AKD Fertilizer Report

Pakistan Fertilizer
September 9, 2022
REP-108
Muhammad Shahroz
Investment Analyst
muhammad.shahroz@akdsl.com
+92-111-253-111 Ext:603
Decent pricing power to ensure attractive payouts
 We maintain our “over-weight” stance on the fertilizer sector due to its stable demand
AKD Universe Fertilizer sector Valuations dynamics, attractive dividend yield and reasonable pass-on ability.
TP Price Upside D/Y Stance  The upcoming gas tariff hike of 42% and 82% for feed and fuel gas will increase the cost,
however we believe that the manufacturers have decent pricing power given the signifi-
EFERT 95 80.5 20.5% 17.7% Buy
cant discount between local and international urea prices.
FFC 124 102.0 21.8% 16.9% Buy
 In federal budget FY23, GoP exempted the fertilizer sector from sales tax which stopped
FFBL 30 20.1 47.9% 4.9% Buy the pileup of sales tax refunds on manufacturers’ books, however this has resulted in an
increase in their cost.
FATIMA 41 36.6 12.9% 10.9% Buy
 Heavy rains and flooding, especially in Sindh and Baluchistan have wreaked havoc in the
Source: PSX & AKD Research
region. As per initial reports, many standing crops have been destroyed by the natural
calamity. This might result in a period of slowdown in fertilizer offtakes, however we
expect offtakes to normalize in next few months.
 Lately, news of the deregulation of fertilizer sector is making rounds. Deregulation of the
sector will increase the cost of fertilizer for farmers and will result in higher profits for
manufacturers but this deregulation will also expose the fertilizer companies to the
movements in international commodity prices.
 Our top picks from the sector are FFC (TP: PkR124/sh, offering total return of ~37%) and
EFERT (TP: PkR95/sh, offering total return of ~35%).
Fertilizer Sector vs KSE100 Index Flood to hit fertilizer offtake in near term: The recent floods have wreaked havoc in the coun-
try affecting millions of people and damaging infrastructure. In addition, the flood has caused
32%
heavy damage to Kharif crops, especially cotton and rice. Furthermore, the floods might also
24%
result in delays in sowing of Rabi crops. As per our channel checks, standing crops of cotton and
different fruits & vegetables have been severely impacted by the floods. According to the chair-
16%
man of the Pakistan Cotton Ginners Association, around 40%-45% of the cotton crop has been
8%
damaged by the recent floods. Furthermore, the indirect impact of these floods in the form of
0% loss of soil nutrients will also hurt the sector. This could potentially hurt soil quality and will im-
-8% pact crop yields. However, once flood water recedes, we might see a jump in fertilizer offtakes
-16% as farmers try to replenish nutrients in flood hit areas. We believe that, fertilizer demand is also
-24%
expected to take a hit in the near term due to floods, where DAP sales have already started to
paint a gloomy picture. To note, DAP offtake is already down by ~18%YoY in 7MCY22, amid rec-
Feb-22
May-22
Mar-22
Apr-22
Jul-22
Oct-21
Sep-21
Nov-21
Dec-21
Jan-22
Jun-22
Aug-22
Sep-22
ord high prices. On urea front, we expect demand to take a hit in 3QCY22 but is expected to
KSE-100 Index Fertilizer Sector normalize in coming months like we witnessed in 2010. During the floods of 2010, which hit the
country in July, urea sales were lower by ~41%, 35%, and 15% against the 12 month moving
Source: PSX & AKD Research average in Aug, Sep and October, respectively.
Monthly Urea & DAP offtake during 2010 floods - Tons
1,000,000
800,000
600,000
400,000
200,000
0
AKD Securities Limited Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10
Urea DAP
Source: NFDC & AKD Research
Find AKD research on Bloomberg, firstcall.com, Reuters Knowledge and ResearchPool

AKD RESEARCH
However, sales witnessed a decent recovery in Nov and Dec increasing by 64% and 22% against
the 12 month moving average, respectively. One thing to note here is the difference between
the 2010 and current floods, the 2010 flood was river-flood caused by heavy rains resulting in
higher water levels. However, the impact of 2022 monsoon rain is far more widespread and will
take more time to recede, thus, affecting the fertility of land along with lower area availability
for next crop season.
Gas tariff hike, likely to be passed on: ECC approved increase in gas tariff across the board,
which is still awaiting a final nod from federal cabinet which has been pending for ~2 months.
The proposed increase in gas tariff for fertilizer manufacturers will take feed gas price from
PkR302/mmbtu to PkR430/mmbtu, up by ~42%, while fuel gas will increase to PkR1,857/mmbtu
from PkR1,023/mmtbu, up by ~82%. If passed on fully, the said increase in gas tariff will increase
per bag cost of urea production by PkR420/340/170/380 for FFC/EFERT/FFBL/FATIMA, respec-
tively. Local urea price stands at ~PkR2,250/bag which might see a jump of ~PkR400/bag post
increase in gas tariff, taking final price of urea to PkR2,650/bag. Urea manufacturers boast de-
cent pricing power in current scenario given the stable demand dynamics of the product and
significant gap between local & international urea price. However, recent flooding in the country
will restrict price pass on in the near term. To note, we have assumed price hike of PkR350/bag
for CY23 and a minimal increase going forward in our models.
Deregulation of sector: Fertilizer companies have been advocating for deregulation of the
sector for quite some time now and the work on the new fertilizer policy is underway. Key
points of the proposed fertilizer policy are uniform gas rate for all manufacturers, deregulation
of urea price, quota-based export mechanism, favorable policies to allow debottlenecking of
current facilities etc. Deregulation will result in removal of subsidy on gas resulting in higher cost
for manufacturers, however, fertilizer companies will then sell urea at import parity prices. This
will increase cost for farmers and effective subsidy mechanism will be needed for transparent
disbursement of the subsidy. On the flip side, this will not only increase the profitability of ferti-
lizer companies, but also result in higher tax collection for the Gov’t. However, this will expose
the industry to swings in international commodity prices.
Urea price - PkR/bag Local DAP price - PkR/bag
Local urea price (PkR/bag)

