Companies:-

1. Engro Chemical Company Ltd 2. Fauji Fertilizer Company Ltd. 3. Fauji Fertilizer Bin Qasim Ltd. (for calculating industry average)

ENGRO CHEMICHALS PAKISTAN LIMITED

Introduction: Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in Pakistan.
The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited until 1991, when Exxon decided to divest their fertilizer business on a global basis and sold off its equity of 75% shares in our company.

The Employees of Engro, in partnership with leading international and local financial institutions bought out Exxons equity and the company was renamed as Engro Chemical Pakistan Limited. Engro is a public limited company listed on the Stock Exchanges of Karachi, Lahore and Islamabad.

Location of Head Office:

Clifton Karachi Regional Offices: Hyderabad Quetta Nawabshah Rahim Yar Khan D G Khan Multan Lahore Gurjanwala D I Khan

Factories:
Dharki, Sindh. Bin Qasim, Karachi

PRODUCT OFFERED

FERTILIZER BY ENGRO CHEMICAL PAKISTAN LTD

Nitrogenous Fertilizers: . Engro UREA is a trusted, high-grade fertilizer which is suitable for all crops on all types of soils. Engro Urea is an excellent source of Nitrogen for the vast majority of cultivated soils of Pakistan.

Phosphatic Fertilizers . Engro DAP: contains 46% P2O5 and 18% N. It is a good source of P fertilizer for all crops. It is an equally good source on problem soils. On an overall basis it suits to about 90% soils of the country.

. Engro Zorawar: is one of the highest grade phosphatic fertilizers. It is acidic in reaction more than 90% is water soluble. It is a beneficial fertilizer for all crops on all soils of Pakistan and produces excellent results on alkaline soils, due to its acidic nature. . Engro Phosphate: is brown colored mono ammonium phosphate with 11% nitrogen and 52% phosphorus. It is being marketed as relatively cheaper alternate of DAP.

Blended Fertilizers . Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield by providing balanced nutrition for a wide variety of crops through the uniform availability of Nitrogen, Phosphorous and Potassium. Fertilizers have low moisture content, high crush strength; 2mm-4mm granule size and free flowing nature attributes which ensure excellent handling and application characteristics. . Engro NP: It provides 22% nitrogen, and 20% phosphorus. ECPL entered into NP business in 2005 to Primary focus area for ENP marketing is South Zone (Sind).

Micro Nutrients: . Zingro: Zinc Sulphate, a highly effective, primarily targets Zinc deficiency in crops like Rice, Potato, Maize, Sugar cane, Wheat, Cotton, vegetables and fruits. Zingro increases crop yield and enhances crop appearance.

FAUJI FERTILIZER CORPORATION

Introduction: FFC was incorporated in 1978 as a PVT. Basically this was the joint venture between Fauji foundation and Haldor Topsoe of Denmark. The initial capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0 Billion. FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited).

Location of Office: Rawalpindi

Regional Offices: Multan Lahore Sukkar Mirpur khas

Nawabshah

Plant Location: There are 3 plants of FFC in Pakistan 2 plants are located in Goth Machhi 1 plant in Mirpur Mathelo

PRODUCT OFFERED

. Sone Urea: most widely used fertilizer in the country. Fertilizer is white in color, free flowing, readily soluble in water and both contain 46% Nitrogen. Because of its high solubility, it is suitable for solution fetilizers.

. Sona DAP: is the most concentrated phosphatic fertilizer containing 46% P2O5 and 18% Nitrogen. It is the widely used phosphatic fertilizer in the world as well as Pakistan. The solubility of DAP is more than 95%. Its nitrogen to phosphorus ratio ( 1 : 2.5 ) makes it an ideal fertilizer, to meet the initial requirement of most of the crops.

. Sona SOP: This fertilizer is an important source of Potash, which is a quality nutrient for production of crops especially fruits and vegetables. Potash improves the resistance of the plants against pests, diseases and stresses like water.

GEOGRAPHICAL LOCATION OF FERTILIZER COMPANIES

FACTORIES LOCATION CITIES Bin Qasim Sheikhupura Sadiqabad, Rahim Yar Khan Multan Haripur Faisalabad Mirpur Mathelo, Dist Gotki Daudkhel NUMBER OF FACTORIES 2 1 2 1 2 1 1 1

WAREHOUSES Mian Chunnu Faisalabad Khanewal D.G. Khan Dera Ismail Khan Sukkhar Lahore Karachi Larkana Dadu Thatta Mirpur khs Nawabsha Multan Sheikupura

