Financial Analysis

Report
Sarah Khurshid (25695)
Mahnoor Siddiqui (25697)
Mahad Khan (25702)
Muhammad Ahmed Gul (25705)
Business Finance – Mr. Najamul Hassan Sheheryar Malik (25671)
5/1/23 Taha Sohail (25755)
Table of Contents
COMPANY OVERVIEW ............................................................................................................................ 3
HISTORICAL STOCK PERFORMANCE .................................................................................................. 3
OVERVIEW OF THE FERTILIZER SECTOR ........................................................................................... 4
FATIMA FERTILIZER – CURRENT POSITION ...................................................................................... 5
RATIO ANALYSIS...................................................................................................................................... 6
LIQUIDITY .............................................................................................................................................. 6
EFFICIENCY ........................................................................................................................................... 7
PROFITABILITY ..................................................................................................................................... 8
SOLVENCY ............................................................................................................................................. 9
WORKING CAPITAL MANAGEMENT POLICY .................................................................................. 10
EARNING POTENTIAL............................................................................................................................ 11
DUPONT ANALYSIS................................................................................................................................ 11
DIVIDEND TREND ................................................................................................................................... 12
MARKET VALUATION ........................................................................................................................... 13
BETA .......................................................................................................................................................... 13
WEIGHTED AVERAGE COST OF CAPITAL - WACC ......................................................................... 14
FREE CASH FLOW ................................................................................................................................... 15
INTRINSIC VALUE AND RECOMMENDATION ................................................................................. 16
INVESTMENT RISKS ............................................................................................................................... 17
REFERENCES: .......................................................................................................................................... 18
APPENDIX ................................................................................................................................................. 19
VERTICAL ANALYSIS ........................................................................................................................ 23
HORIZONTAL ANALYSIS .................................................................................................................. 24

2
COMPANY OVERVIEW

Fatima Fertilizer Company was incorporated on 24 December 2003 as a joint venture between Fatima
Group and Arif Habib Corporation. The company deals with importing, buying, selling, manufacturing,
and exporting chemical fertilizers. Its intermediate products are Ammonia and Nitric Acid, and four final
products are Calcium Ammonium Nitrate (CAN), Nitro Phosphate (NP) and Nitrogen Phosphorous
Potassium (NPK).

The company has three production plants strategically located in Sheikhupura, Sadiqabad and Multan, the
agricultural belt of the country.

Sadiqabad Plant – This facility produces CAN, NP, and Urea along with intermediary products. The
complex has a 56 MW captive power plant and is allocated 110MMCFD of gas from Mari Gas Fields.

Sheikhupura Plant – This plant is based on RLNG and has a Urea manufacturing capacity of 445,000 MT
annually as of Dec’22

Pak-Arab Plant – This plant has a capacity of producing 854,500 MT. This plant has had a history of
remaining nonoperational and non-availability of gas, nevertheless it was acquired by Fatima in 2010.
The management has a Gas Supply Agreement Signed with Mari for gas supply till the next 7 years.

Currently Fatima Fertilizer is one of the biggest players in the Fertilizer industry.

HISTORICAL STOCK PERFORMANCE

As of Dec’22, Fatima Fertilizer was trading at a P/E of 5.03 with a closing share price at Rs 33.8 and
market capitalization of Rs 70.98 Billion. Out of 21 billion shares, 15% of the shares are on free float
(i.e.) 315,000 shares and has an earnings per share of Rs 6.73. This contrasts with its peers, like Engro
Fertilizer, that has a market capitalization value of Rs 102.67 billion with a P/E of 6.66 and Fauji
Fertilizer that has the highest market capitalization of Rs 125.58 billion with a P/E of 6.26

3
OVERVIEW OF THE FERTILIZER SECTOR

The agricultural sector is one of the largest sectors in Pakistan with fertilizers being an essential
contributor towards this sector in terms of food security. Pakistan fulfills around 84% of its fertilizer
requirement through indigenous production while the remainder is fulfilled through imports. In the year
2022, the sector has suffered a myriad of issues such as hyperinflation, higher current account deficit,
rising interest rates and finally catastrophic floods due to climate change which has had a devastating
impact on the agricultural value chain.

The fertilizer sector is oligopolistic in nature and dominated by six major players owning 95% of the total
market share. Four of these players are listed on the Pakistan Stock Exchange. The country’s total
fertilizer production stands at approximately ~ 7.1 million MT of Urea and CAN and ~1.7 million MT of
DAP, NP and NPK.

The year 2022 closed with a total fertilizer offtake of 9.5 million MT a decrease of 5.9% from 10.1
million MT last year due to decline in DAP offtake which declined from 1.87 million MT to 1.2 million
MT in 2022 on the back of higher input costs and significant rupee devaluation.

Source: Industry Bulletin 2022 – NBP

Urea is the most widely used fertilizer type in the agricultural sector which accounts for around 70% of
the country’s overall offtake. Average fertilizer inventory levels for the past 4 years from FY19 to FY22
stood at ~1.2 million MT. Urea is used equally in both crop seasons of the country i.e., Rabi (Oct – Mar)
and Kharif (Apr – Sept). During the Rabi season there was a shortfall in urea supply and the ECC
(Economic coordination committee) approved providing RLNG at subsidized rate till the month of
Dec’22 to both Fatima Fertilizer and Agritech. However, by Mar’23 for the upcoming Kharif season, urea
fertilizer demand was projected to be 3.2 million MT whereas local production was estimated to be 2.9

4
million MT. To bridge the demand- supply the ECC decided to start supply of indigenous gas to Fatima
Fertilizer and Agritech (since they are RLNG based) however subsidies have now been ended in line with
reforms needed unlocking the IMF loan facility.

