SC SECURITIES (PVT) LTD.

Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.

Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi. Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities

March 7, 2005

FAUJI FERTILIZER COMPANY LTD.

Current Rate PKR 162
Target Price PKR 186

Recommendation:

We recommend a BUY for the stock as it’s trading at the discount of 16% to its fair value of
PKR 186 at which we been a rrived using different valuation techniques including DCF method
and using PE multiple of 13 coupled with the estimated earnings of Rs. 14.33 for the FY05.

52 weeks trading data

Current rate 162

High 164.5
Low 117.35
Average Daily Vol (mn shares) 571,745
KATS Code FFC

Fertilizer Industry

The FY2003-04, witnessed acceleration in economy with real GDP growing by 6.4 per cent.
Though the agriculture sector registered growth of only 2.6 per cent, still the fertilizer nutrient
consumption was 6.7 per cent higher over preceding year. The Kharif 2003 recorded increase of
only 1.3 percent over Kharif 2002, this made the prices for most Kharif crops attractive and
resulted in improved liquidity with farmers. This coupled with abundant availability of credit
triggered fertilizer consumption in Rabi 03-04, which showed an increase of 11.1 percent in
nutrients over preceding year.
 SC SECURITIES (PVT) LTD.
Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi. Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities

Farmer’s income of preceding crop season, water availability, commodity support prices and
fertilizer prices are the strongest in forecasting demand for the next season. Based on these, the
fertilizer consumption for FY2004-05 is projected at 3350 thousand nutrient tones i.e. 4.3% higher
from previous year. The performance of Kharif 2004 looks good, which may improve fertilizer
consumption in Rabi 2004-05. However, the only concern is of supply side.

Fauji Fertilizer Company

Fauji Fertilizer Company Limited is a public company and its shares are quoted on the Karachi,
Lahore and Islamabad stock exchanges of Pakistan. The registered office of the Company is
situated in Rawalpindi. The principal activity of the Company is manufacturing, purchasing and
marketing of fertilizers and chemicals, including investment in other fertilizer and chemical
manufacturing operations.

The Fauji Fertilizer Company (FFC) reported the highest ever after tax profit of Rs. 4.004 billion
for the year 2004, increase of 27% over last year. The increase is due to higher urea sales, savings
in distribution cost, lower finance cost and dividend received from FFBL.

Urea sales revenue recorded a growth of 20% over last year. As a result, per share earnings of the
Company grew by Rs. 2.91 over earnings for the previous year. FFC declared highest ever
dividends by recommending final cash dividend of Rs. 3 per share and 15% bonus shares for 2004,
in addition to Rs. 12 per share in cash and 15% bonus issue declared earlier on interim results,
from the available distributable profits of the Company.

FFC continues to be the proud winner of the Karachi Stock Exchange “Top 25 Companies
Award” for listed companies for the tenth consecutive year. FFC’s contribution of Rs. 15.74
billion to the national economy by way of value addition in 2004 increased by 5% over last year, in
addition to foreign exchange savings of $544 million through import substitution on production of
2,174 thousand tones of urea fertilizer in the FY2004.

Market Share in the Fertilizer Industry MARKET SHARES IN FERTILIZER INDUSTRY

(2003-04)
FFC
NFML
Private
During FY2003-04, a total quantity of about ECPL
DCL Importers
6,850 thousand tones was handled by 6% 6%
DCL
marketing agencies. The private sector share Private Importers

was 80.3 per cent in total fertilizer ECPL

FFC
distribution (78.9 per cent during FY2002- 19%
49%
03) in which FFC leading the market with
48.7 per cent.. Public sector agency (NFML)
NFML
share was about 19.7 per cent in total 20%
fertilizer quantities handled.
 SC SECURITIES (PVT) LTD.
Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi. Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities

Products Share in Total Fertilizer

PRODUCTS SHARE IN TOTAL FERTILIZER
Consumption
CONSUMPTION (2003-04)
Urea
Among the products, urea has the highest DAP
share that is 67.7% for the FY2003-04 of NP
SSP
6%
which Fauji Fertilizer Company (FFC) CAN Others NP
does the bulk of production that is about 5% 3%
SSP CAN
60% of the total urea production. Average 3% Others
prices of urea (Sona) and urea (Kissan) DAP
16%
surged by 5.1% and 4.5 per cent, Urea
respectively. During FY2003-04, an 67%
average increase in urea price compared
with yearly average of FY2002-03 was
from Rs. 18 to 22/bag.

FY2003A FY2004A FY2005F

Financial Highlights …………..
Sales (m) 21,035 21,027 22,078
Profit Before Tax (m) 4,931 6,103 7,365
Profit After Tax (m) 3,145 4,004 4,861
Net Profit Margin (%) 14.95 19.04 22.01
EPS 10.66 13.57 14.33
DPS 10.00 12.00 12.80

Source: Company annual accounts & SCS estimates

Summary:

We recommend a Buy for the share owing to it’s future growth, market share, aggressive
marketing and investment strategies and a possible expansion over the next 2-4 years.
On account of the boom in agriculture sector coupled with the weather conditions, we expect
growth in urea demand and consequently better results for the upcoming years.

From : Our research desk

(92-21) 241-2542 – 5
research@scsecurities.net
This report has been prepared by SC securities and is provided for information purposes only. Under no circumstances is to be used or considered as an offer to sell or solicitation of
any offer to buy. While all reasonable care has been taken to ensure that information provided is not untrue however data has been collected from the reliable sources, we make no
representation as to its accuracy