TOTAL PRODUCTION OF FERTILIZER INDUSTRY

(IN THOUSAND TONS) YEAR 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2007-2008 (JULYMARCH) 2008-2009 (JULYMARCH) UREA SUPER PHOSPHAT E 21.6 145.8 159.6 161.0 147.2 167.7 163.1 16.8 148.9 157.6 114.8 143.2 AMMOMIU M NITRATE 338.8 386.5 374.4 329.4 335.3 350.4 329.9 327.9 330.8 343.7 246.0 245.7 NITRO PHOSPHAT E 265.0 261.3 282.5 305.7 304.9 363.5 338.9 356.6 325.8 329.7 218.4 218.4 AMMONIU M SULPHATE -

3521.7 3785.0 4005.1 4259.6 4401.9 4431.6 4606.4 4806.4 472.5 4924.9 3660.5 3652.4

CRITERIA FOR SELETING THESE COMPANIES AS MAJOR PLAYERS

As the graph shows the market share of all the players of the industry, it is clearly shown that major players of the industry are ENGRO and FFC. And this is the reason for selecting these companies as the major players.

IMPACT ON THE INDUSTRY Since these (ENGRO, FFC) are the major players of this industry, they enjoy as the price setter in the industry. They have so much influence on the other players and they are also a barrier to the new entrants. The new comers will not have to face intense competition but huge competitors like these.

TRADE ASSOCIATION In this particular industry, there is no local trade association in the country. The country is the member of the International Fertilizer Association (IFA). Pakistan trade Union defense campaign (PTUDC) which works for safeguarding the rights of the workers

ANALYSIS OF FINANCIAL RATIOS :- ( FAUJI FERTILIZERS)

Liquidity ratios

Current ratio; 2009 0.84 (2008 0.82) Current assets increased during the year and the increase was majorly in short term investments and cash and bank balances which showed that the liquidity position of the company had improved as per the previous year. The increase in short term investments was by 92% and in cash and bank balances by 300%. However, this positive increase was offset by the increase in liabilities where trade and other payables increased by 33% and short term borrowings increased by 100%, thus making the overall position stand at the same level where it was in the last year.

Quick ratio; 2009 0.66 (2008 0.54) Quick ratio increased because of the decline in stock levels at year ends. In 2009, stores and spares and stock in trade were significantly lower as compared to 2008 levels, thus affecting the quick ratio. On the other hand, other things remained the same as per the justifications given in the above paragraph.

Cash ratio; 2009 0.59 (2008 0.38) The improvement in the ratio can be attributed the significant increase in short term investments which were made by the company due to surplus cash available being supported by better operations and increased sales of 18% as compared to last year.

Efficiency turnover ratios Receivable turnover; 2009 96.07 (2008 27.58) The increase in the ratio is supported by the increase in sales by 18% whereas debtors did not report a significant increase. Credit period remained the same as per the company policy. Thus, the only change in the ratio is due to sharp increase in sales.

Receivable turnover in days; 2009 3.80 (2008 13.23) The reasons mentioned above can be used for justification of the change in the ratio. The paragraph above states that sales increased by 18% as compared to last year, thus increasing the debtor turnover because of which the ratio in days also improved by greater value.

Total asset turnover; 2009 0.94 (2008 0.96) The ratio has decreased insignificantly and the reason is the change in assets. Assets increased by Rs. 7 billion in totality whereas sales increased by Rs. 6 million, thus the change in sales being offset by increase in assets.

Fixed assets turnover; 2009 2.58 (2008 2.40) The ratio has increased because of the 18% increase in sales as compared to last year whereas the change in fixed assets was by 6%, the main increase being in property, plant and equipment due to additions of assets.

Equity turnover; 2009 2.76 (2008 2.49) The reason in the increase in turnover is due to the sharp increase of 18% in sales as compared to last year whereas the increase in equity was minimal.

Gross profit margin; 2009 0.43 (2008 0.40) There are two major components of this ratio; sales and cost of sales. Sales of the company increased by 18% whereas cost of sales increased by 12%. The company was able to manage its margin by increasing its sales and by controlling its costs.

Operating profit margin; 2009 0.34 (2008 0.32) The reasons mentioned above, which justify the increase in gross profit ratio can be used to answer the change in operating profit. The other element, distribution costs, had no major impact as it changed insignificantly.

Pre tax margin; 2009 0.36 (2008 0.33) The ratio remained almost same as compared to last year. Although the sales had increased by 18%, Other expenses and distribution costs increased because of which the increase in sales was affected. However, the position is better as compared to last year.

Net profit margin; 2009 0.24 (2008 0.21) The net profit margin increased as compared to last year as a result of increased sales and controlled costs. The increase in sales was far better as compared to the increase costs, thus keeping the ratio on the positive side.

Return on assets; 2009 0.36 (2008 0.34) The return on assets did not change significantly and the slight increase can be observed due to the 18% increase in sales. Moreover, assets also increased in the same proportion, thus the ratio remained at the same level.

Return on total equity; 2009 0.67 (2008 0.53) The ratio has increased sharply due to equity remaining at the same level, while sales jumped up by 18%, thus making the position for the shareholders far better as compared to previous year.