FATIMA FERTILIZER – CURRENT POSITION

Fatima Fertilizer, although being a small player in the non-cyclical fertilizer industry, is also one of the
fastest growing ones. The cumulative fertilizer production of the manufacturing division was recorded at
2.831 million MT which is 5.6% higher than 2021 and is highest ever recorded in the company’s history.
This was attributed to plant efficiencies and higher production from its Sheikhupura plant with better
availability of gas. The fertilizer industry uses gas both as fuel and feed stock. Under the Fertilizer policy
2001, Engro and Fatima Fertilizer were granted concessionary rates for feed stock for 20 years that ended
in July 2021. Following the expiry, the gas rates for Engro and Fatima were revised to Rs 302/mmbtu.
Now in 2023, the ECC has raised gas tariffs for fertilizer feed from Rs 302/mmbtu to Rs 510/mmbtu and
for fuel stock it has been revised from Rs 1,023/mmbtu to Rs Rs 1,500/mmbtu marking an end to the
subsidies and relief offered by Government. However, Fatima Fertilizer has a well-diversified product
portfolio which enables it to sustain its earnings despite the market volatility.

5
RATIO ANALYSIS

For the analysis, consolidated financial statements have been used. Engro Fertilizer was chosen as the
peer company for comparison.

LIQUIDITY.

Liquidity - FATIMA 2018 2019 2020 2021 2022

Current Ratio 0.89 0.88 1.03 1.32 1.28
Quick Ratio 0.51 0.50 0.50 0.77 0.69
Times Interest Earned 9.21 4.57 5.40 14.05 10.50

Liquidity - EFERT 2018 2019 2020 2021 2022

Current ratio 1.15 1.14 1.24 0.99 0.72
Quick / Acid test ratio 0.72 0.78 0.95 0.63 0.44
Times Interest Earned 11.41 8.39 6.5 18.38 9.84

The current ratio has been increasing more or less except for the previous year. A ratio under 1.0 mainly
indicates that the current debts and liabilities (those due within a year) are greater than its assets and the
company may not be able to pay them off. However, a ratio of 1.28 means that the company can cover its
current liabilities 1.28 times which is a good position from a lender’s position. Compared to its peer
Fatima has a better liquidity position.

However, the quick ratio trend for Fatima Fertilizer from 2018 to 2022 is a matter of concern. The ratio
has remained range bound between 2018 to 2020 and less than 1.0 indicating liquidity issues in meeting
short term obligations. However, this ratio improved to 0.77 in 2021 and finally now is at 0.69. Also, in
comparison to EFERT, Fatima has a better liquidity position compared to its peer.

6
 The interest coverage ratio has been steadily improving with it being at its lowest in 2019 and 2020 with
positive swing in 2021 highest in the period under study. In 2022, the interest coverage is 10.50 versus
interest coverage of EFERT at 9.84. Overall, Fatima has a stable liquidity position.

EFFICIENCY

Efficiency - FATIMA 2018 2019 2020 2021 2022

Asset Turnover 0.42 0.53 0.46 0.66 0.75
Fixed Asset Turnover 0.58 0.78 0.69 1.07 1.41
Inventory Turnover 4.97 5.34 3.39 4.36 3.95

Efficiency - EFERT 2018 2019 2020 2021 2022

Total assets turnover ratio 0.95 0.99 0.82 1.00 1.13
Fixed assets turnover ratio 1.59 1.81 1.61 1.91 2.08
Inventory turnover 7.71 6.81 7.16 8.40 7.52

Initially Fatima Fertilizer faced challenges with maintaining a healthy turnover with both Fixed assets and
Total Asset turnover being below 0.50x. However, from 2021 onwards, the company has made significant
strides in improving its operational efficiency which is reflected by its improved asset turnover ratios.

On the contrary, Engro has been maintaining a healthy turnover with efficient asset utilization. Fatima’s
inventory turnover has remained between 3 to 5 which is lower than Engro’s.

7
PROFITABILITY

Profitability - FATIMA 2018 2019 2020 2021 2022

Operating Margin 38.3% 28.4% 30.2% 30.3% 25.0%
EBITDA Margin 39.7% 26.7% 30.5% 29.8% 23.7%
Gross Profit Margin 50.0% 37.2% 40.4% 38.3% 34.1%
Net Profit Margin 23.2% 16.1% 18.6% 16.4% 9.3%
Return on Assets 9.69% 8.52% 8.49% 10.79% 6.93%
Return on Equity 17.62% 16.35% 16.08% 19.72% 13.63%
Return on Capital Employed 15.83% 14.87% 14.08% 21.01% 13.99%

Profitability - EFERT 2018 2019 2020 2021 2022

Operating Margin 23.65% 24.35% 22.57% 25.43% 19.58%
EBITDA Margin 28.40% 29.03% 27.62% 27.72% 21.77%
Gross Profit Margin 32.3% 32.6% 32.4% 33.3% 27.3%
Net Profit Margin 15.95% 13.90% 17.13% 15.94% 10.19%
Return on assets 15.2% 13.8% 14.0% 15.9% 11.5%
Return on equity 39.6% 38.0% 40.3% 45.0% 34.7%

Fatima had saw the highest revenue increase in 2019 (Please refer the appendix) by 46% whereas
fertilizer sales increased by 17% indicating price increase as the main driver for revenue. Urea prices had
shot up by 20% due to gas price increase however CAN manufacturing had been shut down due to has
supply issues. With the cost of production rising due to high input costs and depreciation of the rupee, the
net profit margin was squeezed to its lowest 16%.

Due to the inelastic yet strong demand for fertilizer products, the topline and bottom-line growth of
Fatima have been on an upward trend except for 2020 when sales went down by 5% YoY due to COVID-
related lockdown, even then Fatima endured and posted a higher net profit margin of 18.6% compared to

8
16.1% last year owing to its efficient operations and dedicated gas supply from Mari fields. However, in
2022, the fertilizer sector witnessed its margins shrink as input costs rose along with the rapid rupee
devaluation and finance costs rising on back of rising policy rate hikes. Moreover, due to recent floods in
2022, impacted uptake of fertilizer which ultimately hurt the bottom line bringing the net profit margin to
9.3%. and negatively impact the ROE and ROA.

