PACRA Maintains Entity Ratings of Fatima Fertilizer Company Limited

Pakistan's economy is predominantly agrarian, with approximately 88% of its fertilizer requirement being fulfilled through local production, while the remaining portion is imported. The country has a total fertilizer production capacity of approximately 7.1mln MT for Urea and CAN, and 1.7mln MT for DAP, NP, and NPK. In CY22, Urea's offtake reached around 6.6mln MT, while DAP's offtake stood at 1.1mln MT. During 3MCY23, Urea offtake remained stable at approximately 1.6mln MT, with DAP offtake at 0.2mln MT. In CY22, Pakistan imported approximately 0.26mln MT of Urea due to demand, supply, and LNG shortage for the production. Despite lower demand, the industry maintained healthy margins, and its future outlook is expected to remain satisfactory. During 1QCY23, international market prices declined due to reduced demand, leading sellers to offload barges in crowded markets to address liquidity concerns.
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 fertilizers. The Company has the highest nameplate capacity (2.57mln MT), in the fertilizer sector of the country, after amalgamation with Pakarab Fertilizers Limited. During CY22, the Company's topline, mainly comprising of Urea, NP, and CAN, experienced a remarkable 35% growth, attributed to the rise in fertilizer product prices. The current utilization of the company by product is Urea ~106%, CAN ~100%, and NP ~130%. During CY22, the Company has maintained noteworthy cost structure with a gross margin of ~34% (CY21: ~38%) and net profit margin of ~10% (CY21: ~16.4%), owing to efficient operations and having a dedicated gas supply line from Mari fields. The completion of the project with Mari Petroleum to maintain gas pressures will further strengthen the business risk profile. Subsequent to the Company's sterling financial performance, the management is evaluating investment opportunities and materialization of the projects is anticipated to amplify the Company's prime position in the fertilizer sector. 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. At CY22, the Company’s financial profile is established on a low leveraged capital structure, of ~19.2%, 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.

About the Entity
Fatima Fertilizer Company Limited ('Fatima' or 'the Company') was incorporated in Dec-03 as a public limited company. The Company is primarily involved in manufacturing and selling variants of fertilizers and has an overall designed capacity is 2.57mln MT. In CY22, the company's capacity utilization stood at ~110%. Fatima Group holds majority (~46%) of the total shares through associated companies (~24%) and individuals (~22%). Mr. Arif Habib is the Chairman, while, Mr. Fawad Ahmed is the CEO.