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Initiating Coverage - Fauji Fertilizer Bin Qasim Ltd.
Initiating Coverage - Fauji Fertilizer Bin Qasim Ltd.
) Ltd Equity
Synergy of Finance & Opportunities
INITIATING COVERAGE
May 19, 2010
May-10
Mar-09
Mar-10
Jan-09
Jan-10
Jul-09
Nov-09
Sep-09
Disclaimer: This report has been prepared by MMSPL. 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. MMSPL 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. MMSPL, 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. MMSPL may make markets in securities or other financial instruments de-
scribed in this publication, in securities of issuers described herein or in securities underlying or related to such securities. This document may not be reproduced, distributed or published for any purposes.
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
FFBL - the only producer of DAP & Granular Urea in the country
CY10E
CY05
CY06
CY07
CY08
CY09
company, as its contribution towards the top line of the company
is ~63% whereas the trickledown impact in the bottom line earn-
ings is ~78%. We anticipate that the contribution of DAP segment
will continue in the same pace in forthcoming years. We expect
FFBL DAP offtake to decline by 24.1 to 538k in CY10 tons from
709k tons in corresponding period last year, mainly due to lower DAP Market Share—CY09
inventory in the current year and production decline. However, in Source : NFDC & MMSPL Research
1QCY10 company DAP offtake has increased by 1.2% to 107k tons
from 105k tons in the same period last year.
FFBL
DAP Price Story 42%
DAP prices are mainly dependent on the prices of its raw material
(Ammonia & Phosphoric acid). The raw material for ammonia is
natural gas while phos rock and sulphur is used for phosphoric Imported
acid. DAP prices remained quite stable in the CY09 as compared 58%
2
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
FFBL urea market share declined to 9.7% in CY09 from 12.5% in 100
CY08 mainly on account of higher imported urea sales by the -
NFML during the year. In 1QCY10, market share of the company
CY10E
CY05
CY06
CY07
CY08
CY09
3
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
Urea prices plays a vital role in the profitability of the company in Historic Urea Price - per bag (average)
last few years urea prices have shown a stable increasing trend as Source : Company Financials & MMSPL Research
compared to the DAP prices. In last five years urea prices were 1,000.0
averagely increased by 11.5%. However, urea prices are showing a 888.0
900.0
continuous increase YoY basis as compared to DAP prices which
show a mix trend. The local urea prices historically remained on 800.0
768.6
the lower side as compared to imported urea price. During last few 685.9
700.0
years average local urea were lower by 30% from imported urea
600.0
523.5 542.7
mainly on account of substantially subsidized gas prices, which is
one of the main raw materials for urea production. Going forward, 500.0
200.0
Urea prices surged by PKR 75/bag to offset the impact of gas cur-
tailment to the company 100.0
-
To reduces the losses caused by gas curtailment FFBL has in-
CY06
CY07
CY08
CY09
CY10E
creased per bag urea prices by PKR 75 along with other major
players of the industry. Further, management believes that the
urea prices will not immediately come down after the restoration
of gas supply by the end of July’10 the higher urea prices will con-
tinue till end of the current year.
Considering the huge gap between the imported and local urea
prices, which gives room to the local urea manufacture to increase
the urea prices to over come the losses arises from curtailment of
gas. FFBL being the major loser in term of gas supply cut we ex-
pect that the company will further increase urea per bag prices by
PKR 25 to PKR 30 within short period of time.
policy FFBL has offered one of the strongest dividend payout ratio 81.9%
of ~88% in last five years. Going forward, we expect company pay- 80.0%
out ratio will be slightly on lower side ~83.6% in forthcoming two 60.0%
years as the company has plans to invest PKR 5.0bn in the power 47.7%
sector. However, for long term we expect company will maintain 40.0%
its payout ratio in the range of ~85% to ~95%. Further, we expect 20.0%
that the company to pay cash dividend per share of PKR 3.34 for
CY10 resulting attractive dividend yield of 11.7% based on current 0.0%
market price.
CY10E
CY06
CY07
CY08
CY09
4
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
5
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
The top line of the company has increased at 5Yr FFBL is a subsidiary of FFC which owns 50.88%
CAGR of 26.2% mainly due to substantially stake, the company is primarily engaged in the busi-
higher DAP and urea sales along with increase ness of DAP and Urea production. Further, company
in DAP and urea prices during the period under has significant investment in Pakistan Maroc Phos-
review. Moreover, we expect that the top line of phore, S.A. (PMP) Moroccop and Fauji cement.
the company will continue to grow at 5Yr CAGR Moreover, company has aggressive plans to invest ~
of 14.7% on account of growth in DAP and urea PKR 5.0bn in power sector of the country. Total de-
prices along with minor growth in DAP & urea sign capacity of FFBL of Bin Qasim plants at Karachi
offtake. is 551K tons for Urea and 445.5K tons of DAP.