14,000
International urea landed price (PkR/bag)
12,000
10,000
10,000
8,000
8,000
6,000
6,000
4,000 4,000
2,000 2,000
0 0
Mar-22
Mar-21
May-21
Jul-21
May-22
Jul-22
Jan-21
Sep-21
Nov-21
Jan-22
May-21
May-22
Mar-21
Jul-21
Mar-22
Jul-22
Nov-21
Jan-21
Sep-21
Jan-22
Annual urea offtake—mn tons
7.0 Source: NFDC & AKD Research

6.23 6.34
6.04
5.86 5.81
6.0 5.60 5.50 Investment thesis: Fertilizer manufacturers operate in a stable business environment as de-
5.0 mand for urea remains firm despite headwinds on economic front. The companies have decent
ability to pass on cost side pressure as demand for urea is inelastic and significant gap between
4.0
local and international urea price further strengthens the case. Recent flooding might hurt
3.0 offtakes in near term, however, we expect demand to pick up once the rehabilitation process
2.0 starts. We continue our liking for the sector due to stable dynamics of fertilizer industry, reason-
able pass on ability and attractive dividend yield, where EFERT and FFC are our top picks. Key
1.0
risks to our investment thesis are i) Lower than estimated fertilizer offtake, ii) Inability to fully
0.0 pass on gas tariff hike, iii) Unfavorable decision on GIDC front, v) Poor agronomics, and v) Abrupt
CY15
CY16
CY17
CY18
CY19
CY20
CY21
regulatory changes.
Source: NFDC & AKD Research

AKD RESEARCH
EFERT: Attractive yield on offer

We have a “BUY” stance on EFERT owing to i) Improved urea production amid better gas
BUY availability, ii) Stable business dynamics, iii) Attractive dividend yield, and iv) Strong balance
sheet to help undertake new projects. Company has posted PAT of ~PkR21bn (EPS: PkR15.8)
TARGET PRICE (PkR) SHARE PRICE (PkR) in CY21, vs PKR18.1bn (EPS: PkR13.5) in SPLY. The increase in earnings is mainly attributable
94.8 80.6 to higher urea prices and significant decline in finance cost. Imposition of super tax severely
UPSIDE/DOWNSIDE DIV. YIELD hit the earning in 1HCY22, where company posted loss of PkR98mn in 2QCY22, taxation charg-
17.7% 20.5% es stood at PkR7.2bn during the quarter. We expect the company to post PAT of PkR16.4bn
(EPS: PkR2.3) in CY22. The decline in earnings is mainly attributable to expiry of concessionary
gas and imposition of super tax in federal budget. As per our calculation, proposed hike in gas
tariff will increase EFERT’s cost by ~PkR350/bag as compared to PkR420/bag for FFC. EFERT’s
5-year average payout ratio stands at ~98% and we expect dividend payout to remain stable
due to robust profitability and accumulation of cash on balance sheet amid pricing differential
between industry tariff and concessionary gas rate. To note, EFERT has obtained an interim
KATS Code EFERT stay order from Sindh High Court on account of concessionary gas agreement, which earlier
Bloomberg Code EFERT.PA expired on Jun’21. Management believes that EFERT hasn’t received “Minimum Contract
Price PkR 80.6 Quantity” of gas and is in talks with relevant authorities on a workable solution. Moreover,
Company is currently accruing the differential between concessionary gas rate and industry
Market Cap (PkRmn) 107,558.4 gas tariff in their payables. We have a “BUY” stance on EFERT with DDM based TP of PkR94.8/
Market Cap (US$mn) 477.1 sh with DY of 20.5% (next 4Q), offering total return of ~38.2%. The scrip is currently trading at
Shares (mn) 1,335.3 a forward P/E of 6.5x/4.2x on CY22F/CY23F earnings.
3M High (PkR) 91.6 EFERT - Financial Databank Annual