Compared to Engro, Fatima has always had the upper hand in terms of profitability margin but has a ROE
and ROA ratio attributed to difference in the capital structures of both companies. Engro employs greater
financial leverage compared to Fatima that prefers a higher equity base.

SOLVENCY

Solvency - FATIMA 2018 2019 2020 2021 2022

Debt to Equity 30.9% 36.8% 23.5% 13.6% 22.2%
Debt to Assets 16.8% 18.5% 13.0% 7.4% 10.6%
Financial Leverage 1.84 1.99 1.81 1.84 2.08
Equity to Asset 0.54 0.50 0.55 0.54 0.48
Total Liabilities to Equity 0.84 0.99 0.81 0.84 1.08
Total Liabilities to Assets 0.46 0.50 0.45 0.46 0.52

SOLVENCY - EFERT 2018 2019 2020 2021 2022

Debt to equity ratio (as per book) 69.9% 76.1% 51.4% 45.3% 45.5%
Debt to Assets 27.0% 25.9% 18.2% 16.1% 14.1%
Financial Leverage 2.59 2.94 2.82 2.82 3.23
Total Liabilities to Equity 1.59 1.94 1.82 1.82 2.23
Total Liabilities to Assets 0.61 0.66 0.65 0.65 0.69

Fatima’s debt to equity and debt to asset ratio has reduced from 69.9% and 27% to 45.5% and 14.1%
respectively. This reflects a moderate capital structure with strong coverage. Financial leverage has
remained range bound within x1 compared to Engro that has higher financial leverage.

Over the period of 2018 to 2022, the total liabilities to equity ratio has remained steady in 2022 however
debt financing was slightly increased bringing the ratio to 1.08. A major portion of the debt financing
comprises of short-term financing for the general business operations.

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WORKING CAPITAL MANAGEMENT POLICY

Working Capital - FATIMA 2018 2019 2020 2021 2022

Days Inventory Outstanding 73.37 68.31 107.63 83.78 92.48
Days Sales Outstanding 15.99 23.79 29.85 22.88 38.94
Days Payable Outstanding 227.1 172.8 212.1 161.3 170.8
Cash Conversion Cycle (137.77) (80.66) (74.59) (54.63) (39.34)

Working Capital - EFERT 2018 2019 2020 2021 2022

Days Inventory Outstanding 47.4 53.6 51.0 43.5 48.5
Days Sales Outstanding 24.3 35.0 29.5 8.2 8.0
Days Payable Outstanding 126.1 105.6 123.5 116.3 113.8
Cash Conversion Cycle (54.5) (17.0) (43.0) (64.6) (57.3)

Historically both Fatima and Engro have had negative cash conversion cycles with heavy reliance on
short term financing against import merchandise and for working capital requirements. These credit
facilities are usually secured by pledge of raw materials and finished goods.

Fatima’s cash conversion cycle indicates that the company is generating more cash flow from its sales
than what it spends on purchasing new inventory and paying its creditors. The company’s days payable
has been fluctuating over 2018 to 2022, increasing and decreasing over the years. But overall, the DPO
for 2022 is higher than that of Engro indicating that Fatima may have better bargaining power over its
suppliers. However, Engro has a significantly lower DSO and DIO implying that the inventory is being
cycled through faster than Fatima and they have a more stringent policy when it comes to collecting cash
from customers. When the cash conversion cycle is compared with the return on equity, a declining trend
is evident alluding to a working capital policy that is moderate in nature. The current assets are in sync
with the short-term liabilities balancing risk and growth potential. Moreover, this strategy ensures long
term sources of finance are used for investment in fixed assets and short-term funding options are used for
current asset financing.

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EARNING POTENTIAL

FATIMA 2018 2019 2020 2021 2022

Earnings Growth - 1.3% 10.0% 39.2% -23.5%
Price to earnings ratio 5.81 4.95 4.24 3.37 5.51
EPS 5.67 5.75 6.32 8.80 6.73

EFERT 2018 2019 2020 2021 2022

Earnings Growth - 11.4% -9.4% 25.3% -26.9%
Price to earnings ratio 5.53 5.26 5.02 4.82 6.66
EPS 12.48 13.90 12.59 15.78 11.54

The last five years earning summary and growth rate has remained volatile due to economic challenges
and disruption to gas supply. In 2020, the pandemic has resulted in reduced offtake however despite price
uncertainties, sales volumes remain steady. Coupled with a lower cost of production due to subsidy
released by the government for SNGPL against gas supplied to its Sheikhupura plant at subsidized rate
resulted in earnings remaining robust. In 2021, the Fatima had recorded sales with production reaching a
new milestone despite inflationary pressures. In 2022, both Engro and Fatima saw its earnings venture
into the negative territory due to regressive taxation measures (imposition of super tax), persistent
unprecedented inflation and surge in finance costs due to surge in interest rates.

Despite the precarious economic situation, the fundamentals for Fatima remain strong and the company is
generating reasonable earnings compared to its price, albeit it is lower than Engro.

DUPONT ANALYSIS

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DIVIDEND TREND

2018 2019 2020 2021 2022

Dividend per Share 1.75 2.00 2.50 3.50 3.50
Dividend Coverage Ratio 3.24 2.87 2.53 2.51 1.92
Dividend Yield 5.31% 7.03% 9.34% 11.81% 9.44%

Fatima’s dividend payments have been increasing over the past five years. However, the dividend
coverage ratio has been in a declining trend which is a cause of concern as to whether the company will
be able to adequately cover dividends paid out with its earnings.

