Fatima Fertilizer Company Limited

Fatima Fertilizer Company Limited was incorporated in December 2003, a joint venture between Fatima Group and Arif Habib Group. The fertilizer complex is a completely integrated facility, capable of producing two intermediary and three final products such as ammonia, nitric acid, urea, CAN and NP. The fertilizer plant has a designated nameplate capacity of 0.5 million tons of urea, 0.42 million tons of CAN and 0.36 million tons of NP per annum. Fatima Fertilizer is the biggest CAN and NP fertilizer producer in Pakistan and enjoys good market acceptance for its products.
INDUSTRY PERFORMANCE Fertilizer off-take in Pakistan has by and large stayed flattish in the previous three years and the first nine months of 2014 were no different. The urea sales did grow by almost 3 percent year-on-year during 3MCY14, mainly on account of better plant availability for major players. On the positive side, the DAP fertilizer market grew considerably by 15 percent year-on-year on the back of improved demand and early buying in anticipation of price hike. The demand for phosphate fertilizer remained flattish in comparison to the same period last year.
For the 9MCY14 period, the delayed sowing of BT cotton coupled with persistent feedstock gas shortage for plants at SNGPL network, led to decline in urea off-take over the previous year. Urea price has remained flattish for almost throughout the year, but urea sales have failed to pick up considerably. On the flip, the response on DAP front is comparatively better.
OPERATIONAL AND FINANCIAL PERFORMANCE Fatima Fertilizer Company has grown from strength to strength ever since the inception of commercial business. Despite an overall slowdown in urea sales, Fatima's own urea sales improved by 5 percent year-on-year, during 9MCY14. Fatima's urea plant continued to operate efficiently, producing 5 percent more urea than the same period last year.
The company's relentless efforts to educate farmer community regarding the usage and benefits of its NP fertiliser variant continued during 9MCY14. Fatima's NP brand has gained wide acceptance in the market and the results are encouraging, evident from the 15 percent increase in NP sales year-on-year. The company has continued its farmer promotion campaign which helped boost the sales volume.
CAN fertilizer though witnessed a 10 percent year-on-year slump in sales, owing to high base effect of previous year, delayed cotton sowing and floods impact in Northern Punjab. Fatima Fertilizer Company's sales mix is now almost equally divided amongst urea, NP and CAN, with CAN fertilizer having the lion's share of 36 percent. The sales composition has shifted trends of late, as CAN's share has gradually diluted at the expense of NP fertilizer, which has seen a notable rise.
Due to minimal increase in fertilizer prices across variants, the top line growth was limited to 6 percent year-on-year during 9MCY14. But the inherent advantages that Fatima Fertilizer enjoys put it at an advantageous position relative to its peers.
One, its geographical proximity lets it enjoy dedicated gas supply from Mari network which does not undergo extended periods of gas curtailment like those connected to SNPL's network. Secondly, since Fatima is a fairly new project and it receives about 110 mmcfd of gas under the preferential rate of $0.7mmbtu, which gives it better margins than most industry players.
The sales mix was almost evenly distributed among the three products, with NP fertilizer snatching the lion's share in 9MCY14 from urea. Higher top line coupled with the advantage of low cost pressure and low gas curtailment kept the gross margins for Fatima Fertilizer higher than most of its competitors.
The gross profit margins of other peers have gone considerably down of late, but Fatima has the luxury of enjoying in both good and bad times. If the prices are increasing, Fatima can easily jump the wagon and propel its revenue. If the prices are down, the margins can still be kept intact, as it is immune from feedstock gas price and curtailment pressures.
The debt on Fatima Fertilizer's balance sheet is on the higher side as it is a new entrant in the industry. But continuously good performance over the past four means has helped Fatima continue to pay off the huge debt smoothly. The financial charges as percentage of sales have halved to 11 percent, from what it was a couple of years ago. The highly leveraged balance sheet does not pose big threats to the company, as the credit rating agencies have shown trust in the company's ability to fulfil its obligations. On the efficiency side the administrative and distribution costs are also well in control. All in all, Fatima Fertilizer is in a very healthy shape, as regards its operations and profits.
FUTURE OUTLOOK The continuing threats to the fertilizer sector largely remain gas curtailments, fertilizer imports and price on pressure. One supply side constraint is the huge subsidy on imported urea which keeps a lid on the fertilizer producers' margins. But Fatima seems to have the bases well covered going into CY15. The product demand has not gone up the roof, but it is expected to remain at least stable.

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FATIMA FERTILIZER COMPANY LIMITED

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Rs (mn)                 9MCY11    9MCY12  9MCY13   9MCY14

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Sales                     7326    18288    24338    25860

Cost of sales             2640     6760    10017    10451

Gross Profit              4686    11529    14322    15410

Distribution cost          167      811      960     1029

Administrative expenses    205      533      865     1060

Finance cost              1814     4363     3161     2968

Other operating expenses   133      275      934      746

Other operating income      60       43      178      287

Profit before tax         2427     5590     8580     9893

Taxation                   732     1580     2777     3458

Profit for the year       1694     4010     5803     6435

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Source: Company accounts

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KEY NUMBERS

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                       9MCY11   9MCY12   9MCY13  9MCY14

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Sales growth             NA       150%     33%       6%

Profit growth            NA       137%     45%      11%

Finance cost / sales     25%       24%     13%      11%

GP margin                64%       63%     59%      60%

NP margin                23%       22%     24%      25%

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Source: Company accounts

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