Lahore, January 26, 2022 (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 stands at around ~ 7.1mln MT of Urea and CAN and ~ 1.7mln MT of DAP, NP, and NPK. In CY21, Urea’s offtake stood at ~6.3mln MT. The availability of urea was estimated on the basis of the Economic Coordination Committee’s decision that allows urea plants to operate on subsidized LNG up to Mar-22.
Unavailability of LNG has created supply uncertainty of urea for the ongoing Rabi Season 2021-2022, thus the Federal Government has decided to import 0.1mln MT of urea from China. Meanwhile, DAP’s offtake stood at 2.5mln MT. Despite the increase in gas prices, overall margins of the industry remained healthy mainly due to the increase in prices of fertilizer products. In the international market, prices of Urea and DAP witnessed an upward trend supported by increased demand. Going forward, the 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, NP, and CAN has witnessed phenomenal growth driven by increased sales volumes during 9MCY21 post the acquisition. The Company has maintained healthy margins over the years owing to efficient operations and having a dedicated gas supply line from Mari fields. Despite the expiration of concessionary gas, the Company’s performance is anticipated to remain optimal owing to the volumetric growth.
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 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