FAUJI FERTILIZER COMPANY LIMITED

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
June 30 - July 06, 2008

Fauji Fertilizer Company Limited (FFC) is engaged in the manufacturing, purchasing, marketing of fertilizers and chemicals, including investments in other fertilizers and chemical manufacturing operations.

During the FY07, FFC's plants in Goth Machhi produced 1.64m tons and Mirpur Mathelo plant produced 680,000 tons of Sona Urea. During FY07, the Company sold an aggregate of 562,000 tons of Di-Ammonium Phosphate (DAP), comprising 352,000 tons on behalf of its subsidiary, Fauji Fertilizer Bin Qasim Limited and 210,000 tons of imported DAP. FFC has an ISO-9002 certification for its manufacturing division at Goth Machhi. Quality in all areas has been a hallmark of the Company right from the beginning and the product "SONA UREA" has already established its rightful place in the market. This excellent performance was due to hard work and dedication of all employees along with the progressive approach and support from the top management. FY08 commenced with high urea demand in the Country. Urea was recorded at an outstanding 1,402 thousand tones.

FINANCIAL PERFORMANCE DURING 1Q08:

INDICATORS

GROWTH IN 1Q08

LIQUIDITY RATIO:

Current

0.83

Quick Test

0.70

ASSETS MANAGEMENT:

Inventory Turnover

3 times

Fixed Assets Turnover

3.56

Total Assets Turnover

0.24

DEBT MANAGEMENT:

Debt Ratio

0.56

TIE

13.54

PROFITABILITY:

Profit Margin on Sale

24.4%

ROA

5.9%

ROE

13.6%

The Financial performance of FFC examines the key business structure, operations, products and revenues. FFC is the Fertilizer leader in Pakistan. The current ratio 0.83, Quick acid 0.70 were recorded in 1QFY08, both were due to the high competition between fertilizer companies. The Inventory turnover was recorded three times; fixed assets turnover 3.56 and Total assets turnover 0.24 were recorded in 1Q08 respectively. The Debt ratio was recorded 0.56, Time interest earned (TIE) increased by 13.54 in 1Q08, because of increase in the Gross profit and the amount of EBIT. The Profitability shows the good performance of the company, the Profit margin on sales 24.4%, ROA 5.9% & ROE 13.6% increased during 1Q08 respectively. Fauji Fertilizer Company consequently recorded a healthy growth in both profit before tax and profit after tax due to the increase in Net Sales.

UREA FERTILIZER:

FFC commenced in the FY07 with a significant urea carryover stock of 233 thousand tons, which was thrice the volume of opening inventory of FY06. Urea production for the year at 4,755 thousand tons declined by 1% against last year's production. While 55 thousand tons were imported initially despite an over supplied situation and low demand. An additional 150 thousand tons of urea imports have been arranged by the Government for Rabi FY07-08 to bridge the demand and supply gap. The Industry concluded the year with an aggregate offtake of 4,917 thousand tons.

FFC BUSINESS AREA:

FFC's Business area comprises of Manufacturing, Engineering and Marketing.

MANUFACTURING:

The largest urea manufacturing facility of Pakistan consisting of two ammonia/urea units owned by FFC. The two plants are based on natural gas from Mari Gas Fields and have an annual designed production capacity of 1.3m tons of urea. Over the years, the plants have demonstrated an operational excellence which has become a reference for the engineering companies by using process technology. Delegations from China, Middle East and Far East keep visiting the plant site for gaining first hand knowledge before deciding to purchase a new plant.

ENGINEERING:

A group of selected engineers have been assigned to Technology Division-TD with the objective of providing engineering and technical backup to the plant operations. Additional responsibilities that are assigned to TD includes monitoring plant performance, development of new projects, handling capital investment projects, advising management on technical matters and development of a technological base along with consultancy functions.

MARKETING:

FFC Marketing Group plays customary key role through the largest fertilizer marketing network in the Country along with improvement towards national agriculture and development of farmer economy for a satisfactory and improved life style.

WTO CHALLENGES:

FFC's approach, spirit and response to challenges lead to believe that WTO implications would not have a negative impact on the Company's overall operations. FFC is based on the dire need to increase agricultural output due to population increase and robust demand for the product. Competitive indigenous fertilizer pricing combined with brand preference provides further confidence for a secure future and ability to safely meet the WTO challenges.

CONCLUSION:

World wide consumption of fertilizer is highly correlated with macroeconomic growth of the country. FFC is committed to play its leading role in industrial and agricultural advancements in Pakistan by providing quality fertilizer to its customers by setting new goals and taking new initiatives for the development of profitable business. Pakistan has witnessed robust economic growth in the last few years. Pakistan's total fertilizer demand is 6.6m tons, out of which 5.4m tones of urea is produced for domestically available abundant natural gas and 1.2m tons for Di-Ammonium Phosphate (DAP) fertilizer. The government has increased subsidy from Rs. 400 to 1, 000 per bag of DAP. In our country, farmers use fertilizer in very sufficient manner. However, there is less awareness about use of fertilizer, so the productivity is badly affected which results in low per acre yield receive.