Dividend yield was at its highest in 2021 however it has fallen back to 2020 levels in 2022, indicating that
there is room for future growth in dividend payments.

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MARKET VALUATION

Market Valuation - FATIMA 2018 2019 2020 2021 2022

Price to Earning Ratio 5.81 4.95 4.24 3.37 5.51
Operating Cashflow per Share 8.23 3.28 7.89 12.52 4.24
Price to CashFlow Ratio 4.00 8.68 3.40 2.37 8.75
Price to Book Ratio 0.99 0.77 0.65 0.62 0.73
BVPS 33.14 37.15 41.48 47.74 50.91
Price to Sales Ratio 1.35 0.80 0.79 0.55 0.51

Overall, the valuation of Fatima Fertilizer reflects stable and sustainable earnings despite operating in an
environment with deteriorating macros. The P/B ratio has consistently been below 1.0 from 2019
indicating that the stock may be undervalued.

A cause of concern is its decreasing operating cashflow which plummeted from 12.5 in 2021 to 4.2 in
2022 indicating it might be facing some trouble in covering its operating expenses and capital
expenditures. The Price to Sales ratio has been declining and stands 0.51 in 2022 as profit margins
decline.

BETA

The beta for Fatima Fertilizer was calculated regressing daily returns of the stock against the KSE-100 for
the last 36 months (2020-2022). The risk of the stock is lower compared to the stock market due to the
non-cyclical nature of the industry it operates.

Regression Statistics
Multiple R 0.391721361
R Square 0.153445624
Adjusted R Square 0.152306251
Standard Error 0.018335089
Observations 745

13
15.3% of the variation in stock returns is explained by fluctuations in the stock market and the returns are
moderately correlated.

WEIGHTED AVERAGE COST OF CAPITAL - WACC

The capital structure of Fatima Fertilizer is composed of moderate leverage and higher equity base.

Cost of equity was computed using the CAPM model. Market returns were calculated using the earnings
approach and using the prevailing P/E of the KSE-100. Market return was found to be around 24.33%

The return on a 10-year Pakistan Investment Bond was used as a proxy for risk-free return i.e., 15.99%
(as of May 2023)

Since Fatima Fertilizer has not issued any sukuk or bonds recently using comparable bond approach the
yield to maturity was calculated on the Hubco Power, a bond of similar rating (AA+) and maturity. An
upward adjustment of 1.5% was taken to consider sectoral differences.

The offtake for Hubco is generally guaranteed by the GoP due to IPP agreements, although Fatima
operates in a non-cyclical industry with fertilizer being an essential component for higher crop yields, the
offtake is not explicitly guaranteed by the GoP due to which an adjustment has been taken to reflect
increased risk. The final yield to maturity was 22.63%

Market capitalization (as of May 2023) of Fatima was taken as the market value of Equity. Meanwhile to
calculate the market value of debt we assumed that the total debt taken by the company was a coupon
paying bond with a maturity equivalent to the weighted average maturity of its debt.

14
Long term Debt 10,793
Short Term Debt 12,884
Total Debt (Book Value) 23,676
Market Value of Debt 18,486
Market Value of Equity 59,850

Weight of Debt 23.6%

Weight of Equity 76.4%
Tax Rate 29%

Cost of debt (%) 22.63%

Cost of Debt (%) - After Tax 16.07%
Cost of Equity (%) 21.51%

WACC 20.23%

FREE CASH FLOW

Free cash flow represents the cash that a company generates to support its operations and maintain its
capital assets.

In Rs Mn 2018 2019 2020 2021 2022

EBIT 19,669 21,320 21,535 34,136 38,060
Effective Tax Rate 29% 30% 29% 34% 54%
Net operating Profit After Tax 13,956 14,967 15,253 22,375 17,473

Operating Assets 14,498 26,438 26,255 39,552 70,041

Operating Liabilties 18,069 26,484 22,871 38,469 55,372
Net Operating Working Capital (3,571) (46) 3,384 1,083 14,669
Add: Operating Long - term assets 91,719 100,721 104,938 105,422 110,257

Total Net Operating Capital 88,148 100,675 108,322 106,505 124,926

Net Investment in Operating Capital 3,007 12,527 7,647 (1,817) 18,421

FCFF 10,949 2,439 7,606 24,192 (948)

Interest (1-Tax) 1,293 2,640 2,457 1,315 1,345

Net Borrowing (1,507) 7,241 (8,260) (6,892) 10,103

FCFE 8,149 7,041 (3,111) 15,984 7,809

As per our calculations, Fatima Fertilizer had a negative FCF in the year 2022 as higher operating
expenses and finance costs continue to apply pressure on bottom line growth. This is in stark contrast to
2021, where the FCF was at its highest.

However, FCFE in the year 2022 is positive, indicating the pressure from cash flow stemming from
additional financing being taken up in a rising interest rate environment. With the policy rate touching
21%, businesses around Pakistan are finding it exceedingly difficult to finance their day to day
operations.

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INTRINSIC VALUE AND RECOMMENDATION

Our assumptions for our projection are:

 Stable inelastic demand

 Lower Leverage, Strong Capital Structure due to high equity base
 Improvement in operating cash flow cycle ensuring liquidity for operations.
 Lower margins, high input costs, elevated gas rates, restriction on raw materials, higher finance
costs
 Investment in improvement of gas pressure and increasing plant efficiency and capacity.
 Operating margin is 25% in 2023 and 2024 increasing to 30% in 2025.
 Sales growth is expected to be 20% in 2023 gradually increasing to normalized 30% in 2026.
 Historical average GDP (2018-2022) has been taken as proxy for the long term growth rate.

