FAUJI FERTILISER COMPANY LIMITED
Research Analyst, PAGE
May 31 - June 6, 2010
Fauji Fertiliser Company Limited (FFC) was incorporated in 1978 as a private limited company, for enhancing fertiliser production in the country. It is a joint venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of Denmark.
The initial authorised capital of the company was 813.9 million rupees. The present share capital of the company stands at Rs3 billion. Additionally, FFC has Rs1 billion stakes in the subsidiary Fauji Fertiliser Bin Qasim Limited (formerly FFC-Jordan Fertiliser Company Limited).
FFC commenced commercial production of urea in 1982 with annual capacity of 570,000 metric tons. Through De-Bottle Necking (DBN) program, the production capacity of the existing plant increased to 695,000 metric tons per year.
In the year 2002, FFC acquired ex Pak Saudi Fertilisers Limited (PSFL) Urea Plant situated at Mirpur Mathelo, District Ghotki from National Fertiliser Corporation (NFC) through privatisation process of the government of Pakistan.
This acquisition at Rs8,151 million represents one of the largest industrial sector transactions in Pakistan.
FFC has the largest urea manufacturing facility of Pakistan consisting of two ammonia/urea units owned by FFC is built at Goth Machhi in district Rahim Yar Khan. Goth Machhi is situated at a distance of 2 kms from the main Lahore-Karachi highway and is adjacent to the main railway line.
The two plants are based on natural gas from Mari Gas Fields and have an annual designed production capacity of 1.3 million tons of urea.
Training and Development's most significant contributions to date have been successful project management of FFC Project 1 DBN, FFC Plant Expansion Project 2 and the Fauji Fertiliser Bin Qasim (formerly FJFC) Project.
The company markets not only Sona urea but also imports nitrogen, phosphate and potash based fertilisers.
The company is also marketing half a million tonnes of sona urea granular manufactured by Fauji Fertiliser Bin Qasim.
When FFC came into the market with its production in June 1982, the other manufacturers namely Engro, Dawood Hercules and National Fertiliser Corporation were already well established in the market. During the period 1983 to 1986 when a large urea surplus existed in the country, FFC pioneered urea exports which not only helped in stabilising domestic urea but also earned valuable foreign exchange for the country.
During 1ST Quarter 2010, the company produced 626 thousand tonnes of urea at 124 per cent of combined designed capacity, which was 2 per cent higher than the production for corresponding period last year. Industry urea production of 1,164 thousand tonnes for the period was 1.4 per cent higher than 1,148 thousand tonnes produced during the same period in 2009.
FINANCIAL PERFORMANCE (RS '000)
|Cost of Sales||5,454,698||4,505,056|
|Profit before tax||3,821,087||3,667,667|
|Profit after taxation||2,729,087||2,686,504|
|Profit in EPS (Rs)||4.02||3.96|
During the period under review, urea sales of the company stood at 624 thousand tonnes compared to 613 thousand tonnes last year despite decrease in industry urea sales to 1,413 thousand tonnes from 1,540 thousand tonnes (including imported urea sold by NFML) during the corresponding period last year. Combined urea market participation of the company and FFBL at 51 per cent was higher by 9 per cent compared to the share for corresponding period last year.
FFBL's DAP sales of 107 thousand tonnes were 2 per cent higher compared to last year. Industry DAP sales of 205 thousand tonnes remained high during the quarter registering a growth of 8 per cent over the same period last year as higher international prices resulted in speculative buying in the market.
Total installed capacity after commissioning of additional plants in the country will be 6.3 million tonnes as against the expected demand of 6.5 million tonnes in 2011. With expected annual growth rate of 3 per cent, the demand for urea will reach 6.9 million tonnes by 2013. However, keeping in view the shortage of gas in the country, further expansion and growth opportunities in production of urea are limited.
Sales revenue for the quarter at Rs9.499 billion was higher by 15 per cent compared to revenue last year due to 2 per cent higher volume and higher net average selling price of urea. This contributed to net of tax profit for the period at Rs2.729 billion, 2 per cent higher compared to the earnings last year. Consequently, EPS at Rs4.02 was higher by Re0.06 compared to EPS for corresponding period last year. The company has recently announced first interim dividend of Rs4 per share (40 per cent) for 2010.
The fertiliser industry in Pakistan has four major players i.e. Engro, FFC, FFBL and Dawood Hercules who form 90 per cent of the total urea production in Pakistan. FFC has the highest share of urea production (45 per cent), followed by Engro (20 per cent), FFBL (13 per cent) and Dawood Hercules (11 per cent).
Domestic fertiliser demand is expected to remain strong in the next cropping season on the back of higher farm income from recently harvested crops. The government is expected to maintain its focus on the agriculture sector due to its significant contribution towards GDP.
FFC is a leading manufacturing company in both urea manufacturing as well as its marketing in Pakistan. The company should further focus on growth opportunities and continue to aggressively explore ways of improving profitability and minimising business risks emanating from economic, market, and climatic conditions.