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Equities

REK-192

Fauji Fertilizer Bin Qasim

PAKISTAN
25 Jan 2015
FFBL PA

Neutral

Stock price as of 22 Jan

Jun 16 target
Upside/downside
Valuation

Rs
Rs
%
Rs

47.9
45.2
(5.6)
45.2

- SOTP

Fertilizer
Market cap
30-day avg turnover
Market cap
Number shares on issue

Rs bn
US$m
US$m
m

Investment fundamentals
Year end 30 Dec

2014A

Total revenue mn
EBIT
mn
EBIT Growth
%
Recurring Profit m
Reported Profit m
EPS rep
EPS rep growth
EPS rec
EPS rec growth

44.7
0.4
443
934

2015E

2016E

2017E

49,445 55,079 55,519 57,467

7,093
6,472
5,675
6,990
(28.18)
(8.76) (12.31)
23.17
4,016
3,295
3,460
5,261
4,016
3,295
3,460
5,261

Rs
%
Rs
%

4.3
(28.4)
4.3
(28.4)

3.5
(18.0)
3.5
(18.0)

3.7
5.0
3.7
5.0

5.6
52.0
5.6
52.0

x
x

11.6
11.6

14.1
14.1

13.4
13.4

8.8
8.8

Total DPS
Total div yield

Rs
%

3.5
7.0

3.3
6.5

3.3
6.5

5.5
11.1

ROA
ROE
EV/EBITDA
Net debt/equity
Price/book

%
%
x
%
x

9.7
31.0
8.2
144.6
3.6

8.0
24.7
8.6
98.9
3.4

9.4
26.2
10.4
116.7
3.6

14.1
39.8
8.6
128.8
3.4

PE rep
PE rec

FFBL PA rel KSE 100 performance

1.6

FFBL

1.4

KSE100

Phosphate subsidy a savior

Event
Timely disbursement of phosphate subsidy accompanied with better gas availability
has partially offset the drag of higher phosphoric acid (main raw material of DAP) and
gas prices on companys profitability. We foresee the DAP sales in the coming year
would remain contingent upon disbursement of DAP subsidy given poor farmer
economics. However, crude oil below US$75/bbl would make the RLNG pricing feasible
for the companys operations. Recent share price plunge makes us change our stance
from Underperform to Neutral.

Impact
Higher raw material cost to trim profitability: Despite higher DAP and Urea sales, we
expect profitability to trim (18% YoY). This is primarily attributed to lower DAP margins
(down 17% YoY) and higher gas prices (6% YoY feed stock & 10% YoY fuel stock). Timely
disbursement of phosphate subsidy has helped the company to post 5% YoY growth in
its flagship DAP segment despite tight cash position of farmers. To recall, government
has announced Rs20bn subsidy on phosphate products. While strong brand name amid
better gas availability (up 22% YoY) has helped to maintain its ground in urea segment.
Balance sheet leveraging, to meet the thrust of expansion, has further dented
profitability through higher financial charges (up 36% YoY).
LNG may bring into service underutilized levels: Being on SSGCs network amid
plunge in oil prices make a strong case of LNG usage for fertilizers manufacturing
(contracted at 13.37% of crude oil). At current fertilizer prices, running on RLNG would
be feasible if crude lies below US$75/bbl and US$50/bbl for DAP and Urea respectively.
At present, the company is running at utilization levels of 119% and 55% for DAP and
Urea respectively.
Domestic agronomics to define course of prices: We foresee fertilizer prices to
remain subdued given farmers tight cash position amid depressed agriculture outlook.
Our view is premised on high inventory levels of rice, maize and sugarcane, and
subdued cotton demand amid slow down in China and EU. In the long run, declining
international fertilizer prices, both DAP (down ~2% YTD) and Urea (down ~35% YTD), on
the back of lower prices of agriculture commodities and reducing production cost would
further constrain local manufactures pricing power.

Source: B lo o mberg, Fo undatio n Research, Jan 2016

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jun-16 price target: Rs45.2/sh based on SOTP methodology.

Jul-15

0.4

Jun-15

Price Catalyst
May-15

0.6

Apr-15

0.8

We revise our CY15/16 estimates by -0.4%/-10.5%, on the back of probable gas price
hike and trimmed fertilizer prices. Subsequently, we cut our June-16 TP to Rs45.2/sh.

Mar-15

1.0

Feb-15

Earnings Revision

Jan-15

1.2

Catalyst: 1) Dividend income from FWE-I&II, 2) positive results of FML and NOPK and
3) commencement of FPCL (118MW coal based power plant).

Action and Recommendation

(all figures in Rs unless noted)

Foreseeing cash constrained position of farmers amid probable gas price hike and

Analyst
Muhammad Awais Ashraf

m.awais@fs.c om.pk

92 21 5612290

Ext 339

subdued DAP margins make us cautious towards the scrip. Sustainability of DAP sales in
CY16 would be contingent upon budgetary allocation of phosphate subsidy.

Please Refer to last page for important disclosures and analyst certifications

Fauji Fertilizer Company Limited

January 25, 2016

About the company

Fauji Fertilizer Bin Qasim is the sole DAP and Granular urea producer in Pakistan. Initially named as FFC-Jordan Fertilizer
Company (FJFC), FFBL was formed on 17th Nov 1993, with FFC (30%), FF (10%) and JPMC (10%) as main sponsors. The
company was formally listed with stock exchanges in May 1996 and commercial production commenced wef Jan 2000. The
company was renamed as Fauji Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as Jordan Phosphate Mines Co. (JPMC) had sold its
entire equity in the company. FFC currently owns a 49.9% stake in FFBL. FFBL is listed on all the three stock exchanges of the
country.

Important disclosures:
Disclaimer: This report has been prepared by FSL. The information and opinions contained herein have been compiled or arrived at based upon
information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified and no guaranty,
representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to
change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are
not intended to be complete and this document is not, and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or
other financial instruments. FSL may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or analysis
before such material is disseminated to its customers. Not all customers will receive the material at the same time. FSL, their respective directors, officers,
representatives, employees, related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers
described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other financial
instruments from time to time in the open market or otherwise, either as principal or agent. FSL may make markets in securities or other financial
instruments described in this publication, in securities of issuers described herein or in securities underlying or related to such securities. FSL may have
recently underwritten the securities of an issuer mentioned herein. This document may not be reproduced, distributed or published for any purposes.

Research Dissemination Policy: Foundation Securities (Pvt.) Ltd. endeavors to make all reasonable efforts to disseminate research to all eligible
clients in a timely manner through either physical or electronic distribution such as mail, fax and/or email. Nevertheless, not all clients may receive the
material at the same time.

Target price risk disclosures: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors
which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially
affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in
interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative
instruments, to manage certain of these exposures.

Analyst certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers
and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this
research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Foundation
Securities and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.

Recommendations definitions
If
Expected return >+10%
Expected return from -10% to +10%
Expected return <-10%

Outperform.
Neutral.
Underperform.

Foundation Securities (Pvt) Limited