Académique Documents
Professionnel Documents
Culture Documents
Insight
Buy
We ini ate coverage on Fa ma Fer lizer Company (FATIMA) and place the stock on our
convic on call list with a Dec12 target price of PkR41.52/share Buy! Our convic on is
underpinned by rela vely low gas curtailment of 8%12% from the Mari network, subsi
dized feedstock gas for 10yrs at US$0.7/mmbtu and undemanding valua ons in a tradeo
for growth (PEG: 0.26). We expect NPAT to log in at an impressive 33% CAGR across CY11A
CY15F, led by topline growth. At the same me, we believe the market is missing poten al
tax advantages where deferred taxa on adds an es mated PkR7.50/share to our target
price. While FATIMA has gained 2.2%CYTD, it has underperformed the AKD Fer lizer Uni
verse by 21%CYTD where we believe the market is under apprecia ng the gradual ac
ceptance of FATIMAs unconven onal product line.
FATIMA
FATIMA.PA
23.43
43,346
476
2,000
3M High (PkR)
3M Low (PkR)
25.61
21.35
26.52
12.28
5,724
4,268
135,850
1,493
90,136
991
140%
120%
100%
80%
60%
40%
20%
0%
-20%
Jun-11
Sep-11
KSE-100 Index
Deferred Tax Realizing Time Value of Money: Tax deprecia on on fixed assets is charged
at 50% in the 1st year and at 10% - 30%, for dierent categories of fixed assets, from the 2nd
year onwards. Since FATIMA has capitalized PkR68.6bn in CY11E, as per our es mates, its tax
deprecia on will likely be high enough to trigger tax losses (not accoun ng loss). As a result,
FATIMA will be subject to minimum applicable tax rate of 1% of revenue for first five years of
opera ons (CY11A-CY15F), resul ng in cash savings of PkR1.8bn PkR6.9bn over CY11ACY15F. Going by the me value of money, the contribu on of deferred tax to our DCF-based
share price arrives at PkR7.50/share (18% of total TP).
Market is under apprecia ng Product Suite: With FATIMAs unconven onal product suite,
we have stress tested sales levels for unconven onal fer lizers CAN and NP. Based on our
stress tes ng, we believe the market is under apprecia ng FATIMAs unconven onal product
suite and is valuing FATIMA at lower sales levels (30% of capacity for both CAN and NP) in
line with our worst case es mates (see stress tes ng on page 7). The upside from current
market price in our view is the coupling of price performance with higher levels of acceptance for the unconven onal product line by end buyers where we es mate CAN and NP
sales at 60% and 45% of capacity, respec vely, for CY12 and at a constant 82% and 55%, respec vely, through forecast range.
Mar-11
Dec-11
FATIMA
Apr-12
Valua on & Investment Perspec ve: DCF-based valua on leads us to a Dec12 target price
of PkR41.52/share for FATIMA. We have conserva vely a ached a beta of 1.25 and an equity
risk premium of 6% in view of a higher risk profile (US pressure on CAN produc on, unconven onal product suite & higher leverage with D/A at 51% on CY11E), leading to 19.5% cost
of equity. Despite gaining 79% over the last one year, FATIMAs valua ons are undemanding
against trade o for growth (5yr NPAT CAGR: 33%) where our target price oers 77% upside
BUY!
Important Disclosure: Important disclosures including investment banking relationships and analyst certification at end of this report. AKD Securities does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the
report. Investors should consider this report as only a single factor in making their investment decision.
AKD Securities
Copyright2012 AKD Securities Limited. All rights reserved. The information provided on this document is not
intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or
use would be contrary to law or regulation or which would subject AKD Securities or its affiliates to any registration
requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this document
constitutes a solicitation or offer by AKD Securities or its affiliates to buy or sell any securities or provide any investment advice or service. AKD Securities does not warrant the accuracy of the information provided herein.
www.akdsecurities.net
UREA
140
DAP
120
100
80
60
40
20
CY10
CY09
CY08
CY07
CY06
CY05
CY04
CY03
CY02
CY01
CY00
Source: IFA
600
100
500
80
400
Oil (US$/bbl)
Urea (US$/ton) - (RHS)
60
300
40
200
20
100
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
0
1981
Food Security: Increasing crop yields has become the focus of-late owing to the explosion of
global popula on over the last century. The only way to provide food to the increasing popula on, with limited area under cul va on, is to increase yield by applying more fer lizer!
