated WACC and keeping in view the growth rate,
15 we have arrived at a fair value of Rs 184 for ENGRO
10
Chemical Pakistan Limited. On the basis of this fair
value, we recommend a Sell on Strength for the
5 company scrip. The upside potential is currently
0 around of Rs10 and the potential return is 5.75 percent
at current levels.
02

03

04

05

06

07

08
FY

FY

FY

FY

FY

FY

FY

BVPS

60
50
40
30
20
10 Dividend Yield
0
12%
02

03

04

05

06

07

08
FY

FY

FY

FY

FY

FY

FY

10%
8%
Payout Ratio 6%
4%
120%
2%
100%
80% 0%
60%
02

03

04

05

06

07

08
FY

FY

FY

FY

FY

FY

FY

40%
20%
0%
02

03

04

05

06

07

08
FY

FY

FY

FY

FY

FY

FY

Page 20 of 24
 FFBL & ENGRO

Performance Measurement Tool

FY02 FY03 FY04 FY05 FY06 FY07 FY08

Net Sales Revenue 10.620 11,884 12,798 18,276 20,344 22,984 26,305
Operating Profit 2,327 2,534 2,233 2,641 2,848 2,758 2,630
PBT 1,836 2,323 2,315 3,220 3,555 3,614 3,801
PAT 1,133 1,557 1,611 2,319 2,560 2,530 2,471
Taxation 703 766 704 900 995 1,084 1,330
Property, Plant Equip 6,865 6,648 6,492 6,351 665 562 2,027
Capital Expenditure 823 370 520 377
Long Term Investment - 85 - 748 2,498 2,998 3,598
Long Term Loans & 75.2 51.9 65.6 65.9 66.3 66.9 99.4
Advances

Shares Outstanding 139.0 153 153 153 153 153 153

DPS (Rs) 7.5 8.0 8.5 11.0 15.9 17.37 16.9
Dividend Payout Rate 104% 79% 81% 73% 95% 105% 105%
Bonus Shares 10% - - - - - -

Engro Urea Production (MT) 852 955 870 912 912 912 912
Engro Urea Sales 846 930 891 890 894.9 899.8 904.8
Zarkhez Production 73 72 121 157 157 157 157
Zarkhez Sales 64 86 114 143 150 157.7 165.5
Purchased Fertilizer sales 309 290 250 491 520 562 590

Comparative Analysis
Total Number of 139.0 152.94 152.94 152.94 152.94 152.94 152.94
Shares
EPS 8.2 10.18 10.5 15.2 8.9 8.1 8.9
EPS - Adjusted 7.4 10.2 10.5 15.2 8.9 8.1 8.9
DPS 7.50 8.00 8.50 11.00 8.89 8.54 10.23
DPS - Adjusted 6.82 8.00 8.50 11.00 8.89 8.54 10.23
BVPS 38.34 37.03 43.06 48.22 34.07 34.49 33.62
BVPS- Adjusted 34.85 37.03 43.06 48.22 34.07 34.49 33.62
ROE 21% 27% 24% 31% 0.26 0.24 0.26
ROA - 12% 12% 16% 20% 17% 16%
ROFA - 22% 23% 34% 6323% 5783% 6329%
ROCE 12% 16% 16% 21% 19% 17% 24%

Page 21 of 24
 FFBL & ENGRO

Retention ratio 8% 21% 19% 27% 5% -5% -5%

Sustainable - 6% 5% 9% 2% -2% -2%
Growth
Payout Ratio 92% 79% 81% 73% 100% 105% 115%