3M Low (PkR) 77.3
(Year End Dec-31) CY21 CY22F CY23F CY24F CY25F
1Yr High (PkR) 95.5 EPS (PkR) 15.8 12.3 19.1 18.0 15.8
1Yr Low (PkR) 58.7 EPS Growth 16.3% -22.0% 54.8% -5.9% -11.8%
PER (x) 5.1 6.5 4.2 4.5 5.1
3M Avg Turnover '000 1,619.9 BVS (PkR) 35.3 34.6 35.4 36.4 37.2
1 Yr Avg Turnover '000 1,807.0
P/BVS(x) 2.30 2.33 2.27 2.21 2.16
3M Avg DT Value (PkR'000) 136,776 ROE 44.8% 35.6% 53.9% 49.4% 42.6%
3M Avg DT Value (US$'000) 606.8 ROA 15.9% 12.3% 19.0% 17.6% 15.3%
DPS (PkR) 16.5 13.0 18.3 17.0 15.0
1Yr Avg DT Value (PkR'000) 140,503.4
Dividend yield 20.6% 16.1% 22.7% 21.1% 18.6%
1Yr Avg DT Value (US$'000) 623.3
Payout Ratio 104.4% 105.5% 95.6% 94.7% 94.7%
Income Statement
(PkRmn) CY21 CY22F CY23F CY24F CY25F
Net sales 132,363 161,876 195,187 188,591 173,211
Cost of sales 88,289 115,202 140,140 136,509 125,616
EFERT vs KSE100 Index
Gross profit 44,074 46,673 55,048 52,082 47,595
60% Financial charges 1,603 1,963 1,786 991 684
50% Profit before tax 29,890 31,114 38,032 35,794 31,566
40% Taxation 8,798 14,657 12,551 11,812 10,417
30%
Net Profit 21,092 16,457 25,482 23,982 21,150
20%
10%
0% Balance Sheet
-10% (PkRmn) CY21 CY22F CY23F CY24F CY25F
-20%
Current assets 54,425 52,787 50,951 52,682 53,715
Mar-22
May-22
Apr-22
Jul-22
Jun-22
Oct-21
Jan-22
Feb-22
Sep-21
Nov-21
Dec-21
Aug-22
Sep-22
Long term assets 78,394 81,003 83,325 83,769 84,216

EFERT KSE100 Index Total assets 132,818 133,791 134,276 136,451 137,930
Current Liabilities 54,807 66,065 70,099 71,543 72,113
Source: PSX & AKD Research Long term Liabilities 30,924 21,540 16,878 16,329 16,118
Total Liabilities 85,731 87,606 86,978 87,872 88,231
Paid up capital 13,353 13,353 13,353 13,353 13,353
Reserves and Unappropriated Profits 30,439 29,537 30,649 31,931 33,051
Total Equity 43,792 42,890 44,002 45,284 46,404
Total equity and liabilities 132,818 133,790 134,275 136,451 137,930
Source: Company Report & AKD Research
AKD RESEARCH
EFERT - Charts Bank
Earning Per Share s (PKR) Dividend per share (PkR)
25.0 20.0
20.0 16.0
15.0 12.0
10.0 8.0
5.0 4.0
0.0 0.0
CY21 CY22F CY23F CY24F CY25F CY21 CY22F CY23F CY24F CY25F
Source: Company Report & AKD Research Source: Company Report & AKD Research
Return on equity (%) Return on asset (%)
60% 20%
19.0%
53.9%
52% 49.4% 18% 17.6%
44.8%
15.9%
44% 16% 15.3%
42.6%
36% 14%
35.6%
28% 12%
12.3%
20% 10%
Debt to Asset (%) Debt to Equity (%)
25%
60%
20% 50%
40%
15%
30%
10%
20%
5%
10%
0% 0%
AKD RESEARCH
EFERT - Financial Databank Quarterly

Valuation Multiples
Year End Dec 31 2QCY21 3QCY21 4QCY21 1QCY22 2QCY22
EPS (PkR) 3.57 3.30 4.62 4.13 -0.07
EPS growth 110.6% -7.5% 39.9% -10.7% -101.8%
PER (x) 5.7 6.1 4.4 4.9 (275.8)
ROE 41.0% 38.7% 52.4% 48.0% -1.0%
ROA 15.3% 13.9% 18.6% 16.5% -0.3%
BVS (PkR) 34.9 34.2 35.3 34.4 28.8
P/BVS (x) 2.3 2.4 2.3 2.4 2.8
CFS (PkR) 1.5 7.2 3.8 12.0 5.5
P/CFS (x) 52.4 11.3 21.5 6.8 14.8
Sales Growth 65.0% 44.2% 6.0% -7.1% 4.1%
NPAT Growth 110.6% -7.5% 39.9% -10.7% -101.8%
Gross Margin 38.0% 25.7% 32.9% 29.5% 30.5%
Operating Margin 28.2% 18.8% 25.2% 22.8% 23.4%
Net Margin 18.4% 11.8% 15.6% 15.0% -0.3%
Effective tax rate 28.1% 30.4% 25.3% 28.2% 101.4%
Profit & Loss Accounts

(In PkRmn) 2QCY21 3QCY21 4QCY21 1QCY22 2QCY22
Net Sales 25,916 37,383 39,621 36,813 38,323
COGS 16,065 27,768 26,571 25,952 26,632
Gross Profit 9,851 9,615 13,050 10,861 11,691
Operating Exp 2,531 2,586 3,074 2,464 2,709
Operating Profit 7,320 7,029 9,976 8,397 8,982
Other Income 492 458 362 511 588
Other Charges 608 723 1,743 760 1,838
Financial Charges 570 426 337 475 583
NPBT 6,633 6,339 8,258 7,673 7,149
Taxation 1,866 1,927 2,086 2,162 7,247
NPAT 4,768 4,412 6,172 5,511 -98
Balance Sheet
Long Term Assets 70,676 74,572 78,394 80,243 81,436
Current Assets 54,175 52,564 54,425 52,993 60,526
Total Assets 124,851 127,136 132,819 133,236 141,962
Long Term Liabilities 31,759 32,957 30,924 31,505 27,272
Share Holders' Equity 46,557 45,628 47,087 45,922 38,479
Total Liabilities & Equity 124,850 127,136 132,819 133,236 141,961
YoY Assets Growth
Cash flow Statement
CF from operations 2,065 9,587 5,024 15,998 7,327
CF from investing activities 23,250 18,450 (2,422) (2,134) (5,174)
CF from financing activities (15,283) (22,124) (1,264) (10,920) (15,855)
Net chg. In cash & equiv. 10,031 5,913 1,338 2,944 (13,702)
Cash & Equiv. At beg. of the year 5,126 5,126 11,039 12,377 12,377
Cash & Equiv. At end of the period 15,157 11,039 12,377 15,321 (1,325)