Urea & Food Correlation of 82%
250
600
500
200
Food Price Index
400
300
100
200
50
100
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
With the FAO index reaching its 5-month high in Feb12 and global cereal stock to use ra o
s ll below its 10 year historic average, we are likely to see increased fer lizer use over the
coming years, helping maintain fer lizer (par cularly urea) prices in the long run.
World Cereal Stock to Use Ratio
220.0
200.0
180.0
24.5
160.0
23.5
10yr avg.
140.0
22.5
120.0
21.5
1/2007
5/2007
9/2007
1/2008
5/2008
9/2008
1/2009
5/2009
9/2009
1/2010
5/2010
9/2010
1/2011
5/2011
9/2011
1/2012
100.0
20.5
19.5
18.5
2011/12
2010/11
2009/10
2008/09
2007/08
2006/07
17.5
Urea Price Outlook: Our regression analysis of urea with oil price leads us to forecast intl
urea price at US$494/ton with current oil price at US$125/bbl (word bank basket of oil prices). Our intl urea price assump on is at US$425 inline with our long term oil price assumpon.
Oil & Urea regression es mates
US$50
US$25
Base Case
+US$25
+US$50
75
100
125
150
175
315
404
494
584
673
Oil (US$/bbl)
Urea (US$/ton)
Intl urea prices have an indirect rela onship with urea exports from China. As China has
imposed higher trade taris on urea exports during peak demand seasons, we see limited downside risk in intl urea prices.
China Export trend mitigating downward price risk
2,500
775
Exports (k tons)
Urea (US$/ton) - (RHS)
2,000
675
575
1,500
475
1,000
375
500
275
Aug-11
Nov-11
Feb-11
May-11
Aug-10
Nov-10
Feb-10
May-10
Nov-09
Aug-09
Feb-09
May-09
Aug-08
Nov-08
Feb-08
May-08
Aug-07
Nov-07
May-07
Feb-07
Aug-06
Nov-06
Feb-06
May-06
Aug-05
Nov-05
175
Feb-05
May-05
Jan-Jun, Nov-Dec
Jul-Oct
Provisional Tax
35%
-
Special Tax
75%
7%
Total Tax
110%
7%
Floor Price
Rmb2,100/mt
Our Case...
Higher Margin Lower Curtailment!
FATIMAs compe ve advantage stems from lower input cost, where the companys feedstock requirement has been locked in for a period of 10 years at US$0.7 per mmbtu (as dictated by Fer lizer Policy 2001). This translates into feedstock cost of PkR60.67 per mmbtu for
FATIMA 80% lower rela ve to peer group. Moreover, the companys 110mmcfd requirement is being met from the Mari based network, resul ng in annual curtailment of about 8%12% (Sui network: ~40%). Eec vely, this allows FATIMA to piggy-back on Sui based fer lizer
plants in the event of urea price hikes due to gas curtailment and/or rise in feedstock cost. A
PkR100 per bag ex-factory urea price increase (coupled with PkR80 per bag increase in exfactory CAN price) raises our CY12F EPS and TP by PkR0.29 and PkR3.60/share, respec vely.
1,950
1,750
1,550
1,350
1,150
950
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
750
Source: NFDC
Base Case
+PkR100
+PkR200
+PkR300
1,543
1,629
1,715
1,802
1,250
1,319
1,388
1,457
2.74
3.03
3.32
3.61
41.52
45.12
48.78
52.36
Tax deprecia on on fixed assets is charged at 50% in the 1st year and at 10% - 30%, for dierent categories of fixed assets, from the 2nd year onwards. Since FATIMA has capitalized
PkR68.6bn in CY11E, as per our es mates, its tax deprecia on will likely be high enough to
trigger tax losses (not accoun ng loss). As a result, FATIMA will be subject to minimum applicable tax rate of 1% of revenue for first five years of opera ons (CY11A-CY15F), resul ng in
cash savings of PkR1.8bn PkR6.9bn over CY11A-CY15F. Going by the me value of money,
the contribu on of deferred tax to our DCF-based share price arrives at PkR7.50/share (18%
of total TP).
