The Pakistan Credit Rating Agency Limited
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Shujat Ehsanullah Wasim

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PACRA Maintains Entity Ratings of Fauji Fertilizer Company Limited

Rating Type Entity
(27-Jul-23 )
(30-Jul-22 )
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Fertilizer industry of Pakistan fulfills around ~88-90% Country’s fertilizer requirement through local production while the remaining is met through imports. 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. In CY22, Urea’s offtake stood at ~6.6mln MT and DAP’s offtake stood at 1.1mln MT. Whereas in 3MCY23, Urea offtake stood at ~1.6mln MT posting a stable trend. Similarly, DAP offtake stood at 0.2mln MT. Considering the overall urea demand and supply situation and LNG unavailability for the plants, ~0.49mln MT of urea was imported during CY22. Overall margins of the industry remained healthy and going forward industry’s outlook is expected to remain satisfactory. International market prices fell at the start of quarter due to lower demand and sellers sought to offload barges in crowded markets due to force liquidity.
The ratings covers the financial performance for CY22 & 3MCY23 and reflects the robust business and financial position of Fauji Fertilizer Company Limited ('FFC' or 'the Company') while deriving strength from Fauji Foundation (FF). FFC combined with Fauji Fertilizer Bin Qasim Limited (FFBL) has a strong foothold in the production capacity and product offtake of both Urea and DAP. Over the years, a strong business footprint has built 'Sona' into a household name in the farming community, in Pakistan. The Company's production facilities are secured by a dedicated and uninterrupted gas supply line from the Mari fields. In view of declining gas pressures, the Company along with other fertilizer manufacturers and the gas supplier has also undertaken gas pressure enhancement project to ensure sustained fertilizer production, besides continued investment on maintenance of its aging plants. FFC's revenue stream (including FFBL) remains the highest in the industry. Moreover, FFC is the largest player in the fertilizer segment in Urea and DAP with a market share (including FFBL) of ~45% and ~62%, respectively, in CY22. The Company has also maintained a growth trajectory in its gross margins (CY22: ~37% | 3MCY23: ~ 40%) whereas, improved other income continues to boost the Company's bottom line (CY22: ~18% | 3MCY23: ~21%). FFC financial profile is characterized by a moderately leveraged capital structure supported by very strong coverages. Moreover, significant liquidity depicts a robust financial profile. The ratings further draws comfort from FFC's strong organizational structure designed to control its subsidiaries' strategic direction and strong governance framework, whereas FFC's various corporate awards testify the Company's sound financial and business practices.
The ratings are dependent on the sustainability of operations and maintaining its market share. Sustainability in the performance of subsidiaries, stable dividends, and effective management of financial profile is important.

About the Entity
Fauji Fertilizer Company Limited ('FFC' or 'the Company') is a public listed company, incorporated in 1978. FFC is engaged in the manufacturing and marketing of fertilizer products. The Company sells Urea, DAP, SOP, MOP, Boron, and Zinc. The Company has three Urea production facilities with a production capacity of ~2.05mln MT. The utilization level stood at ~117% during CY22. Fauji Foundation owns majority stake of FFC at ~44%. Rest of the ownership is shared between general public, foreign companies, public sector companies, & financial institutions. The Company's Board is chaired by Mr. Waqar Ahmad Malik, whereas, Mr. Sarfaraz Ahmed Rehman heads the Company as the Chief Executive Officer. He is aided by a team of professionals.

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.