AKD RESEARCH
FFC: Defensive play with decent yield

We have a “BUY” stance on FFC owing to i) Superior earning quality amid firm demand de-
BUY spite economic headwinds, ii) Attractive dividend yield, iii) Dividend income from subsidiar-
ies/associates to support bottom-line, and iv) Strong balance sheet coupled with a low debt
TARGET PRICE (PkR) SHARE PRICE (PkR) ratio to help undertake new projects. Company has posted PAT of ~PkR21.9bn (EPS: PkR17.2)
124.3 102.1 in CY21, vs PKR20.8bn (EPS: PkR16.6) in SPLY. The increase in earnings is mainly attributable
UPSIDE/DOWNSIDE DIV. YIELD to higher urea prices and higher dividend income from subsidiary companies. Despite imposi-
21.8% 16.9% tion of super tax, we expect company to post PAT of PkR23.7bn(EPS: PkR18.6) in CY22. The
upcoming hike in gas tariff will increase FFC’s cost of manufacturing by PkR420/bag. We be-
lieve that being the market leader in urea segment, company has reasonable pricing power to
pass on cost side pressures. In addition to fertilizer business, the company has investments in
multiple sectors such as Banking, Cements, Power and Food etc. which provides support to
FFC’s bottom-line. Currently, company holds cash and cash equivalent of ~PkR105bn on its
book, which will keep earnings elevated in higher interest rate environment. We have a
KATS Code FFC
Bloomberg Code FFC.PA
“BUY” stance on FFC with DDM based TP of PkR124.3/sh with DY of 16.9% (next 4Q), offering
Price PkR 102.1
total return of ~38.7%. The scrip is currently trading at a forward P/E of 5.5x/4.1x on CY22F/
CY23F earnings.
Market Cap (PkRmn) 129,831.9
FFC - Financial Databank Annual
Market Cap (US$mn) 576.0
Shares (mn) 1,272.2 (Year End Dec-31) CY21 CY22F CY23F CY24F CY25F
EPS (PkR) 17.2 18.6 24.8 24.8 24.0
3M High (PkR) 112.7
EPS Growth 5.2% 8.3% 33.1% 0.0% -3.2%
3M Low (PkR) 101.3
PER (x) 6.0 5.5 4.1 4.1 4.3
1Yr High (PkR) 120.5 BVS (PkR) 37.4 40.9 44.8 48.5 52.1
1Yr Low (PkR) 84.3 P/BVS(x) 2.80 2.49 2.28 2.10 1.96
ROE 46.1% 45.5% 55.4% 51.1% 46.1%
3M Avg Turnover '000 692.2
1 Yr Avg Turnover '000 944.4 ROA 10.9% 11.8% 15.6% 15.7% 15.2%
DPS (PkR) 14.5 15.1 21.0 21.0 20.5
3M Avg DT Value (PkR'000) 73,273 Dividend yield 13.7% 14.7% 20.6% 20.6% 20.1%
3M Avg DT Value (US$'000) 325.0
Payout Ratio 84.2% 80.7% 84.7% 84.7% 85.4%

1Yr Avg DT Value (US$'000) 423.4 Income Statement
Source: PSX & AKD Research (PkRmn) CY21 CY22F CY23F CY24F CY25F
Net sales 108,651 140,664 170,699 165,761 156,321
Cost of sales 69,772 92,114 117,596 113,284 105,193
Gross profit 38,879 48,550 53,103 52,477 51,128
Financial charges 2,292 5,683 7,261 5,050 3,561
FFC vs KSE100 Index Other Expenses 2,946 3,339 4,354 4,295 4,176
Other Income 7,919 13,338 14,708 12,636 11,177
40%
Profit before tax 30,339 39,648 46,025 45,883 44,346
30%
Taxation 8,443 15,932 14,468 14,339 13,798
20%
Net Profit 21,896 23,716 31,557 31,544 30,547
10%
0% Balance Sheet
-20% Current assets 126,270 126,346 127,450 126,389 126,023
Mar-22
May-22
Apr-22
Jul-22
Oct-21
Feb-22
Nov-21
Dec-21
Sep-21
Jan-22
Jun-22
Aug-22
Sep-22
Long term assets 74,737 74,783 74,726 74,671 74,617
FFC KSE100 Index

Total assets 201,007 201,130 202,176 201,060 200,640
Paid up capital 12,722 12,722 12,722 12,722 12,722
Total Equity 47,514 52,083 56,923 61,750 66,216
AKD RESEARCH
FFC - Charts Bank

30.0 25.0
24.0 20.0
18.0 15.0
12.0 10.0
6.0 5.0
0.0 0.0
Return on equity (%) Return on asset (%)
60.0% 17.0%
55.4% 15.6% 15.7%

15.2%
55.0%
15.0%
51.1%
50.0%
46.1% 45.5% 46.1% 13.0%
45.0% 11.8%
10.9%
11.0%
40.0%
35.0% 9.0%
150%
35%
28% 120%
21% 90%
14% 60%
7% 30%
0% 0%
AKD RESEARCH
FFC - Financial Databank Quarterly