Balance Sheet Quality

Gearing - TD/Net 100% 74% 65% 62% 99% 117% 70%
worth
Debt / Equity 50% 42% 39% 38% 50% 54% 41%
Equity / Debt
Total Debt / Total - 7% 5% 7% 59% 56% 13%
Assets
Asset Turnover 95% 97% 130% 302% 302% 322%
Current Ratio 0.00 0.33 0.35 0.36 0.51 0.52 0.53
Efficiency
Inventory Turn. - 32 26 10 10 10 10
Rec. Turn. 0.73 1.39 1.18 0.91 0.90 0.75 1.75
Days Inventory 11.53 13.79 38.30 36.40 36.40 36.40
Days Receivable 499.58 262.24 309.28 399.0 404.22 485.40 208.21
F Charges/EBIT 6% 9% 13% 11% 5% 6% 2%
Growth
Sales Growth - 11% 5% 30% 9% 11% 15%
EBITDA Growth - -10% -10% 16% 8% 0% -6%
EPS Growth - 37% 3% 44% -41% -9% 9%
GCFPS Growth -
Assets Growth - 2% 7% -53% 13% 11%
PAT Growth - 37% 3% 44% -41% -9% 9%
Per share
EPS 8.15 10.18 10.53 15.16 8.89 8.13 8.90
DPS 7.50 8.00 8.50 11.00 8.89 8.54 10.23
GCFPS 11.66 10.18 10.85 15.16 11.79 11.17 8.90
FCFPS 20.22 42.74 19.48 19.52 2.44 11.54 (4.17)
BVPS 34.85 37.03 43.06 48.22 34.07 34.49 33.62
EBITDA Per 18.40 16.57 14.92 17.27 18.62 18.58 17.48
Share
Profitability
Gross Margin 33% 32% 26% 21% 20% 20% 20%
Operating Margin 21% 21% 17% 14% 12% 11% 10%
EBITDA Margin 26% 21% 18% 14% 14% 13% 10%
EBIT Margin 21% 21% 17% 14% 12% 11% 10%
Net Margin 10% 13% 13% 13% 7% 5% 5%
Interest Cover 15.80 10.95 7.82 9.43 20.75 16.08 59.59
Dividend Yield 4% 5% 5% 7% 5% 5% 6%

Page 22 of 24
 FFBL & ENGRO

Equity Valuation
PE (x) 20.25 16.21 15.67 10.88 18.56 20.30 18.54
PE Market (x) 7 10 12 12 12 12 12
PE relative to 2.89 1.62 1.31 0.91 1.55 1.69 1.55
market (%)
P/GCFPS (x) 14.15 16.21 15.21 10.88 14.00 14.77 18.54
P/FCFPS (x) 8.16 3.86 8.47 8.45 67.64 14.30 -39.53
P/BVPS (x) 4.30 4.46 3.83 3.42 4.84 4.78 4.91
DuPont Analysis
EBIT Margin 21% 21% 17% 14% 12% 11% 10%
1 - tax rate 62% 67% 70% 72% 72% 70% 65%
1 - (1/ interest 94% 91% 87% 89% 95% 94% 98%
cover)
Assets Turnover - 95% 97% 130% 302% 302% 322%
Financial - 2.27 2.00 1.91 1.27 1.42 1.62
Leverage
Return on Equity 21% 27% 24% 31% 26% 24% 26%
Return on Assets - 12% 12% 16% 20% 17% 16%

Page 23 of 24
 FFBL & ENGRO

Joint Ventures & Subsidiaries – Technical Details

ENGRO Vopak Terminal Ltd (EVTL)
Joint venture company Royal Vapak of Netherlands
Equity Held 50%
Basis Operation Owns & operates liquid chemical & LPG terminal at Port Qasim
Volume Handling Capacity 885,000 Tones
FY05 PAT 438 million
Dividend Paid for FY05 60%
ENGRO share of dividend payout Rs.270 million

ENGRO Asahi Polymer & Chemical Ltd (EACPL)

Joint venture company Asahi Glass & Mitsubishi Corporation Japan

Equity Held 50%
Basis Operation Manufacturing & Marketing of PVC Resin
Production Volume FY05 91,000 Tones
FY05 PAT 438 Million
FY05 Domestic & Import Sales 94,000 Tones
Dividend Paid for FY05 15%
ENGRO share of dividend payout Rs. 134 Million

Innovative Automation & Engineering (Pvt) Limited (IAEL)

Joint venture company Royal Vapak of Netherlands

Equity Held 50%
Basis Operation Owns & operates liquid chemical & LPG terminal at Port Qasim
Volume Handling Capacity 885,000 Tones
FY05 PAT 438 million
Dividend Paid for FY05 60%
ENGRO share of dividend payout Rs.270 million

Salman Bashir Memon Important Disclaimer:

Financial & Research Analyst
Regional Portfolio Manager
Eastern Capital Limited Sukkur.
Cell: 0301-3810391 / 0301-8278367
Tel: 071-5620965 / 071-9310685
Email: somimemon24@yahoo.com
This report has been prepared for information
purpose only. All facts and figures have been
taken from the sources that are considered
reliable. The view and opinions expressed in
this report do not guarantee any accuracy or
completeness. ECL and its employees bear no
liability for any direct or indirect consequential
loss arising from use of this report.

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