6
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
Peer Comparison
CY08 CY09
FFC FFBL ENGRO DAWH FFC FFBL ENGRO DAWH
Net Sales (PKR mn) 30,593 26,821 23,317 7,429 36,163 36,725 30,172 11,040
PAT (PKR mn) 6,525 2,900 4,240 3,063 8,823 3,784 3,957 2,653
EPS (Basic PKR) 13.22 3.10 19.93 28.00 13.00 4.05 13.28 24.25
DPS (Basic PKR) 13.75 2.85 6.00 3.50 12.76 4.00 7.00 1.50
BVPS (Baisc PKR) 24.90 11.23 110.65 158.91 19.28 11.41 98.49 181.77
Average Price(PKR) 116.24 35.55 255.17 220.30 88.23 28.79 144.05 147.03
PEx 8.79 11.45 12.81 7.87 6.79 7.11 10.85 6.06
PBVx 4.67 3.17 2.31 1.39 4.58 2.52 1.46 0.81
Dividend Yield 11.8% 8.0% 2.4% 1.0% 14.5% 13.9% 4.9% 0.0%
ROE 53.1% 27.7% 18.0% 17.6% 67.4% 35.5% 13.5% 13.3%
ROA 20.4% 6.2% 5.2% 11.9% 22.9% 10.4% 3.0% 9.0%
EBITDA Margin 38.0% 31.3% 31.6% 41.6% 41.7% 23.1% 23.9% 13.4%
Earnings growth 21.7% 14.1% 34.4% -69.8% 35.2% 30.5% -6.7% -13.4%
GP margin 40.4% 30.7% 18.2% 41.9% 43.3% 26.3% 13.1% 35.9%
Net margin 21.3% 10.8% 18.2% 41.2% 24.4% 10.3% 13.1% 24.0%
Capacity Utilizaion 113.4% 121.2% 102.1% 114.0% 120.3% 113.8% 97.6% 115.2%
7
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
Financial Highlights
P & L Statement
PKRmn CY09A CY10E CY11E CY12E CY13E CY14E
Net Sales 36,725 36,116 43,749 52,271 64,910 72,908
Cost of Sales 27,060 27,053 33,821 40,771 51,330 58,060
Gross Profit 9,665 9,063 9,928 11,500 13,580 14,848
Distribution Costs 2,236 2,253 2,720 3,246 4,034 4,529
Administrative Expenses 401 435 451 537 669 751
Finance Cost 1,460 574 593 618 683 760
Other Expenses 443 535 578 612 648 689
Other Income 683 1,043 1,067 1,243 1,331 1,349
PBT 5,808 6,054 6,653 7,730 8,878 9,467
Tax 2,024 2,245 2,510 2,932 3,351 3,570
PAT 3,784 3,809 4,144 4,798 5,527 5,897
EPS (PKR) 4.05 4.08 4.44 5.14 5.92 6.31
DPS (PKR) 4.00 3.34 3.78 4.86 5.64 6.12
Balance Sheet
PKRmn CY09A CY10E CY11E CY12E CY13E CY14E
Property, Plant & Equipment 15,577 15,236 15,376 14,969 15,042 14,787
Long Term Investments 2,128 5,123 7,788 8,013 8,158 8,253
Current Assets 18,443 9,880 8,672 7,663 9,092 10,410
Total Assets 36,225 30,409 32,315 32,245 34,123 34,755
Equity 10,660 11,408 13,201 12,114 12,638 13,121
Long Term Loan 4,537 3,889 3,241 2,593 1,945 1,296
Total non-current Liabilities 8,818 6,696 6,002 6,112 5,966 5,580
Current Liabilities 16,747 12,305 13,112 14,019 15,519 16,054
Total Equity & Liabilities 36,225 30,409 32,315 32,245 34,123 34,755
Key Ratios
CY09A CY10E CY11E CY12E CY13E CY14E
EPS (PKR) 4.05 4.08 4.44 5.14 5.92 6.31
DPS (PKR) 4.00 3.34 3.78 4.86 5.64 6.12
BVPS (PKR) 11.41 12.21 14.13 12.97 13.53 14.05
PEx 7.11 6.99 6.43 5.55 4.82 4.52
PBVx 2.52 2.33 2.02 2.20 2.11 2.03
Dividend Yield 13.9% 11.7% 13.3% 17.1% 19.8% 21.5%
EV/EVA 7.84 12.25 12.98 9.39 7.30 6.45
EV/EBITDA 2.59 3.27 3.23 2.90 2.46 2.22
ROE 35.5% 33.4% 31.4% 39.6% 43.7% 44.9%
ROA 10.4% 12.5% 12.8% 14.9% 16.2% 17.0%
EBITDA Margin 23.1% 21.9% 19.6% 18.5% 16.8% 15.9%
GP margin 26.3% 25.1% 22.7% 22.0% 20.9% 19.1%
Net margins 10.3% 10.5% 9.5% 9.2% 8.5% 8.1%
8
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
May 19, 2010
9
M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
FAUJI FERTILIZER BIN QASIM
Research Team
Amjad Nazir Chief Operating Officer & Head of Research coo@mmsecurities.com.pk +92-21-353396983
Shahid Ali Senior Research Analyst shahid@mmsecurities.com.pk Ext. 111
Muhammad Mohsin Ali Research Officer research@mmsecurities.com.pk Ext. 104
Sales Team
Corporate
Saqib Hussain Head of Sale & Portfolio Management saqib@mmsecurities.com.pk +92-21-35313911
Sania Zulfiqar Sales Coordinator sania@mmsecurities.com.pk +92-21-35313912
Retail
Salma Aamir Senior Sales Coordinator salma@mmsecurities.com.pk +92-21-35317706
Shahzada Haris Rashid Senior Sales Coordinator hairs@mmsecurities.com.pk +92-21-35388719
Muhammad Imran Alvi Senior Sales Coordinator imran@mmsecurities.com.pk +92-21-35396982
Muhammad Farhan Senior Sales Coordinator farhan@mmsecurities.com.pk +92-21-35897063
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Analysts’ Certification:
I, Shahid Ali, the author of this report, hereby certify that all of the views expressed in this research report accurately reflect my personal
views about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or
indirectly related to the specific recommendation(s) or view(s) in this report.
Disclaimer: This report has been prepared by MMSPL. 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. MMSPL 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. MMSPL, 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 purchase10
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. MMSPL may make markets in securities or other financial instruments de-
scribed in this publication, in securities of issuers described herein or in securities underlying or related to such securities. This document may not be reproduced, distributed or published for any purposes.