Valuation Multiples
Year End Dec-31 2QCY21 3QCY21 4QCY21 1QCY22 2QCY22
EPS (PkR) 2.85 5.07 4.72 4.90 2.64
EPS growth -37.7% 78.2% -6.9% 3.9% -46.2%
PER (x) 8.9 5.0 5.4 5.2 9.6
ROE 33.6% 55.8% 50.6% 52.2% 29.0%
ROA 7.9% 13.1% 12.0% 12.8% 5.9%
BVS (PkR) 33.9 36.4 37.3 37.6 36.5
P/BVS (x) 3.0 2.8 2.7 2.7 2.8
CFS (PkR) (2.0) 3.2 17.3 1.9 13.8
P/CFS (x) (51.2) 32.2 5.9 55.0 7.4
Sales Growth 3.9% 31.9% 18.5% -24.9% 7.9%
NPAT Growth -37.7% 78.2% -6.9% 3.9% -46.2%
Gross Margin 34.7% 37.8% 32.8% 35.6% 40.7%
Net Margin 16.1% 21.8% 17.1% 23.7% 11.8%

Net Sales 22,430 29,574 35,059 26,315 28,390
COGS 14,653 18,408 23,556 16,957 16,849
Gross Profit 7,776 11,166 11,503 9,358 11,542
Operating Exp 1,956 2,087 2,359 2,186 2,120
Other Income 1,495 1,701 2,005 3,459 3,951
Other Charges 1,768 1,426 1,841 1,257 1,910
Financial Charges 385 647 840 1,072 945
NPBT 5,162 8,706 8,468 8,302 10,517
Taxation 1,541 2,254 2,460 2,062 7,157
NPAT 3,621 6,452 6,008 6,240 3,360
Balance Sheet
Long Term Assets 62,560 73,969 74,737 76,078 77,794
Current Assets 121,137 123,678 126,270 118,769 151,872
Total Assets 183,696 197,647 201,007 194,847 229,667
Cash flow Statement

CF from operations (2,530) 4,023 22,021 2,355 17,589
CF from investing activities (54) (12,816) (14,185) 1,561 (2,002)
Net chg. In cash & equiv. (13,640) (14,729) (2,766) (2,742) 2,346
Cash & Equiv. At end of the period 44,036 43,145 55,178 52,536 57,954

AKD RESEARCH
FFBL: Elevated DAP margins to boost earnings

We have a “BUY” stance on FFBL owing to i) Strong DAP margins, ii) Improving leverage posi-
BUY tion, and iii) Sizeable dividend contribution from subsidiaries & associates. Company wit-
nessed a turnaround post COVID when DAP prices skyrocketed due to supply chain disrup-
TARGET PRICE (PkR) SHARE PRICE (PkR) tions. FFBL posted PAT of PkR6.3bn (EPS: PkR4.95) amid higher DAP margins and lower finan-
cial charges. Currently, DAP prices are hovering around UD$925/ton and expected to remain
29.8 20.2
elevated due to export quota set by China. Recent floods have badly impacted the crops in
UPSIDE/DOWNSIDE DIV. YIELD
southern part of the country, having completely destroyed the cotton crops in Sindh, while it
47.9% 4.9%
is expected that wheat sowing will face some delays due to standing water in fields. This will
ultimately result in slowdown in fertilizer offtakes especially DAP. However, this will not af-
fect FFBL’s sales, as more than 60% of country DAP sales are met by imports, so any slow-
down in DAP sales will not impact company’s volumetric sales. The recent sales tax exemp-
tion on fertilizers has increased the cost for manufacturers where urea manufacturers were
able to pass on the impact due to their pricing power. However, FFBL was not able to pass on
KATS Code FFBL the cost pressure on DAP due to import parity pricing. Company’s investment in dairy (FFL)
Bloomberg Code FFBL.PA and meat (FML) segments continue to bleed, due to challenging business environment and
Price PkR 20.2 higher financial charges. In the past, company recorded multiple equity impairments on FFL
(Cost on FFBL’s book: PkR12.5bn) and FML (Cost on FFBL’s book: PkR4.0bn), any further im-
Market Cap (PkRmn) 26,031.7 pairment poses a downside risk to our earnings estimates. We have a “BUY” stance on FFBL
Market Cap (US$mn) 115.5 with DDM based TP of PkR29.8/sh with DY of 4.9% (next 4Q), offering total return of ~52.9%.
Shares (mn) 1,291.3 The scrip is currently trading at a forward P/E of 2.9x/2.5x on CY22F/CY23F earnings.
3M High (PkR) 21.7 FFBL - Financial Databank Annual