Deferred Taxation - Big benefit across first 5 years
14,000
12,000
10,000
8,000
6,000
4,000
2,000
CY11A
CY12F
CY13F
CY14F
CY15F
CY16F
CY17F
CY18F
CY19F
CY20F
CY21F
CY22F
25.0
Management of the company expects to register with UNFCCC (United Na ons Framework
Conven on on Climate Change) for carbon credits during 2QCY12. Taking a conserva ve
stance, we have incorporated CER credits revenue from 2HCY12. As Pak Arab Fer lizer Company is also availing such CER credits, it is likely that FATIMA will also register with UNFCC.
We have assumed CER credits, tradable under Kyoto Protocol, to earn US$5 per credit over
the life of project. The companys bo omline will get a nominal boost from carbon credits,
amoun ng to PkR58mn PkR156mn over the next 5 years (EPS impact: PkR0.02 PkR0.07).
15.0
10.0
5.0
Mar-09
Mar-10
Mar-11
Mar-12
Source: Bloomberg
NP
60%
CAN
40%
20%
Urea
CY21F
CY20F
CY19F
CY18F
CY17F
CY16F
CY15F
CY14F
CY13F
CY12F
0%
Currently, FATIMA is producing three of its product lines i.e. Urea, CAN & NP. Urea is the
highest profit margin contributor to the company followed by CAN and NP, respec vely. Our
capacity u liza on assump on revolves on ammonia produc on where we have assumed it
to be opera onal at 95% capacity. Being on the conserva ve side, we have not incorporated
debo lenecking of the ammonia plant. Our sales forecast (as %age of capacity) for the product suite is provided below:
CY11 A
88%
85%
51%
CY12 F*
74%
60%
45%
CY13 F
95%
82%
55%
CY14 F
95%
82%
55%
CY15 F
CY16 F
95%
95%
82%
82%
55%
55%
Source: AKD Research
*LowersalesinCY12duetoglutofimportedurea
Keeping historic growth trend in Urea and CAN prices in view, we have forecasted increase in
the price of urea to be 7% p.a. while CAN price is forecasted to be at 20% discount to urea
price. We have provided a sensi vity of our NPAT CAGR through CY11A-CY15F with variable
Urea and CAN prices increase.
CAN PkR/bag
2,900
Urea PkR/bag
Sensi vity of NPAT CAGR with annual increase in Urea (including CAN) price
2,400
1,900
99.5% Correla on
Annual increase in sale price (Inc. CAN)
1,400
CAGR (CY11A-CY15F)
900
Jan-12
Nov-11
Jul-11
Sep-11
May-11
Mar-11
Jan-11
Nov-10
Jul-10
Sep-10
May-10
Mar-10
Jan-10
400
Source: NFDC
Higher intl urea prices restrict downside risk for urea price
2%
Base case
+2%
+3%
5%
7%
9%
10%
30%
33%
36%
37%
Source: AKD Research
Urea
Because of the alkaline nature of Pakistans soil, nitrogenous fer lizer is widely used in the
country with urea being the most popular. In CY11, total urea applied across the country
declined for the second consecu ve year to 5.92mn tons, down by 3.3%YoY, primarily due to
decline in urea produc on to 4.5mn tons, implying urea produc on deficit of 1.42mn tons on
the back of enduring gas curtailment. As such local manufactured urea o-take in CY12TD
has suered due to the abundance of cheap imported urea. However, with the recent hike in
imported urea prices by PkR300/bag (bringing it to PkR1,600/bag) and run down in stock of
imported urea, we expect local o-take rates to improve going forward. Our sales assumpon takes care of this trend where we have assumed urea to be sold at 74% of capacity in
CY12F and at 95% from CY13F onwards. Over the medium to long term, we see limited
downside risks to urea prices as intl urea prices have likely bo omed out and should stay
downward s cky. There is s ll a significant gap between intl and local manufactured urea
prices (dieren al 22% between landed cost of imported fer lizer and retail price of urea).
Historically, Engro has taken the lead to revise urea price in reac on to increase in gas curtailment. The likely risk is that Engro may decrease urea price if it receives con nued gas
supply. In the short term, we believe it is unlikely that Engro will reduce urea price despite
GoP assurances for con nued supply of gas. Even if Engro is supplied gas from La f gas field,
the process will take significant me as the field is ~100km from the Enven plant (as per
news reports). If urea price is decreased by PkR100/bag, it has a limited impact of PkR0.29 on
CY12F EPS & PkR3.90/share on our DCF based target price, the la er s ll providing upside
poten al of 61%. The following table contains impact of a decrease in urea price on CY12F
EPS and TP.
