Karachi, December 01, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Fatima Fertilizer Company Limited (‘FATIMA’ or ‘the Company’) from ‘AA-/A-1’ (Double A Minus /A-One) to ‘AA/A-1’ (Double A /A-One). The medium to long-term rating of ‘AA’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned rating is Stable. The previous rating action was announced on October 23, 2020.
The rating upgrade takes into account FATIMA’s market positioning in the fertilizer industry, wherein with the addition of the Pakarab Plants has increased the Company’s nameplate capacity to 2.57m MTs, making FATIMA the biggest player in the segment. During the period under review (CY20 and 9M’CY21), FATIMA achieved strong uptick in offtake, as production from recently acquired Pak Arab plants was added to the mix. FATIMA’s gross margins have remained intact so far, albeit given the expiry of GSA for subsidized feed gas, gross margins are projected to contract going forward. Nevertheless, the volumetric growth in offtake should allow the company to grow it gross profit, which has been incorporated in the rating action.
In tandem with the strong growth in revenues, cash flow coverage indicators posted notable improvement during the period under review. We have noted a sizable uptick in stock of trade debts and inventory; the increase is in line with the growth in business volume. In addition, we have reviewed the ageing of trade debts, which is indicative of sound credit risk profile. With the improvement in FFO in 1H’CY21, annualized DSCR of the company increased to 4.0x for CY21, which compares favorably to peers. Overall equity of the company grew at a CAGR of 10% during the last 4.75 years (Jan’17- Sep’21) on the back of strong profitability and retention.
Overall size of the equity, in absolute terms, comfortably complies with the benchmark for the assigned rating. The Company’s long-term debt has been on a declining trend and the management has no plans to mobilize any major long-term debt over the foreseeable period. Resultantly, FATIMA’s gearing declined during the period under review. The company’s capital structure is 13:87 (Debt: Equity) as at Sep’21. With the absence of any major CAPEX during the rating horizon, capital structure is expected to remain conservative during the rating horizon.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
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Phase VII, DHA, Karachi, Pakistan
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