3M Low (PkR) 19.9 (Year End Dec-31) CY21 CY22F CY23F CY24F CY25F
EPS (PkR) 4.9 7.1 8.1 7.4 6.3
1Yr High (PkR) 27.3 EPS Growth 191.1% 42.7% 15.2% -9.7% -14.2%
1Yr Low (PkR) 19.9
PER (x) 4.2 2.9 2.5 2.7 3.2
BVS (PkR) 15.8 21.9 28.5 33.9 37.7
1 Yr Avg Turnover '000 1,350.3 P/BVS(x) 1.30 0.92 0.71 0.59 0.53
ROE 31.3% 32.3% 28.5% 21.7% 16.7%
3M Avg DT Value (PkR'000) 17,512 ROA 5.5% 7.6% 8.5% 7.8% 7.1%
3M Avg DT Value (US$'000) 77.7 DPS (PkR) 0.0 1.0 1.5 2.0 2.5
Dividend yield 0.0% 5.0% 7.4% 9.9% 12.4%
1Yr Avg DT Value (PkR'000) 31,532.5 Payout Ratio 0.0% 14.2% 18.4% 27.2% 39.6%
1Yr Avg DT Value (US$'000) 139.9
Income Statement
Net sales 110,452 196,672 183,931 162,110 125,885
Cost of sales 88,301 168,119 160,724 140,524 105,847
Gross profit 22,152 28,553 23,207 21,586 20,038
FFBL vs KSE100 Index Financial charges 2,338 3,603 2,858 1,737 901
Other Expenses 2,548 4,773 2,461 2,337 2,215
20%
Other Income 9,111 7,498 7,467 6,520 5,598
15%
10%
5%
Taxation 5,134 8,214 4,437 3,936 3,239
0% Net Profit 6,391 9,120 10,511 9,494 8,143
-5%
-10% Balance Sheet

-20% Current assets 75,407 80,708 83,061 81,354 74,526
Oct-21
Apr-22
Aug-22
Sep-21
Mar-22
May-22
Sep-22
Feb-22
Jul-22
Nov-21
Dec-21
Jan-22
Jun-22
Long term assets 39,803 39,770 40,012 40,260 40,513

FFBL KSE100 Index
Total assets 115,210 120,477 123,073 121,614 115,039
Paid up capital 12,913 12,913 12,913 12,913 12,913
Total Equity 20,431 28,260 36,834 43,746 48,661
AKD RESEARCH
FFBL - Charts Bank
10.0 3.0
8.0 2.4
6.0 1.8
4.0 1.2
2.0 0.6
0.0 0.0
Return on Equity (%) Return on Asset (%)
35.0% 9.0% 8.5%

32.3%
31.3%
8.0% 7.8%
30.0% 28.5% 7.6%
7.1%
25.0% 7.0%
21.7%
20.0% 6.0% 5.5%

16.7%
15.0% 5.0%
10.0% 4.0%
Debt to Asset (%)

Debt to Equity (%)
30% 200%
24% 160%
18% 120%
12% 80%
6% 40%
0% 0%

AKD RESEARCH
FFBL - Financial Databank Quarterly

Valuation Multiples
Valuation Multiples 2QCY21 3QCY21 4QCY21 1QCY22 2QCY22
EPS (PkR) 2.02 1.76 0.19 1.26 1.38
EPS growth 106% -13% -89% 576% 10%
PER (x) 2.5 2.9 27.4 4.1 3.7
ROE 58% 45% 5% 30% 30%
ROA 10% 10% 1% 5% 5%
BVS (PkR) 13.9 15.7 15.8 17.1 18.5
P/BVS (x) 1.5 1.3 1.3 1.2 1.1
CFS (PkR) (3.8) 1.9 17.3 (15.7) (15.1)
P/CFS (x) (5.4) 10.8 1.2 (1.3) (1.4)
Sales Growth 30% 127% 9% -41% 86%
NPAT Growth 74% 23% -12% -20% 145%
Gross Margin 21% 22% 18% 22% 19%
Operating Margin 10% 17% 13% 14% 15%

Net Sales 16,912 38,449 42,085 24,784 46,149
COGS 13,417 29,907 34,449 19,395 37,358
Gross Profit 3,495 8,542 7,637 5,389 8,791
Operating Exp 1,792 1,920 2,327 2,042 1,718
Other Income 2,483 2,064 895 1,116 3,251
Other Charges 613 4,478 2,481 1,207 3,155
NPBT 2,964 3,648 3,206 2,551 6,261
Taxation 355 1,373 2,966 924 4,478
NPAT 2,609 2,275 241 1,627 1,783
Balance Sheet
Long Term Assets 42,458 38,373 39,803 40,379 40,251
Current Assets 57,041 56,048 75,407 79,203 99,874
Total Assets 99,498 94,421 115,210 119,582 140,126
Cashflow Statement
CF from operations (4,847) 2,441 22,300 (20,272) (19,443)
CF from investing activities 766 7,365 (3,057) (587) 8,115
CF from financing activities (3,700) (5,712) (3,477) (965) (2,379)
Net chg. In cash & equiv. (7,780) 4,094 15,766 (21,823) (13,707)
Cash & Equiv. At end of the period 5,896 17,770 29,442 7,619 15,735

AKD RESEARCH
FATIMA: Improving cash generation

We have a “BUY” stance on FATIMA owing to i) Higher fertilizer prices, ii) Stable dividend
BUY payout, and iii) Improving cash generation. Despite expiry of concessionary gas in Jun’21, the
company recorded an increase of ~39% in bottom-line during CY21, amid higher sales and
TARGET PRICE (PkR) SHARE PRICE (PkR) better pricing. However, imposition of supertax dented company’s profitability in 2QCY22,
41.3 36.6 where it recorded PAT of PkR155mn (EPS: PkR0.07), taking 1HCY22 earnings to PkR2.78/sh.
UPSIDE/DOWNSIDE DIV. YIELD Higher prices of phosphate fertilizer in international market, resulted in an increase of ~200%
12.9% 10.9% in local DAP prices since Jan’21. Similarly, NP prices also followed the same trajectory and
recorded an increase of ~160% during the same period. Going forward, company’s cash gener-
ation is expected to improve due to repayment of loans and no planned CAPEX in the near
sight. We believe that Improving cash generation, manageable debt levels and higher profita-
bility will improve company’s dividend paying capacity. We have a “BUY” stance on FATIMA
KATS Code FATIMA with DDM based TP of PkR41.3/sh with DY of 10.9% (next 4Q), offering total return of ~23.8%.
Bloomberg Code FATIMA.PA
The scrip is currently trading at a forward P/E of 4.5x/2.7x on CY22F/CY23F earnings.
Price PkR 36.6
FATIMA - Financial Databank Annual

