The Pakistan Credit Rating Agency Limited
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Usama Zahid Sarhandi

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PACRA Maintains Entity Ratings of Fauji Fertilizer Company Limited

Rating Type Entity
(30-Jul-21 )
(30-Jul-20 )
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Pakistan has an agrarian economy, thus fulfills around ~ 84% of its fertilizer requirement through local production while the remaining is met through imports. The Country's total fertilizer production capacity sails around ~ 7.1mln MT of Urea and CAN and ~ 1.7mln MT of DAP, NP, and NPK. In 5MCY21, Urea’s offtake share in total fertilizer has increased to ~65% (CY20: ~62%). Meanwhile, DAP’s offtake share decreased to ~12% (CY20: ~22%). The overall margins of the industry registered a healthy growth on the gross and net levels due to unchanged gas rates and effective cost controls despite inflationary pressures. In the local market, Urea's price has decreased due to GIDC reduction. Earlier, the GIDC charge was reduced on feed and fuel stock. Subsequently, the GIDC was made payable in full by all manufacturers in 48 installments, as per the ruling of the Supreme Court in Aug-20. In the international market, prices of Urea and DAP witnessed an upward trend supported by increased demand after easing of COVID-19 induced restrictions and high input cost. However, any Government subsidy scheme would reduce DAP prices.
The ratings reflect the dynamic business profile and robust financial position of Fauji Fertilizer Company Limited ('FFC' or 'the Company') while incorporating the derived strength from Fauji Foundation (FF). FFC combined with FFBL has a sizeable production capacity and product offtake of both Urea and DAP. The Company's strong business footprint has enabled it to build 'Sona' a household name in the farming community, in Pakistan. The production facilities are secured by a dedicated and uninterrupted gas supply line from the Mari fields. This ensures sustainable business volumes for the Company. FFC has continued to post the highest production levels and a strong top-line. Moreover, the Company has maintained a growth trajectory in margins and profitability. Stable dividend and interest income further enhances the Company's bottom line. The Company has a moderately leveraged capital structure with very strong coverages and significant liquidity depicting a robust financial profile. The rating factor in FFC's strong organizational structure is designed to control its subsidiaries' strategic direction and strong governance framework.
The ratings are dependent on the sustainability of operations and maintaining its market share. Sustainability in the performance of subsidiaries, stable dividends, and effective management of financial profile is important.

About the Entity
Fauji Fertilizer Company Limited ('FFC' or 'the Company') is a public listed company, incorporated in 1978. FFC is engaged in the manufacturing and marketing of fertilizer products. The Company sells Urea, DAP, SOP, MOP, Boron, and Zinc. The Company has three Urea production facilities, out of which two are located in Goth Machhi (Plant I and Plant II) and one in Mirpur Mathelo (Plant III) with a production capacity of ~2.05mln MT. The utilization level stood at ~121%.
FFC is majority-owned by Fauji Foundation (~44%). The general public holds ~22% shares of the Company. The rest of the ownership resides with public sector companies (~12%), foreign companies (~7%), financial institutions (~7%), and others (~8%). The Company's Board is chaired by Mr. Waqar Ahmad Malik, whereas, Lt Gen Tariq Khan, HI-(M) (Retired) heads the Company as the Chief Executive Officer. He is aided by a team of experienced professionals.

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.