The Pakistan Credit Rating Agency Limited
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Jibran Cheema

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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 the dynamic business profile and robust financial position of Fauji Fertilizer Company Limited (FFC), while incorporating the derived strength of Fauji Group. FFC is one of the largest players in the fertilizers market, in terms of its production capacity and product offtake. 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 strength of the company, in terms of sustainable business volumes. The company has continued to cherish on highest production levels and sanguine profitability. FFC is prominently placed in the fertilizer industry. Lately, Pakistan's urea market has witnessed certain key changes on the pricing front. In January 2020, the Government decided to prospectively reduce the GIDC from PKR400/bag of urea to PKR5/bag, as a way to subsidize costs incurred by farmers. Urea prices stabilized in 2QCY20, following varying price cuts by the industry players in the first quarter of CY20. The overall industry demand has largely remained stable despite the outbreak of the COVID-19 pandemic. Some fluctuation was noted in the industry's urea offtake, as depicted by an uneven Month-on-Month (MoM) trend, amid subsequent lockdowns. The industry continues to face challenges in terms of enhancement of business costs. The expected hike in costs would also be related to disallowances of input GST and proportionate business expenditure on account of sales made to persons not registered under the Sales Tax Act 1990, as enacted under sales tax and income tax laws respectively. Going forward, these enhanced business costs or any hike in gas tariffs may have to be passed on to the customers. Delay in implementation of subsidy mechanism (most notably for phosphate fertilizer) and in prevention measures against further spread of locust swarms, may put pressure on the farmers’ already tightened purchasing power, potentially bearing an impact on fertilizer offtake.
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. Leveraging associated with business ventures, will require oversight and close attention.

About the Entity
Fauji Fertilizer Company Limited (FFC) was incorporated in the year 1978. FFC is quoted on the Pakistan Stock Exchange and has been ranked first, among the top 25 companies in the PSX, for the past nine years. The three production facilities of the company have a combined capacity of 2,048 KT. FFC is majority owned by Fauji Foundation (44.35%); a Charitable Trust incorporated under the Charitable Endowments Act 1890. State Life Insurance holds 9.12%, whereas other institutions and general public hold 25.16% and 21.37% of the shareholding, respectively. The Board of Directors consists of thirteen members comprising one executive director (CEO & MD) and twelve non-executive directors. Among the non-executive directors, there are seven representatives of Fauji Foundation. In April’20, Mr. Waqar Malik replaced Lt Gen Syed Tariq Nadeem Gilani, as the Chairman of the Board of Directors. He has also been appointed as the MD of Fauji Foundation and Fauji Oil Terminal & Distribution Company Limited. The CEO & MD of FFC, Lt Gen Tariq Khan, HI-(M) (Retired) joined the company in March 2018 and is also the CEO & MD of the two subsidiaries of FFC.

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.