Lahore, August 02, 2021 (PPI-OT): Pakistan has an agrarian economy, thus fulfills around ~ 84% of its fertilizer requirement through local production while the remaining is met through imports. The Country’s total fertilizer production capacity sails around ~ 7.1mln MT of Urea and CAN and ~ 1.7mln MT of DAP, NP, and NPK. In 5MCY21, Urea’s offtake stood at 2.2mln MT. Meanwhile, DAP’s offtake stood at 423,000MT. The overall margins of the industry registered a healthy growth on the gross and net levels due to unchanged gas rates and effective cost controls despite inflationary pressures. In the local market, Urea’s price has slightly decreased. Earlier, the GIDC charge was reduced on feed and fuel stock.
Subsequently, the GIDC was made payable in full by all manufacturers in 48 installments, as per the ruling of the Supreme Court in Aug-20. In the international market, prices of Urea and DAP witnessed an upward trend supported by increased demand after due to high input cost. However, the expected Government subsidy scheme would reduce DAP prices. Going forward, industry’s outlook is expected to remain satisfactory.
The ratings reflect Fatima Fertilizer Company Limited’s (‘Fatima’ or ‘the Company’) association with strong business Groups, Fatima Group and Arif Habib Group. The Company holds the highest market share in NP and CAN. Furthermore, after the acquisition of the Pakarab Fertilizer’s plants (Ammonia, Urea, Nitric Acid, Nitro Phosphate, Calcium Ammonium Nitrate, and Clean Development Mechanism) the Company has increased its overall market standing.
The Company’s topline comprising mainly of Urea and NP has seen a two-fold increase post the acquisition and is expected to witness growth on the back of operational efficiency. The Company has maintained healthy margins over the years owing to efficient operations and having a dedicated gas supply line from Mari fields. Lately, the Company has applied for provision of concessionary gas pertaining to the period of curtailment. The Company has continuously invested in optimizing its production plants and reaps the benefits of having increased utilization and higher run time of its production facilities.
Moreover, income from the trading portfolio provides limited support to the Company’s bottom line. The Company’s financial profile is characterized by modestly leveraged capital structure, very strong coverages, and efficient management of working capital. Ratings draw comfort from business acumen from the sponsors and a strong governance framework. The ratings are dependent on the Company’s ability to sustain its margins and healthy coverages while maintaining cushion and adherence to strong financial discipline. Substantial deterioration in margins and profitability would adversely impact the ratings.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com