The Pakistan Credit Rating Agency Limited
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Raniya Tanawar

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PACRA Maintains Entity Ratings of Fauji Fertilizer Company Limited

Rating Type Entity
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect FFC's dynamic business profile and financial position, while incorporating the sound financial strength of Fauji Group. FFC is one of the largest players in the fertilizers market in terms of its production capacity. Its strong business footprint has enabled it to build an impeccable brand in Pakistan with "Sona" being a household name in the farming community. The production facilities are secured by uninterrupted supply of gas from Mari field, representing inherent commercial strengths of the company in terms of sustainable business volumes. FFC has maintained highest production levels and the related profitability is sanguine. FFC is prominently placed in the industry. In view of the discontinuation of urea subsidy scheme and increasing production costs, the industry has included the impact thereof in urea prices to maintain the margins. GIDC related developments, as and when crystallized, would provide benefit to the industry players.
The ratings take into account FFC's sizable book of diversified investments, both in the long term and short term, which has been developed to offer sustainable returns to its stakeholders. Dividend stream from these investments compliments FFC's ratings. FFC continued the expansion of its investment portfolio by extending its reach to the power sector, as evident from its investment in Thar Energy Limited. Under its diversification strategy, FFC is going ahead with an investment in an offshore fertilizer project. Leveraging associated with business ventures, will require oversight and close attention.

About the Entity
Fauji Fertilizer Company Ltd (FFC) was incorporated in 1978 and commenced operations with a single production plant having a capacity of 570 thousand tonnes, which now stands expanded to 3 production facilities with a combined capacity of 2.048 million tonnes and an annual production of over 2.5 million tonnes per annum, ensuring sustained supply of urea to the farmers. The Company is quoted on the Pakistan Stock Exchange and has consistently been ranked among top 25 companies in the Karachi Stock Exchange for over 20 years. FFC is majority owned by Fauji Foundation (44.35%); a Charitable Trust incorporated under the Charitable Endowments Act 1890. State Life Insurance holds ~9.13%, whereas other institutions and general public hold ~25.42% and ~21.10%, respectively. FFC has a very large market presence in Punjab constituting around 68% of the company’s sales during 2018.
The thirteen-member board of directors includes the Chief Executive & Managing Director (CE&MD), eight non-executive directors including seven representatives of FF and four independent directors. The CE&MD, Lt Gen Tariq Khan, HI-(M) (Retired) joined the company in March 2018 and is also the CE&MD of the two subsidiaries of FFC. Lt Gen Syed Tariq Nadeem Gilani, HI-(M) (Retired) joined the FFC’s Board, as Chairman in Jan 2018. He is also the Managing Director-MD of Fauji Foundation and Fauji Oil Terminal & Distribution Company Ltd.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.