In Rs Mn 2022A 2023E 2024E 2025E

FCFF (948) 7,621 9,526 21,985
WACC 20.23% 20.23% 20.23%

PV of CF 6,339 6,590 12,650

Terminal Growth Rate 4.18%

Horizon Value 142,755
PV of Horizon Value 82,142
Value of Operations 107,721
Add: Short term investments 4,129
Total Estimated Value 111,850
Less:Debt 23,694
Estimated Value of Equity 88,156
No. of shares 2,100
Estimated Stock Price per Share 41.98

The current market per share is Rs 28.5 with an intrinsic value at Rs 41.98. The stock is currently
undervalued, and we recommend it a BUY considering its growth and earnings potential. Being an
agrarian economy, fertilizer is a staple commodity hence despite deteriorating macros, we believe that due
to strong fundamentals and operations it will endure the harsh environment and pull through.

16
INVESTMENT RISKS

The country's economy is facing several challenges, causing a production halt across multiple industries
due to demand contraction and supply-chain disruptions. However, the demand for urea remains stable as
it is necessary for food security. Urea manufacturers can pass on their production costs to customers as
local prices are lower than international prices. Some manufacturers have raised their prices due to an
increase in gas tariffs and PKR devaluation, but not all have followed suit.

The Pakistani government raised gas tariffs for the SSGC and SNGPL network as per the IMF's demand
for tariff rationalization, but major fertilizer players source gas from the Mari network, for which no
explicit notification of a price hike has been issued yet. FFBL and EFERT's Enven plant were hit by the
cost escalation due to gas price hikes by 69% and 47% for feed and fuel, respectively, and have passed on
the impact to urea prices. FFBL raised granular urea prices by PKR440/bag to PKR3,025/bag, while
EFERT raised prices by PKR555/bag to PKR2,994/bag.

To ensure an adequate supply of nutrients and avoid subsidizing expensive RLNG, the government
allowed RLNG-based plants on indigenous gas to operate. Following ECC approval, indigenous gas was
allocated to both plants, and their gas tariff increased from PKR839/mmbtu to PKR1,050/mmbtu for feed
and fuel. As a result, the prices of TARA urea (AGL) and Bubber Sher urea (Fatima Fert) increased by
PKR350/bag, reaching PKR2,791/bag

Major risks include:

1. Sovereign default – The forex reserve situation in the country is alarming with high dependency
on the success of the staff level IMF agreement. Currently the government has secured loans from
friendly countries but must address the $ 3-4 billion gap in financing requirements.
2. Imposition of sales tax – as of the Finance Act in 2022, no sales tax is currently imposed on
fertilizer products. Sales tax if introduced will increase the cost of sales for fertilizer companies.
3. Although we believe that the policy rate cannot be hiked any further without jeopardizing
business activities. However, the probability of another rate hike increasing financing costs
cannot be ruled out.

17
REFERENCES:

https://tribune.com.pk/story/2405674/two-fertiliser-plants-to-get-indigenous-gas

https://tribune.com.pk/story/2406355/fertiliser-plants-to-get-gas-supply

https://tribune.com.pk/story/2402946/fertiliser-sectors-margins-fall

https://www.nation.com.pk/14-Feb-2023/ecc-increases-gas-prices-to-seal-imf-deal

https://www.thenews.com.pk/tns/detail/968864-the-fault-in-our-fertiliser-industry

https://fatima-group.com/

https://www.engrofertilizers.com/

18
APPENDIX

In Rs Mn - Balance Sheet 2018 2019 2020 2021 2022

Non current assets 100,097 110,577 114,999 113,120 119,715
Property, plant and equipment (Net of accumulated depreciation) 91,719 100,721 104,938 105,422 110,257
Intangible assets 5,979 5,974 5,991 3,609 3,651
Investment Property - 628 756 775 165

Long term investments 146 175 202 795 1,469

Long term loan to associated company 1,999 2,999 2,999 1,999 2,999
Long term deposits 255 82 114 518 1,174

Current assets 28,111 44,539 42,558 71,774 102,790

Stores and spare parts 5,834 7,713 8,274 11,566 14,722
Stock in trade 6,100 11,518 13,531 18,332 32,488
Trade debts 2,565 7,207 4,450 9,654 22,831
Short term loans 3,242 3,242 3,242 7,000 8,500
Advances, deposits, prepayments and other receivables 9,030 13,814 8,676 15,636 17,509
Advance income tax - - 1,305 - -
Short term investments 623 530 2,524 2,243 4,129
Cash and bank balances 717 515 556 7,343 2,611

Total Assets 128,208 155,116 157,557 184,893 222,506

Share capital 21,000 21,000 21,000 21,000 21,000

Reserves 48,595 57,008 66,103 79,263 85,911
Capital reserves 1,790 1,790 1,790 1,790 1,790
Revenue reserves 46,905 55,300 64,374 77,593 84,361
Post retirement benefit obligation reserve (96) (76) (62) (120) (240)
Deficit on remeasurement of investements (4) (5) - - -
Total Equity 69,595 78,008 87,103 100,263 106,911

Non current liabilities 27,043 26,536 29,303 30,307 35,336

Long term Finances 8,377 6,254 3,114 5,172 8,446
Lease Liabilities - 279 1,901 1,437 1,153
Deferred Liabilities 18,609 19,943 24,116 23,522 25,364
Deferred government grant - - 61 - -
Long Term Deposits 57 61 110 175 373

Current liabilites 31,570 50,572 41,151 54,323 80,259

Trade and other payables 18,069 26,484 22,871 38,469 55,372
Accured Finance Cost 306 837 451 307 715
Income tax payable - 4,968 8,336
Short Term Finances -Secured 5,495 16,265 11,444 6,466 12,884
Unpaid dividend - 1,739 -
Unclaimed dividend 69 190 41 45 46
Loan from directors 18
Current Maturity of long term finances 7,631 6,225 5,803 1,892 2,346
Current Maturity of lease liabilities - 571 480 375 541
Current Maturity of Deferred government grant - - 62 61 -