Market Cap (PkRmn) 76,860.0
Market Cap (US$mn) 341.0
(Year End Dec-31) CY21 CY22F CY23F CY24F CY25F
Shares (mn) 2,100.0
EPS (PkR) 8.8 8.1 13.4 11.1 7.8
3M High (PkR) 38.5 EPS Growth 39.2% -7.6% 64.6% -17.4% -29.6%
3M Low (PkR) 35.0 PER (x) 4.1 4.5 2.7 3.3 4.7
1Yr High (PkR) 41.3 BVS (PkR) 47.7 52.4 62.5 67.0 67.1
1Yr Low (PkR) 26.1 P/BVS(x) 0.66 0.70 0.59 0.55 0.55
ROE 18.4% 15.5% 22.0% 17.0% 12.0%
ROA 10.0% 9.3% 14.1% 11.4% 8.3%
1 Yr Avg Turnover '000 445.4
DPS (PkR) 3.5 4.0 6.7 7.8 5.9
3M Avg DT Value (PkR'000) 5,502 Dividend yield 9.6% 10.9% 18.3% 21.2% 16.0%
3M Avg DT Value (US$'000) 24.4
Payout Ratio 39.8% 49.2% 50.0% 70.1% 75.1%
1Yr Avg DT Value (US$'000) 65.7 Income Statement
Source: PSX & AKD Research (PkRmn) CY21 CY22F CY23F CY24F CY25F
Net sales 112,488 136,350 155,856 143,785 125,738
Cost of sales 69,404 82,592 94,632 89,783 81,832
Gross profit 43,084 53,758 61,224 54,002 43,906
Financial charges 2,007 2,135 1,524 1,246 1,154
Other Expenses 5,154 4,886 3,713 3,055 2,155
FATIMA vs KSE100 Index Other Income 1,210 1,276 1,556 1,491 1,445
60%
Taxation 9,711 18,516 13,847 11,438 8,052
50%
Net Profit 18,475 17,080 28,113 23,222 16,348
40%
30%
20% Balance Sheet

10%
0%
-10%
Current assets 71,774 70,179 90,936 94,994 89,344
-20% Long term assets 113,120 112,557 112,115 112,789 113,576
Jan-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Oct-21
Feb-22
Sep-21
Nov-21
Dec-21
Aug-22
Sep-22
Total assets 184,894 182,736 203,051 207,783 202,921
FATIMA KSE100 Index

Long term Liabilities 30,307 28,324 27,108 26,153 25,208
Source: PSX & AKD Research Total Liabilities 84,630 72,742 73,344 68,924 63,989
Paid up capital 21,000 21,000 21,000 21,000 21,000
Total Equity 100,263 109,993 129,706 138,858 138,931

AKD RESEARCH
FATIMA - Charts Bank
15.0 10.0
12.0 8.0
9.0 6.0
6.0 4.0
3.0 2.0
0.0 0.0
Return on Equity (%) Return on Asset (%)
25.0% 15.0% 14.1%

22.0%
21.0% 13.0%
18.4% 11.4%
17.0%
17.0% 11.0%
15.5% 10.0%
13.0% 12.0% 9.0% 8.3%

9.3%
9.0% 7.0%
5.0% 5.0%
8%
15%
12%
6%
9%
4%
6%
2%
3%
0% 0%
AKD RESEARCH
FATIMA - Financial Databank Quarterly

Valuation Multiples
Year End Dec-31 2QCY21 3QCY21 4QCY21 1QCY22 2QCY22
EPS (PkR) 1.72 2.27 3.00 2.71 0.08
EPS growth -4.0% 31.9% 32.0% -9.7% -97.1%
PER (x) 5.3 4.0 3.1 3.4 115.5
ROE 15.9% 19.9% 25.2% 21.5% 0.7%
ROA 8.4% 11.0% 13.6% 12.0% 0.3%
BVS (PkR) 43.4 45.7 47.7 50.5 47.0
P/BVS (x) 0.8 0.8 0.8 0.7 0.8
CFS (PkR) 8.4 8.8 12.5 1.8 6.6
P/CFS (x) 4.4 4.2 2.9 20.1 5.6
Sales Growth 3.8% 31.4% 32.4% -25.3% 13.9%
NPAT Growth -4.0% 31.9% 32.0% -9.7% -97.1%
Gross Margin 34.7% 42.7% 34.5% 42.1% 48.4%
Net Margin 16.1% 16.2% 16.2% 19.5% 0.5%
Income Statement
Net Sales 22,430 29,462 38,993 29,114 33,170
COGS 14,653 16,881 25,530 16,863 17,117
Gross Profit 7,776 12,581 13,463 12,251 16,052
Operating Exp 1,956 2,585 1,996 2,561 3,251
Other Income 1,495 347 -736 348 563
Other Charges 1,768 1,739 1,148 1,368 2,014
NPBT 5,162 8,039 9,068 8,253 10,593
Taxation 1,541 3,262 2,764 2,563 10,426
NPAT 3,621 4,777 6,304 5,690 167
Balance Sheet
Long Term Assets 115,385 113,958 113,120 115,490 116,007
Current Assets 56,062 59,966 71,774 73,440 80,876
Total Assets 171,447 173,924 184,893 188,930 196,883
Cash flow Statement