Impact of Urea (including CAN) price decrease on CY12F EPS and TP
Decrease in exfactory urea price
Reten on urea price per bag (PkR)
Reten on CAN price per bag (PkR)
CY12F - EPS (PkR)
Target Price (PkR)
Base Case
1,543
1,250
2.74
41.52
PkR100
1,457
1,181
2.45
37.62
PkR200
1,371
1,112
2.16
33.97
PkR300
1,284
1,043
1.87
30.29
300-380k tpa with the narrow range persis ng due to constant produc on capacity resul ng
in lower product availability. Over CY10 & CY11, sales have picked up to 491k tpa and 676k
tpa respec vely, due to addi on in produc on capacity by FATIMA.
FATIMAhasaverage56%market
shareintotalCANsales.
120
That said, CAN has s ll to fully catch on within the farmers circle as a nitrogenous fer lizer,
where its primary use has been subs tu on for urea. Although CAN contains important nonprimary nutrients e.g. Ca, P, Mg, S & Cu, its rela vely low nitrogen content suppress farmer
preferences for CAN. Nitrogen content is approximately ~41% more expensive in CAN than in
urea where our long term CAN sale assump on (82% of capacity vs. 95% for urea) accounts
for this fact.
100
80
60
40
20
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Note: 2MCY12CANotakeisspoiledbyglut
ofimportedureawhereweforeseethissitua
ontoimproveby2QCY12.
Source: NFDC
Nitrogen (N)
46%
26%
N (kg)/bag
23.0
13.0
Price/bag
1,818
1,445
Cost (PkR)/N Kg
79
111
Source: AKD Research
Given the expected dierence between supply and demand of urea in the foreseeable fu
ture, we an cipate limited downside to CAN demand.
BAN on CAN (Con ngency Planning): The US House of Representa ves has passed a bill that
calls for a major por on of military assistance to Pakistan to be frozen un l Pakistan shows
progress in ac ng to stem the flow of IEDs (Improvised Explosive Devices) and ammonium
nitrate into Afghanistan. An cipa ng that produc on of CAN may come under the radar
of such legisla on by the US, we have provided dierent scenarios in case of an outright
ban on the produc on of CAN. Scenarios include par al remedy provided by GoP and increase in urea sales (in an cipa on of increase in demand with CAN shortage).
Scenario
Base Case Scenario
Worst Case Scenarios:
Scenario A
Scenario B
Scenario C
GoP Remedy
N/A
Demand Urea
No Change
No
No
15% Return on CAN investments*
Increase
Increase
Increase
*WithassumedCANinvestmentofPkR14.7bn
70
60
50
40
30
20
10
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Jan-10
Apr-10
Source: NFDC
Base case
25.09
100% Capacity
27.43
100% Capacity
34.52
Source: AKD Research
NP has been the laggard among FATIMAs product mix where the company is s ll looking for
NP sales to pick up. With installed capacity of 360k tons, FATIMA started commercial producon of NP in June10 and managed to sell 51.5% of its capacity over a 7-month period. We
have forecasted CY12 sales at 45% of capacity on the back of lower o-take in 1QCY12 coupled with a glut of imported urea. Although NP is not a direct subs tute of urea, glut of imported urea is hur ng NP o-take.
FATIMAhasaverage40%
marketshareintotalNPsales.
TP (PkR/share)
41.52
NP The Laggard
NP Consumption in Pakistan
80
Urea Sales
Base Case
Considering that the phosphate nutrient is approximately ~50% more expensive in NP relave to DAP and produc on from Pak Arab will keep sale levels for FATIMAs NP line rela vely
low, we have assumed NP sales for FATIMA to remain between 45% - 55% of capacity
through the forecast range.
NP vs. DAP: Nutrient wise comparison between the subs tutes
Product
Nitrogen (N)
18%
20%
NPK
Phosphate (P2O5)
46%
20%
Cost (PkR)/P2O5Kg
180
270
Source: AKD Research
FATIMA has not yet started the produc on of NPK. NPK is a non-conven onal fer lizer in
Pakistan with limited demand prospects in the short term, in our view. At present, FATIMA
does not have adequate supply of ammonia to produce its exis ng three products at 100%
capacity, linking NPK produc on to addi onal ammonia capacity via future debo lenecking.