Total Liabilties 58,613 77,108 70,454 84,630 115,595

Total Equity and liabilties 128,208 155,116 157,557 184,893 222,506

19
20
In Rs Mn - Income Statement 2018 2019 2020 2021 2022
Sales 51,310 74,964 71,267 112,488 152,231
Cost of sales (25,639) (47,065) (42,473) (69,404) (100,289)
Gross Profit 25,671 27,899 28,795 43,084 51,943
Distribution costs (3,685) (3,800) (3,891) (5,049) (7,947)
Administrative expenses (2,317) (2,779) (3,369) (3,900) (5,936)
Operating Profit 19,669 21,320 21,535 34,136 38,060
Finance costs (1,823) (3,761) (3,469) (2,007) (2,930)
Other operating expenses (1,708) (1,480) (1,678) (4,677) (6,337)
Other Income 603 1,090 1,810 1,210 2,425
Other gains/losses: - - 517 (477) (384)
Gain on remeasurement of GIDC 878 - -
Unwinding of provision of GIDC - (368) (274)
Loss allowance on subsidy receivable from GoP (360) (110) (110)
Share of Profit from Associate 49 25 27 (0) (68)
Profit before taxation 16,790 17,193 18,743 28,185 30,765
Taxation (4,877) (5,123) (5,468) (9,711) (16,641)
Profit after taxation 11,914 12,070 13,275 18,474 14,124

Sales 2018 2019 2020 2021 2022

Revenue from contracts with customers 51,040 74,964 71,267 112,488 152,231

Fertilizer Products - Manufactured 50,278 69,576 62,041 90,265 104,274

Fertilizer Products - Toll manufacturing - 19,688 45,924
Mid Products 474 787 864 1,186 1,372
Fertilizer Products - For Resale 1,698 7,441 11,049 5,402 3,832
Less :
Sales Tax (2,269) (1,627) (1,557) (2,489) (1,497)
Discounts (612) (1,348) (1,279) (1,564) (1,920)
Subtotal: Local Sales 49,569 74,829 71,117 112,488 151,985

Fertilizers products 1,470 - - - -

Certified emission reductions - 135 150 - 247
Subtotal: Export Sales 1,470 135 150 - 247

Other Revenue 270 - - - -

Subsidy from Government of Pakistan 270 -

Total 51,310 74,964 71,267 112,488 152,231

Cost of Sales 2018 2019 2020 2021 2022

Raw material consumed 10,005 21,761 22,848 33,895 72,699
Packing material consumed 1,109 1,263 1,330 2,436 3,491
Salaries and wages 3,174 3,463 4,431 6,035 8,113
Fuel & Power 4,217 6,626 6,330 7,706 10,453
Chemicals & Catalyst consumed 651 823 1,173 2,178 3,322
Stores and spares consumed 1,017 1,312 1,891 2,561 4,345
Depreciation 3,441 2,580 2,720 4,998 5,036
Technical assistance 40 117 162 478 523
Repair and maintainance 1,078 1,166 2,131 1,724 6,152
Insurance 220 286 718 841 1,150
Travelling 157 193 127 155 284
Rent, Rates & Taxes 109 135 164 387 697
Vehicle running and maintainance 75 100 94 138 254
Others 89 143 131 148 278
Subsidy on RLNG released by GoP to SNGPL (5,742) (1,533) (7,893)
Manufacturing costs 25,381 39,969 38,510 62,146 108,907
Opening stock of mid goods 80 214 204 311 123
Closing stock of mid goods (214) (204) (311) (123) (182)
Cost of goods manufactured sold 25,248 39,980 38,403 62,334 108,847

Opening stock of finished goods 2,451 3,515 2,851 8,373 5,514

Closing stock of finished goods (3,515) (2,851) (8,373) (5,514) (16,959)

Cost of sales - own manufactured 24,184 40,643 32,881 65,193 97,403

Cost of sales - purchased for resale 1,456 6,422 9,592 4,211 2,886

Cost of sales 25,639 47,065 42,473 69,404 100,289

Distribution and selling expenses 2018 2019 2020 2021 2022

Salaries and benefits 179 163 228 248 936
Fee for services 715 844 692 998 617
Rent, Rates & Taxes 245 191 254 333 471
Advertising and Sales promotion 352 350 373 482 911
Transportation and Freight 2,119 2,186 2,270 2,854 4,503
Technical Services to Farmers 18 23 24 52 137
Others 58 43 49 82 373
3,685 3,800 3,891 5,049 7,947

Finance Cost 2018 2019 2020 2021 2022

Markup on long term financnes 1,469 1,851 1,307 712 1,115
Markup on short term finances 235 1,489 1,665 879 1,006
Interest on lease liabilities - 72 103 161 152
Bank charges and others 119 349 394 254 657
Total Finance Costs 1,823 3,761 3,469 2,007 2,930

21
In Rs Mn - Cash Flow Statement 2018 2019 2020 2021 2022
Cash generated from operations 22,112 16,433 24,988 31,427 22,023
Net increase in long term deposits 1 4 49 65 197
Finance costs paid (1,777) (3,158) (3,736) (1,963) (2,397)
Taxes paid (3,013) (6,345) (4,664) (2,988) (10,793)
Employee Retirement benefits paid (44) (55) (79) (242) (131)

Net cash generated from operating activities 17,280 6,879 16,559 26,299 8,899

Additions in PPE (8,596) (10,728) (2,036) (5,731) (9,382)

Addition in investment property - (628) (130) (20) -
Additions in intangible assets (58) (22) (52) (20) (85)
Proceeds from disposal of PPE 2 2 45 3 19
Short term investments made (471) (167) (2,173) (674) (3,051)
Short term loan to associated company-net (2,000) - - (3,758) (1,500)
Payment made for acquisition of subs (291)
Long term investment (2) - - (600) (750)
Proceeds from short term investments 0 324 598 868 336
Profit received on loans and saving accounts 414 725 289 1,977 973
Net decrease/(increase) in long term deposits (140) 173 (32) (405) (655)
Net cash used in investing activities (10,851) (10,322) (3,489) (8,359) (14,385)

