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The Pakistan Credit Rating Agency Limited
Press Release

Date
25-Jan-22

Analyst
Ahmad Faraz Arif
ahmad.faraz@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Upgrades Entity Ratings of Fatima Fertilizer Company Limited

Rating Type Entity
Current
(25-Jan-22 )
Previous
(30-Jul-21 )
Action Upgrade 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 stands at around ~ 7.1mln MT of Urea and CAN and ~ 1.7mln MT of DAP, NP, and NPK. In CY21, Urea’s offtake stood at ~6.3mln MT. The availability of urea was estimated on the basis of the Economic Coordination Committee's decision that allows urea plants to operate on subsidized LNG up to Mar-22. Unavailability of LNG has created supply uncertainty of urea for the ongoing Rabi Season 2021-2022, thus the Federal Government has decided to import 0.1mln MT of urea from China. Meanwhile, DAP’s offtake stood at 2.5mln MT. Despite the increase in gas prices, overall margins of the industry remained healthy mainly due to the increase in prices of fertilizer products. In the international market, prices of Urea and DAP witnessed an upward trend supported by increased demand. Going forward, the industry’s outlook is expected to remain satisfactory.
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. Furthermore, after the acquisition of the Pakarab Fertilizer’s plants (Ammonia, Urea, Nitric Acid, Nitro Phosphate, Calcium Ammonium Nitrate, and Clean Development Mechanism) the Company has increased its overall market standing. The Company's topline comprising mainly of Urea, NP, and CAN has witnessed phenomenal growth driven by increased sales volumes during 9MCY21 post the acquisition. The Company has maintained healthy margins over the years owing to efficient operations and having a dedicated gas supply line from Mari fields. Despite the expiration of concessionary gas, the Company's performance is anticipated to remain optimal owing to the volumetric growth. 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. The Company’s financial profile is characterized by modestly leveraged capital structure, very 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 under the repealed Companies Ordinance, 1984 (now Companies Act. 2017) and listed on PSX in 2010. The Company is primarily involved in manufacturing and selling variants of fertilizers (Urea, CAN, and NP) and chemicals. The Company has an overall nameplate capacity of 2.57mln MT. In 9MCY21 capacity utilization stood at 95%. Fatima Group holds 45% of the total shares through associated companies (23%) and individuals (22%), while Arif Habib Group holds 34% through associated companies (16%) and individuals (18%). The Company's Board is Chaired by Mr. Arif Habib. Mr. Fawad Ahmed Mukhtar heads the Company as the CEO.

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.