We have not incorporated the produc on of NPK in our base case es mates.
The Market is Under Apprecia ng FATIMAs Product Suite: With FATIMAs unconven onal
product suite, we have stress tested sales levels for unconven onal fer lizers CAN and NP.
Based on our stress tes ng, we believe the market is under apprecia ng FATIMAs unconvenonal product suite and is valuing FATIMA at lower sales levels (30% of capacity for both CAN
and NP) in line with our worst case es mates. The upside from current market price in our
view is the coupling of price performance with higher levels of acceptance for the unconvenonal product line by end buyers where we es mate CAN and NP to be sold at 60% and 45%
of capacity, respec vely, for CY12 and at a constant 82% and 55%, respec vely, through forecast range.
Base case assump ons
Base Case Es mates for Target Price of PkR41.52/share
CY12F
CY13F
CY14F
CY15F
60%
82%
82%
82%
45%
55%
55%
55%
7%
7%
7%
7%
400.00
400.00
400.00
400.00
Current market price implies that market is under-apprecia ng gradual acceptance of FATIMAs non-conven onal product suite and higher NP primary margins. Through CY11, FATIMA
logged in sales at 85% and 51.5% of capacity on CAN and NP, leading to sales volumes of
358ktpa and 108ktpa, respec vely. Addi onally, through CY11, NP primary margins averaged
US$478/ton and are currently averaging US$430/ton CY12TD. Our base case outlook forecasts CAN and NP sales to average 60% and 45% of capacity, respec vely, through CY12F and
82% and 55% through forecast range with NP primary margins at US$400/ton. Contrary to
our es mates, current market share price places sales levels at 30% of capacity for both
products with NP primary margins at an extremely conserva ve US$350/ton, in our view.
Assuming equal capacity rates for CAN and NP while reducing the levels by 10% intervals (for
sensi vity purposes) impacts our target price by PkR4/share PkR4.5/share where sales at
30% of capacity place FATIMAs target price at PkR26.25/share. This assumes urea sales at
95% of capacity (base case es mate) coupled with 7% annual price increase in Urea and CAN
which we view as realis c premised on high oil price and food index correla ons (see page
2).
Sensi vity of TP with sales levels (as %age of capacity)
Sales as %age of Capacity
CAN Capacity Based TP Es mates
Base Case
41.52
50%
35.37
40%
33.38
30%
31.42
20%
29.31
10%
27.12
0%
25.09
41.52
40.47
37.95
35.43
32.83
30.28
27.61
41.52
34.46
30.45
26.25
22.09
17.77
13.24
Our stress tes ng for Urea and CAN prices shows the market is valuing FATIMA at flat annual
prices which we view as unrealis c. Tes ng shows that FATIMA making our Buy list with a
minimum 3% annual price increase for both Urea and CAN while Accumulate ra ngs are
placeable between 1%-2% annual price increases for both products. This assumes that CAN
and NP sales clock in at our base case es mates.
Sensi vity of TP with annual increase in Urea & CAN prices
Annual (+%) Urea & CAN Prices
Target Price (PkR)
10%
7%
5%
3%
2%
1%
51.80
41.52
35.49
30.16
27.81
23.53
We have also stress tested FATIMA for variable NP primary margins which have remained
highly vola le over the last 5 year period. Over the last 4 years, NP primary margins have
averaged US$380/ton and have increased at a CAGR of 21% through the last decade.
Through CY11, NP primary margins averaged US$478/ton while running CYTD NP primary
margins are averaging US$430/ton. Our stress tes ng for NP primary margins at US$50/ton
intervals shows that FATIMA makes our Buy list even at US$200/ton primary margin last
seen in CY07, making it an unlikely scenario in our view.
600
500
400
NP Primary Margins
were lower in this
period due to DAP
subsidy by GoP.
300
CY12F EPS
+US$50
Base Case
US$50
US$100
US$150
450
400
350
300
250
200
44.12
41.52
38.71
36.20
33.46
30.80
2.93
2.74
2.56
2.37
2.18
2.00
200
US$200
100
CY11
CY10
CY09
CY08
CY07
CY06
CY05
CY04
CY03
CY02
CY01
The market is valuing FATIMA at our worst case scenario, under apprecia ng the outlook for
stronger primary NP margins and higher o-takes for non-conven onal fer lizers, which
leads to a target price of PkR23.56/share. Our worst case scenario assumes NP and CAN sales
at 30% of capacity with NP primary margins falling to US$350/ton. In our worst case scenario,
we carry our base case assump ons for urea sales and 7% p.a. price increase for Urea and
CAN.