Proceeds from long term finances 2,156 4,000 1,462 3,920 5,623
Repayment of long term finances (7,396) (7,685) (4,967) (5,857) (1,929)
Repayment of lease liabilities - (291) (354) (731) (270)
Dividend paid (4,681) (3,554) (4,349) (3,507) (9,087)
Increase/Decrease in short term finances - net 3,378 10,770 (2,410) (2,584) 3,377
Net Cash used in financing activities (6,543) 3,241 (10,617) (8,759) (2,288)

Net increase/(decrease) in cash and cash equivalents (115) (203) 2,453 9,181 (7,774)
Cash and cash equivalents at the beginning of the year 832 717 (5,991) (3,538) 5,643
Cash and cash equivalents at the end of the year 717 515 (3,538) 5,643 (2,131)

Cash generated from operations

Profit before taxation 16,790 17,193 18,743 28,185 30,765

Adjustments for non cash charges and other items: 5,406 5,948 4,527 9,481 10,639
Depreciation on PPE 3,577 2,795 2,933 5,246 5,333
Depreciation in investment property at cost - 0 1 1 1
Amortization of intangible assets 17 28 34 42 43
Impairment of brand - - - 2,360 -
Finance Cost 1,823 3,761 3,469 2,007 2,930
Provision for retirement benefit obligations 141 196 213 129 293
Provision for slow moving stores and spares 22 9 39 75 254
Exchange loss / loss on translation of FCY Loan 355 156 49 (3) -
Profit on loan to related parties (490) (854) (1,201) (839) (1,521)
Gain/loss on remeasurement of investment 42 (65) (412) 87 828
Loss allowance on subsidy receivable from GoP - - 360 110 110
Unwinding of provision/(gain) of GIDC - - (878) 368 274
Share of profit from associates (49) (25) (27) 0 68
Profit from savings accounts (29) (52) (54) (97) (285)
Impairment against advance - - - - 2,226
Loss on transfer of investment property - - - - 79
Gain on disposals of PPE (2) (1) (1) (3) 6

Effect on cashflows due to working capital changes

Decrease / (increase) in current assets (3,425) (16,428) 3,918 (20,483) (34,816)
Stores and spare parts (285) (1,889) (599) (3,367) (3,382)
Stock-in-trade (1,892) (5,418) (2,013) (4,801) (14,156)
Trade debts (634) (4,642) 2,756 (5,204) (13,177)
Loans and advances & Other receivables (614) (4,479) 3,774 (7,111) (4,102)

Increase / (decrease) in trade and other payables 3,341 9,720 (2,200) 14,244 15,435

Cash generated from operations 22,112 16,433 24,988 31,427 22,023

22
VERTICAL ANALYSIS

In Rs Mn - BALANCE SHEET 2018 2019 2020 2021 2022

Non current assets 78% 71% 73% 61% 54%
Property, plant and equipment 72% 65% 67% 57% 50%
Intangible assets 5% 4% 4% 2% 2%
Investment Property 0.0% 0.4% 0.5% 0.4% 0.1%

Long term investments 0.1% 0.1% 0.1% 0.4% 0.7%

Long term loan to associated company 2% 2% 2% 1% 1%
Long term deposits 0% 0% 0% 0% 1%

Current assets 22% 29% 27% 39% 46%

Stores and spare parts 5% 5% 5% 6% 7%
Stock in trade 5% 7% 9% 10% 15%
Trade debts 2% 5% 3% 5% 10%
Short term loands 3% 2% 2% 4% 4%
Advances, deposits, prepayments and other receivables 7% 9% 6% 8% 8%
Advance income tax 0.0% 0.0% 1% 0% 0%
Short term investments 0.5% 0.3% 2% 1% 2%
Cash and bank balances 1% 0.3% 0% 4% 1%

Total Assets 100% 100% 100% 100% 100%

Share capital 16% 14% 13% 11% 9%

Reserves 38% 37% 42% 43% 39%
Total Equity 54% 50% 55% 54% 48%

Non current liabilities 21% 17% 19% 16% 16%

Long term Finances 7% 4% 2% 3% 4%
Lease Liabilities 0.0% 0.2% 1% 1% 1%
Deferred Liabilities 15% 13% 15% 13% 11%
Deferred government grant 0.0% 0.0% 0.0% 0.0% 0.0%
Long Term Deposits 0.0% 0.0% 0.1% 0.1% 0.2%

Current liabilites 25% 33% 26% 29% 36%

Trade and other payables 14% 17% 15% 21% 25%
Accured Finance Cost 0% 1% 0.3% 0% 0%
Income tax payable 0% 0% 0.0% 3% 4%
Short Term Finances -Secured 4% 10% 7% 3% 6%
Unpaid dividend 0.0% 0.0% 0.0% 0.9% 0.0%
Unclaimed dividend 0.1% 0.1% 0.0% 0.0% 0.0%
Loan from directors 0.0% 0.0% 0.0% 0.0% 0.0%
Current Maturity of long term finances 6.0% 4.0% 3.7% 1.0% 1.1%
Current Maturity of lease liabilities 0.0% 0.4% 0.3% 0.2% 0.2%
Current Maturity of Deferred government grant 0.0% 0.0% 0.0% 0.0% 0.0%