CF from operations 17,589 18,486 26,299 3,845 13,769
CF from investing activities (2,002) (6,146) (8,359) (4,691) (7,674)
Net chg. In cash & equiv. 2,346 (182) 9,181 (5,198) (3,540)
Cash & Equiv. At beg. of the year 55,178 556 (3,538) 5,643 5,643
Cash & Equiv. At end of the period 57,954 374 5,643 445 2,103

Disclosure Section
Neither the information nor any opinion expressed herein constitutes an offer or a solicitation of an offer to transact in any securities or other financial instrument
and is for the personal information of the recipient containing general information only. AKD Securities Limited (hereinafter referred as AKDS) is not soliciting any
action based upon it. This report is not intended to provide personal investment advice nor does it provide individually tailored investment advice. This report does
not take into account the specific investment objectives, financial situation/financial circumstances and the particular needs of any specific person. Investors should
seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this
report and should understand that statements regarding future prospects may not be realized. AKDS recommends that investors independently evaluate particular
investments and strategies and it encourages investors to seek the advice of a financial advisor.
The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The securities or strategies dis-
cussed in this report may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them.
Reports prepared by AKDS research personnel are based on public information. AKDS makes every effort to use reliable, comprehensive information, but we make
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This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent
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Stock Ratings
Investors should carefully read the definitions of all ratings used in each research report. In addition, research reports contain information carrying the analyst's
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considerations. AKDS uses a three tier rating system: i) Buy, ii) Neutral and iii) Sell with total returns (capital upside + dividend yield) benchmarked against the ex-
pected one year forward floating (variable) risk free rate (10yr PIB) plus risk premium.
Valuation Methodology
To arrive at our period end target prices, AKDS uses different New Rating Definitions
valuation techniques including: Buy > 21.5% expected total return (Rf: 15.5% + Rp: 6%)
 Discounted Cash Flow (DCF, DDM) Neutral > 15.5% to < 21.5% expected total return
 Relative Valuation (P/E, P/B, P/S etc.) Sell < 15.5% expected total return (Rf: 15.5%)
 Equity & Asset return based methodologies (EVA, Residual Income etc.)
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The analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not re-
ceived and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
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Pakistan Fertilizer

Monthly Urea & DAP offtake during 2010 floods - Tons

Source: NFDC & AKD Research

Find AKD research on Bloomberg, firstcall.com, Reuters Knowledge and ResearchPool

Urea price - PkR/bag Local DAP price - PkR/bag

Local urea price (PkR/bag)

Annual urea offtake—mn tons

7.0 Source: NFDC & AKD Research

Source: NFDC & AKD Research

EFERT: Attractive yield on offer

3M High (PkR) 91.6 EFERT - Financial Databank Annual

Long term assets 78,394 81,003 83,325 83,769 84,216

EFERT - Charts Bank

Earning Per Share s (PKR) Dividend per share (PkR)

Return on equity (%) Return on asset (%)

52% 49.4% 18% 17.6%

Debt to Asset (%) Debt to Equity (%)

EFERT - Financial Databank Quarterly

Profit & Loss Accounts

Source: Company Report & AKD Research

FFC: Defensive play with decent yield

1Yr Avg DT Value (PkR'000) 95,451.3

Long term assets 74,737 74,783 74,726 74,671 74,617

FFC KSE100 Index

FFC - Charts Bank

Return on equity (%) Return on asset (%)

55.4% 15.6% 15.7%

Debt to Asset (%) Debt to Equity (%)

FFC - Financial Databank Quarterly

Profit & Loss Accounts

Cash flow Statement

Source: Company Report & AKD Research

FFBL: Elevated DAP margins to boost earnings

3M High (PkR) 21.7 FFBL - Financial Databank Annual

-10% Balance Sheet

Long term assets 39,803 39,770 40,012 40,260 40,513

FFBL - Charts Bank

Earning Per Share s (PKR) Dividend per share (PkR)

Return on Equity (%) Return on Asset (%)

35.0% 9.0% 8.5%

20.0% 6.0% 5.5%

Debt to Asset (%)

Source: Company Report & AKD Research

FFBL - Financial Databank Quarterly

Profit & Loss Accounts

Source: Company Report & AKD Research

FATIMA: Improving cash generation

FATIMA - Financial Databank Annual

20% Balance Sheet

Total assets 184,894 182,736 203,051 207,783 202,921

FATIMA KSE100 Index

Reserves and Unappropriated Profits 79,263 88,993 108,706 117,858 117,931

Total Equity 100,263 109,993 129,706 138,858 138,931

FATIMA - Charts Bank

Earning Per Share s (PKR) Dividend per share (PkR)

Return on Equity (%) Return on Asset (%)

25.0% 15.0% 14.1%

13.0% 12.0% 9.0% 8.3%

Debt to Asset (%) Debt to Equity (%)

FATIMA - Financial Databank Quarterly

Cash flow Statement

Source: Company Report & AKD Research

AKD Securities Limited

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