Worst case scenario
Worst Case Scenario with Target Price of PkR23.56
Current share price implies that market is valuing FATIMA at our worst
case scenario
CY12F
CY13F
CY14F
CY15F
30%
30%
30%
30%
30%
30%
30%
30%
7%
7%
7%
7%
350.00
350.00
350.00
350.00
1.53
2.64
3.14
3.62
Leverage to Decline
60%
50%
40%
30%
30,000
20%
CY21F
CY20F
CY19F
CY18F
CY17F
CY16F
CY15F
CY14F
20,000
CY13F
0%
CY12F
25,000
CY11E
10%
15,000
10,000
CY13
CY14
CY15
CY16
CY17
CY18
CY19
CY20
CY21
CY22
20.00
21.00
22.00
23.00
24.00
25.00
2,100
2,095
2,091
2,087
2,083
2,080
2.74
2.75
2.76
2.76
2.77
2.77
2.88
2.88
2.88
2.88
2.88
2.88
4.76%
-4.55%
-4.35%
-4.17%
-4.00%
-3.85%
18.5%
43.38
44.12
44.97
45.95
47.08
19.5%
40.91
41.52
42.21
43.00
43.90
20.5%
38.71
39.22
39.79
40.43
41.16
21.5%
36.74
37.17
37.64
38.16
38.76
Deferred taxa on
CERs
Core opera ons
Target price
18%
1%
% TP
18%
1%
81%
100%
Source: AKD Research
Deferred taxation
CERs
81%
Core operations
80.6%
7.00
7.75
8.68
80.8%
CY17F
DPS
8.00
9.60
8.75
9.36
8.00
8.65
7.25
7.97
CY16F
EPS
79.2%
CY15F
98.9%
CY14F
101.2%
100.9%
CY13F
100.4%
99.7%
CY12F
99.0%
6.50
7.32
5.75
6.44
5.00
5.77
100.7%
4.97
2.74
100.2%
2.75
9.25
10.10
CY18F
CY19F
CY20F
CY21F
CY22F
Dividend payout
Source: AKD Research
CY13 P/E(x)
7.00
Company
FFC
6.00
Sector Average
5.00
FFBL
4.00
FATIMA
3.00
ENGRO
2.00
1.00
0%
5%
10%
15%
FATIMA
FFC
FFBL
23.43
124.84
41.57
99.28
41.52
144.88
49.31
173.84
77%
16%
19%
75%
8.54
7.66
5.81
4.23
4.72
7.64
6.08
3.46
1.74
7.17
3.04
1.05
CY12 PEG
0.26
2.40
46.10
0.20
12%
13%
20%
We have not incorporated debo lenecking in our projec ons. If it happens, it will upli our DCF based TP by
PkR3.26/share
ENGRO
17%
6%
Source: AKD Research
10
CY11 A
CY12 F
CY13 F
CY14 F
CY15 F
CY16 F
Urea
88.41
74.00
98.00
98.00
98.00
98.00
CAN
85.25
60.00
90.00
90.00
90.00
90.00
NP
30.02
45.00
60.00
60.00
60.00
60.00
Source: AKD Research
Risks to Thesis:
Glut of Imported Urea: The GoP may con nue to provide imported urea at lower rates relave to local manufacturers. That said, we believe this risk has a limited me impact with the
recent hike in interna onal urea prices. Interna onal urea prices have gained 8% CYTD and
are unlike to come-o sharply as interna onal oil prices remain firm and China places higher
export taris during peak demand period.
Decrease in Urea Price: If GoP assures Sui based plants of consistent supply of natural gas,
the key risk is that Sui based companies may decrease price of urea in exchange. Impact of
decrease in retail urea price per bag by PkR100 on CY12 EPS and TP is PkR0.29 and PkR3.90/
share, respec vely.
Gas Curtailment: As FATIMA is based on the Mari network which has rela vely lower gas
curtailment compared to Sui, any change in priority to direct gas supplies to the power or
other value added sectors can pose a threat to the company.
