The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Upgrades Entity Ratings of Fatima Fertilizer Company Limited

Rating Type Entity
(20-Jan-23 )
(25-Jan-22 )
Action Upgrade Upgrade
Long Term AA+ AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

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. Heavy monsoon spell observed in Jul-22 / Aug-22 resulted in inundation of areas in Sindh, Baluchistan and Southern Punjab damaging 4.5mln acres of agricultural land. In 9MCY22, despite floods the nitrogen (primarily Urea) industry in Pakistan has grown by ~ 2% whereas the phosphates industry has declined by ~ 43%. The year observed delayed buying for DAP as demand only materialized in Dec-22 owing to an increase in the support price of wheat and resulted in DAP offtake being plunged by 36% YoY. 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.
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 fertilizers. Furthermore, during the ongoing amalgamation of Pakarab Fertilizer Limited and its plants (Ammonia, Urea, Nitric Acid, Nitro Phosphate, Calcium Ammonium Nitrate, Clean Development Mechanism, LCO2) with and into the Company; the Company has increased its overall market standing and strategic importance. The Company has the highest nameplate capacity (2.57mln MT), in the fertilizer sector of the country. The Company's topline comprising mainly of Urea, NP, and CAN has witnessed phenomenal growth driven by increased prices of fertilizer products during 9MCY22. The Company has maintained healthy margins over the years owing to efficient operations and having a dedicated gas supply line from Mari fields. The latest agreement of fertilizer manufactures with Mari Petroleum to maintain gas pressures further enhances the business risk profile. Subsequent to the Company's sterling financial performance, the management is evaluating investment opportunities and materialization of the projects is anticipated to amplify the Company's prime position in the fertilizer sector. 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. The Company is primarily involved in manufacturing and selling variants of fertilizers and has an overall nameplate capacity of 2.57mln MT. In 9MCY22 capacity utilization stood at maximum and the Company produced 2.1mln MT of fertilizer products. Fatima Group holds majority (~45%) of the total shares through associated companies (~23%) and individuals (~22%). Mr. Arif Habib is the Chairman, while, Mr. Fawad Ahmed is 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.