Debt to capital; 2009 1.95 (2008 - 1.6) The main reason behind the increase in this ratio is the increase in current liabilities. Short term borrowings increased by 100% to reach at an amount of Rs. 6 million whereas trade and other payables also increased by Rs. 2 million. On the contrary, equity reflected a minor change which was immaterial.

Debt to equity; 2009 0.26 (2008 0.30) The ratio is changed as compared to last year. The small change is due to the change in amounts of borrowings which decreased the areas of short term borrowings by Rs. 6 million and in trade and other payables by Rs. 2 million.

Interest coverage ratio; 2009 12.82 (2007 13.44) The change in interest coverage ratio is minimal as compared to last year. But still the company needs to manage its finances properly, the finance cost has increased due to which the interest coverage ratio has decreased.

Payout ratio; 2009 73% (2008 79%) last year company declared greater dividends as compared to this year, therefore the payout ratio in the year 2009 was lower than 2008.

ANALYSIS OF FINANCIAL RATIOS :- (ENGRO CHEMICAL PAKISTAN LIMITED)

Current ratio; 2009 1.68 ( 2008 2.01) The ratio has declined significantly due to a fall in current assets by Rs. 2 million whereas current liabilities increased by a small amount, thus making the difference and creating a negative impact on the ratio.

Quick ratio; 2009 1.46 (2008 1.09) This ratio has increased because of the decline in inventory levels of Rs. 4 million at the end of the financial year end, because of which the liquidity position has improved.

Cash ratio; 2009 0.70 (2008 0.54) The position of cash flow improved for the company and it was able to hold Rs. 2.2 million of surplus cash as compared to last year, thus contributing positively to the liquidity position of the company.

Receivable turnover; 2009 67.59 (2008 89.16) The main reason behind the sharp fall in the ratio is the increase of Rs. 2.2 million in trade debts. This increase in trade debts is the reason for turnover to decrease.

Payable turnover; 2009 31.99 (2008 11.98) The change can be attributed to change in cost of sales which increased by Rs. 6 million or 35% as compared to last year. Furthermore, there was a decline in stock levels by Rs. 4 million and which accounted to 90% of the previous years figure, thus quantifying the decrease in payable turnover in days.

Payable turnover in days; 2009 11.41 (2008 30.47) As the above ratio suggests that payable turnover in times has increased, the simultaneous ratio showing that how many days are required for the turnover is also showing a positive change suggesting that in 11 days the stock turnover takes place as compared to 30 days in the last year.

Total asset turnover; 2009 0.32 (2008 0.41) The fall in the ratio can be linked with the fact that assets in totality increased by Rs. 36 million (64%) as compared to the last year whereas sales increased in a lower proportion of 30% (Rs. 6 million) thus reducing the asset turnover ratio overall to 0.32 from 0.41 in 2008.

Fixed asset turnover; 2009 0.69 (2008 - 0.36) The main reason behind the increase in this ratio is the sharp rise in fixed assets due to purchase of property plant and equipment. The additions were worth Rs. 35 million and were showing an increase of 83% as compared to 2008. On the other hand, sales did increase by 47% which is huge change and due to which fixed assets were utilized to its most.

Equity turnover; 2009 1.12 (2008 1.11) There was not a major change in this ratio as equity changed with almost the same amount as compared to sales. The change in equity was of Rs. 5.8 million (27%) and the change in sales was of Rs. 6.8 million (20%) as compared to financial year 2008.

Gross profit margin; 2009 0.23 (2008 0.27) In the financial year 2009 costs and sales increased simultaneously by approximately Rs. 6 million. But the proportion of change in the two elements was different. The change in sales was of 30% whereas in the case of cost of sales the change was 36%, because of which the gross profit margin declined as compared to last year.

Operating profit margin; 2009 0.17 (2008 0.19) The change in the operating profit is evident as compared to last year. The decrease can be justified from the reasons given in the above mentioned paragraph where it is seen that cost of sales increased in a greater proportion as compared to the increase in sales which therefore impacted the operating profit margin as well.

Pre-tax margin; 2009 0.17 (2008 0.22) Pre tax margin has also changed. The main reason is the significant rise in cost of sales by 36%, whereas other most important element i.e sales reported a comparatively lesser rise. Other elements of the ratio such as distribution costs, other income, financial charges changed but their effect in totality was immaterial because of which they did not contribute much to the changing of this ratio.

Net profit margin; 2009 0.13 (2008 0.18) The reasons given in the above 3 paragraphs also justify the decline in net profit margin. The main reason being the surge in cost of sales with a greater proportion of 36% as compared to the proportionate rise in sales of 30%.