11
Appendix
Recent Developments:
FATIMA
Pa ern of Shareholding: FATIMA has paid up capital of PkR24bn (2bn ordinary shares of
PkR10 each and 0.4bn preference shares of PkR 10/each). On Mar 1312, FATIMA provided
redemp on no ce of 200mn preference shares (valued at PkR2bn) at par value of PkR10/
share, which will result in an ou low of PkR2bn on May 1112. On the same date, preference
shareholders (accoun ng for 50% of value i.e. PkR2bn) provided wri en no ce to convert
their preference shares into ordinary shares. Preference shareholders have oered the conversion to take place at higher of PkR20/share or 20% discount to 60 days weighted average
price a er the date of conversion no ce. Assuming conversion takes place at PkR20/share,
number of ordinary shares increases to 2.1bn on May 1112, bringing preference shares to
nil.
Shareholding structure as at Dec 3111
Directors/CEO
& their spouses
21%
Others/Free
float
12%
Associated
Companies and
related parties
67%
FATIMA Group
12
CY11E/A
2.06
N/A
11.38
14.85
5.43
13.20
1.77
0.35
66.80
445
0.05
1.50
6.40
72.87
8.72
N/A
67.77
68.58
27.75
CY12F
2.74
33.27
8.54
20.42
7.59
13.44
1.74
0.88
26.64
700
0.03
2.75
11.74
100.24
4.57
66.52
63.43
68.99
23.32
CY13F
4.97
81.05
4.72
31.73
13.46
15.65
1.50
5.33
4.40
959
0.02
5.00
21.34
100.67
2.97
38.34
66.60
69.16
30.53
CY14F
5.77
16.08
4.06
35.11
15.15
16.42
1.43
6.92
3.39
1,059
0.02
5.75
24.54
99.73
2.42
7.82
66.51
68.62
32.86
CY15F
6.44
11.68
3.64
37.64
16.17
17.11
1.37
8.22
2.85
1,124
0.02
6.50
27.74
100.94
1.90
7.84
66.21
67.90
34.04
Income Statement
(In PkR mn)
Net sales
COGS
Gross Profit
S&A Exp.
EBITDA
Other Income
Other Charges
Financial Charges
NPBT
Tax
NPAT
CY11A
14,833
4,781
10,052
715
10,172
134
320
3,063
6,088
1,971
4,117
CY12F
24,701
9,033
15,667
1,436
17,042
388
462
5,379
8,778
3,064
5,761
CY13F
34,170
11,414
22,756
1,967
23,631
573
833
4,700
15,829
5,534
10,431
CY14F
36,844
12,338
24,506
2,101
25,282
898
968
3,936
18,399
6,433
12,108
CY15F
39,733
13,426
26,306
2,245
26,978
1,382
1,679
3,200
20,564
7,190
13,523
Balance Sheet
(In PkR mn)
Long Term Assets
Current Assets
Total Assets
Long Term Liabili es
Current Liabili es
Total Liabili es
Share Holders' Equity
Total Liabili es & Equity
CY11E
68,613
7,235
75,847
36,673
11,446
48,120
27,728
75,847
CY12F
66,504
9,373
75,877
33,201
14,458
47,658
28,219
75,877
CY13F
64,447
13,017
77,464
33,353
11,237
44,590
32,874
77,464
CY14F
62,450
17,453
79,903
34,735
10,685
45,420
34,482
79,903
CY15F
60,518
23,117
83,635
37,307
10,398
47,705
35,931
83,635
CY11E
CY12F
CY13F
CY14F
CY15F
10,433
16,395
22,459
24,819
26,328
CF from inves ng ac vi es
-4,297
-702
-785
-880
-985
CF from financing ac vi es
-3,190
-14,145
-18,963
-19,908
-20,148
2,946
1,547
2,711
4,031
5,195
283
3,229
4,777
7,487
11,519
3,229
4,777
7,487
11,519
16,714
13
Analyst Certification
I, Naeem Javid, hereby certify that the views expressed in this research
report accurately reflect my personal views about the subject securities and
issuers. I also certify that no part of my compensation was, is/or will be,
directly or indirectly, related to the specific recommendations or views
expressed in this research report. I further certify that I do not have any
beneficial holding of the specific securities that I have recommendations on
in this report.
Ratings Definitions
Buy
Accumulate
Neutral
Reduce
Sell
14