Total Liabilties 46% 50% 45% 46% 52%

Total Equity and liabilties 100% 100% 100% 100% 100%

In Rs Mn 2018 2019 2020 2021 2022

Sales 100% 100% 100% 100% 100%
Cost of sales 50% 63% 60% 62% 66%
Gross Profit 50% 37% 40% 38% 34%
Distribution costs 7% 5% 5% 4% 5%
Administrative expenses 5% 4% 5% 3% 4%
Operating Profit 38% 28% 30% 30% 25%
Finance costs 4% 5% 5% 2% 2%
Other operating expenses 3% 2% 2% 4% 4%
Other Income 1% 1% 3% 1% 2%
Other gains/losses: 0.0% 0.0% 0.7% -0.4% -0.3%
Share of Profit from Associate 0.1% 0.0% 0.0% 0.0% 0.0%
Profit before taxation 33% 23% 26% 25% 20%
Taxation 10% 7% 8% 9% 11%
Profit after taxation 23% 16% 19% 16% 9%

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HORIZONTAL ANALYSIS

In Rs Mn - BALANCE SHEET $ % $ % $ % $ %
Non current assets 10,480 10% 4,422 4% (1,880) -2% 6,596 6%
Property, plant and equipment 9,002 10% 4,217 4% 485 0% 4,834 5%
Intangible assets (5) 0% 17 0% (2,382) -40% 42 1%
Investment Property 628 0% 129 20% 19 3% (610) -79%

Long term investments 29 20% 27 15% 594 294% 674 85%

Long term loan to associated company 1,000 50% - 0% (1,000) -33% 1,000 50%
Long term deposits (173) -68% 32 39% 405 356% 655 126%
- 0% - 0% - 0% - 0%
Current assets 16,428 58% (1,981) -4% 29,216 69% 31,017 43%
Stores and spare parts 1,880 32% 560 7% 3,292 40% 3,157 27%
Stock in trade 5,418 89% 2,013 17% 4,801 35% 14,156 77%
Trade debts 4,642 181% (2,756) -38% 5,204 117% 13,177 136%
Short term loands - 0% - 0% 3,758 116% 1,500 21%
Advances, deposits, prepayments and other receivables
4,784 53% (5,138) -37% 6,960 80% 1,873 12%
Advance income tax - 0% 1,305 0% (1,305) -100% - 0%
Short term investments (93) -15% 1,994 376% (281) -11% 1,887 84%
Cash and bank balances (203) -28% 41 8% 6,788 1221% (4,733) -64%

Total Assets 26,908 21% 2,441 2% 27,336 17% 37,612 20%

Share capital - 0% - 0% - 0% - 0%
Reserves 8,413 17% 9,094 16% 13,161 20% 6,648 8%
Capital reserves - 0% - 0% - 0% - 0%
Revenue reserves 8,395 18% 9,075 16% 13,219 21% 6,767 9%
Post retirement benefit obligation reserve 20 20% 15 19% (58) -95% (120) -100%
Deficit on remeasurement of investements (1) -22% 5 100% - 0% - 0%
Total Equity 8,413 12% 9,094 12% 13,161 15% 6,648 7%

Non current liabilities (507) -2% 2,767 10% 1,004 3% 5,029 17%
Long term Finances (2,123) -25% (3,140) -50% 2,058 66% 3,274 63%
Lease Liabilities 279 0% 1,623 582% (464) -24% (284) -20%
Deferred Liabilities 1,333 7% 4,173 21% (593) -2% 1,842 8%
Deferred government grant - 0% 61 0% (61) -100% - 0%
Long Term Deposits 4 7% 49 80% 65 59% 197 113%

Current liabilites 19,002 60% (9,421) -19% 13,172 32% 25,936 48%
Trade and other payables 8,415 47% (3,613) -14% 15,598 68% 16,902 44%
Accured Finance Cost 530 173% (386) -46% (143) -32% 408 133%
Income tax payable - 0% - 0% 4,968 0% 3,368 68%
Short Term Finances -Secured 10,770 196% (4,821) -30% (4,978) -43% 6,418 99%
Unpaid dividend - 0% - 0% 1,739 0% (1,739) -100%
Unclaimed dividend 121 176% (149) -78% 4 10% 1 3%
Loan from directors - 0% - 0% - 0% 18 0%
Current Maturity of long term finances (1,406) -18% (422) -7% (3,911) -67% 454 24%
Current Maturity of lease liabilities 571 0% (91) -16% (105) -22% 166 44%
Current Maturity of Deferred government grant - 0% 62 0% (0) 0% (61) -100%

Total Liabilties 18,495 32% (6,654) -9% 14,176 20% 30,965 37%
Total Equity and liabilties 26,908 21% 2,441 2% 27,336 17% 37,612 20%

Year 2019 vs 2018 Year 2020 vs 2019 Year 2021 vs Year 2020 Year 2022 vs Year 2021
$ % $ % $ % $ %
Sales 23,654 46% (3,697) -5% 41,221 58% 39,743 35%
Cost of sales (21,426) 84% 4,593 -10% (26,931) 63% (30,885) 44%
Gross Profit 2,228 9% 896 3% 14,290 50% 8,858 21%
Distribution costs (115) 3% (91) 2% (1,158) 30% (2,898) 57%
Administrative expenses (462) 20% (590) 21% (531) 16% (2,036) 52%
Operating Profit 1,651 8% 215 1% 12,600 59% 3,924 11%
Finance costs (1,938) 106% 292 -8% 1,463 -42% (924) 46%
Other operating expenses 228 -13% (197) 13% (2,999) 179% (1,660) 35%
Other Income 487 81% 720 66% (600) -33% 1,215 100%
Other gains/losses: - #DIV/0! 517 #DIV/0! (995) -192% 93 -20%
Share of Profit from Associate (25) -50% 2 9% (27) -101% (68) 19557%
Profit before taxation 403 2% 1,550 9% 9,442 50% 2,580 9%
Taxation (247) 5% (345) 7% (4,243) 78% (6,930) 71%
Profit after taxation 156 1% 1,205 10% 5,199 39% (4,350) -24%

24