Return on assets; 2009 0.07 (2008 0.12) The net profit for the year remained unchanged however there was a significant rise in total assets of Rs. 36 million (net) or 63% as compared to the financial year 2008. The change can be observed in property plant and equipment of Rs. 35 million and increase in cash and cash equivalents at year end of Rs. 2.5 million.

Return on total equity; 2009 0.15 (2008 0.20) The profit for the year remained unchanged as compared to last year. On the contrary, equity increased during the year due to further issue of shares, thus making the ratio of return on equity less as compared to year ended 2008.

Debt to capital ratio; 2009 0.71 (2008 0.63) The reason behind the surge in this ratio is the significant increase in borrowings by Engro. Long term borrowings increased by Rs. 30 million which is 111% as compared to year 2008. Similarly, trade and other payables also increased along with borrowing costs in form of accrued markup. On the contrary, equity did not increase to match the rise in borrowings because of which the ratio has risen to a negative side.

Debt to equity ratio; 2009 67% (2008 53%) The reason mentioned above in debt to capital ratio can be used to justify the change in this ratio. The change in borrowings was greater as compared to the change in equity because of which the ratio has worsened. This shows that the company is highly geared and the ratios need to be considered and measures need to be taken to curtail leverage so as to improve the financial position and strategic outlook of the company.

Interest coverage ratio; 2009 1.44 (2008 25.32) This shows that the company has increased its use of debt financing. The interest coverage ratio of EPCL has decreased by 94.3% from 25.32 to 1.44. This shows that EPCL is covering its interest charges by a low margin of safety, and the extent to which its operating income can decline before it is unable to meet its annual interest costs has greatly reduced

Cash flow Analysis:Engro Corporation Pakistan

The cash flow analysis on Engro Corporation Pakistan is that the cash flow from the operating activities increased in the year 2009 because of the major increase in sales. In 2008 the value was negative however in 2009 it stretched to positive.

The cash flow from investing activities shows further negative value as compared to 2008. This is mainly because of the purchase of fixed assets by the company for expansion project. In 2008 the value was (20,797,108,000) and which became (36,217,620,000). The company is investing heavily. The cash flow from financing activity showed an increase at the positive side of cash flow mainly because we have taken a big loan and received its payments.

Cash flow Analysis:Fauji Fertilizer corporation

The cash flow of the Fauji fertilizer shows that the cash from operating activities showed a great change on positive side. The main reason for the positive change on operating cash flow is the increase in sales. Although the finance cost, income tax has increased but still the sales of the company has increased so much that the company managed to have a positive operating cash flow. The cash flow of the Fauji fertilizer from investing activities showed a lower negative side as compared to the last year. This has happened due to the investment in Fauji cements in 2008; however we didnt invest any further in Fauji cements in 2009. Therefore the investing side of the cash flow showed a decrease on negative side. The cash flow from financing activity also showed a decrease as compared to last year. This happened due to the less short term borrowing in 2009.

ANALYSIS OF FINANCIAL STATEMENT

GROUP MEMEBERS: SANDAL ALI - 7283 REHMA SAEED - 7322 SIDRA HABIB - 7010 KOMAL RANI - 7712 COMPANIES: 1. Engro Chemical Company Ltd 2. Fauji Fertilizer Company Ltd. 3. Fauji Fertilizer Bin Qasim Ltd. (for calculating industry average) DATE OF SUBMISSION: 13TH DECEMBER, 2010 DAY OF CLASS: MONDAY (6:00-9:00) COURSE INSTRUCTOR: MR. FAISAL DHEDHI

ACKNOWLEDGEMENT
First of all we would like to thank our teacher Mr. Faisal Dhedhi for giving our group the opportunity to do this Analysis of financial statements of the important companies of our fertilizing sector. Through which, all of us experienced the practical side of analyzing financial statements emphasizing on the entrepreneurial aspects and significance apart from just concentrating and studying the theoretical part. It seems that by carrying out this project we have realized what the meaning of financial terms and statements is and what the issues with the start up businesses in the real world are. It is not just selling something or providing a service but it stands stable on the pillars of customer relation building, persuading them and trying to analyze the problems of designing and launching a product and then eventually selling it. This project personally has given all of us an experience and has given a touch of how different it is to conduct business and how to speculate things in the market related to the companys shares and stocks traded in the stock market We thank you for providing us this chance to learn something that wouldnt have been possible if we hadnt stepped into the fields for this plan.

Group members:Sandal Ali Rehma Saeed Sidra habib Komal Rani

TABLE OF CONTENTS
Acknowledgement . Engro Chemical Pakistan Limited
Introduction Product offered

Fauji Fertilizer Corporation..

Introduction Product offered

Geographical Location of Fertilizer Companies. Total Production of Fertilizer Industry. Criteria for selecting Engro and Fauji as Major Players. Impact on the Industry. Trade Association .. Analysis of Financial Ratios.

Cash flow Analysis .. Conclusion .