MBA for Working Professionals

Business Policy

Term Project – Introduction

Fauji Fertilizer Company Limited

Submitted To
Prof. Fareedy
By
Zain Zulfiqar 16E00017
Waleed Islam 16E00005
Ghalib Raza 16E00062
Raza Noor 16E00103

Submission Date: December 16, 2018

ABSTRACT
Contents
ABSTRACT................................................................................................................................................2
1 Introduction.........................................................................................................................................1
1.1 Vision..........................................................................................................................................2
1.2 Mission........................................................................................................................................3
1.3 Corporate Strategy.......................................................................................................................3
1.4 Management Objectives..............................................................................................................3
1.4.1 OBJECTIVE 1.........................................................................................................................3
1.4.2 OBJECTIVE 2.........................................................................................................................3
1.4.3 OBJECTIVE 3.........................................................................................................................3
1.4.4 OBJECTIVE 4.........................................................................................................................3
1.4.5 OBJECTIVE 5.........................................................................................................................3
1.4.6 OBJECTIVE 6.........................................................................................................................4
2 ORGANIZATIONAL STRUCTURE..................................................................................................4
2.1 Globalization Effect.....................................................................................................................5
2.2 Organogram.................................................................................................................................5
3 AGRICULTURE SECTOR OF PAKISTAN......................................................................................8
3.1 FERTILIZER USE IN PAKISTAN.............................................................................................9
3.2 FERTILIZER INDUSTRY........................................................................................................10
3.3 UREA MARKET.......................................................................................................................11
4 COMPETITORS...............................................................................................................................12
4.1 Engro Fertilizer:.........................................................................................................................12
4.2 Fatima Group:............................................................................................................................12
4.3 National Fertilizer Marketing Limited:......................................................................................13
5 COLLABORATORS.........................................................................................................................14
5.1 Mari Petroleum Company Limited:...........................................................................................14
6 CUSTOMERS – LOCAL FARMERS...............................................................................................14
7 Financial Overview............................................................................................................................15
7.1 Balance Sheet............................................................................................................................15
7.1.1 Assets.....................................................................................................................................16
 7.1.2 Liabilities and Shareholder’s Equity......................................................................................16
7.2 Income.......................................................................................................................................17
7.3 Key Performance Indicators......................................................................................................17
7.4 Financial Ratio Analysis............................................................................................................18
7.4.1 Liquidity Ratios.....................................................................................................................19
7.4.2 Leverage Ratios.....................................................................................................................19
7.4.3 Activity Ratios.......................................................................................................................20
7.4.4 Profitability Ratios.................................................................................................................21
7.5 Remarks:....................................................................................................................................22
8 PORTER’S FIVE FORCES MODEL................................................................................................23
8.1 Supplier Power..........................................................................................................................23
8.2 Buyers Power.............................................................................................................................23
8.3 Potential Entrants.......................................................................................................................24
8.4 Substitutes..................................................................................................................................24
8.5 Rivalry.......................................................................................................................................24
9 BCG Matrix:......................................................................................................................................25
10 EXTERNAL ENVIRONMENT ANALYSIS................................................................................27
10.1 Political trends:..........................................................................................................................27
10.2 Economic trends:.......................................................................................................................27
10.2.1 Interest Rates.........................................................................................................................28
10.2.2 Credit Availability.................................................................................................................28
10.2.3 Inflation.................................................................................................................................28
10.2.4 Foreign Exchange:.................................................................................................................29
10.2.5 Fuel Prices:............................................................................................................................29
10.2.6 GDP Growth Rate:.................................................................................................................29
10.2.7 Deregulated Industry:............................................................................................................30
10.3 Social Trends:............................................................................................................................30
10.3.1 Uneducated Farmers:.............................................................................................................30
10.4 Technological trend:..................................................................................................................31
10.5 Legal trends:..............................................................................................................................31
10.6 Environmental Trends:..............................................................................................................32
11 Internal Analysis............................................................................................................................32
 11.1 Management..............................................................................................................................32
11.2 Human resource.........................................................................................................................34
11.2.1 HR Policies............................................................................................................................34
11.2.2 Personnel Planning and Forecasting......................................................................................35
11.2.3 Recruitment: Screening & Selection Tools............................................................................36
11.2.4 Orientation.............................................................................................................................36
11.2.5 Learning and Development....................................................................................................36
11.2.6 PERFORMANCE MANAGEMENT AND APPRAISAL.....................................................37
11.2.7 Management by Objectives....................................................................................................39
11.2.8 Rewards and compensation....................................................................................................39
11.2.9 Compensation and Benefits...................................................................................................39
11.2.10 TURNOVER AND RETENTION.....................................................................................40
11.2.11 Safety Procedures at FFC...................................................................................................41
11.2.12 Contingent workers............................................................................................................42
11.3 CSR initiatives...........................................................................................................................43
11.4 Marketing..................................................................................................................................43
11.4.1 Product...................................................................................................................................43
11.4.2 Place – marketing channel.....................................................................................................45
11.4.3 Promotion..............................................................................................................................47
11.4.4 Pricing...................................................................................................................................48
11.5 Technology................................................................................................................................50
12 Internal Factor Analysis Matrix.....................................................................................................51
13 External Factor Analysis Matrix....................................................................................................52
14 Strategic Factor Analysis Matrix...................................................................................................54
15 Formulation of New Strategy.........................................................................................................54
16 Formulation of New Business Strategy..........................................................................................55
17 Conclusion & Recommendations...................................................................................................56
References:................................................................................................................................................57
APPENDICES…………………………………………………………………………………………………………………………………………..58
1 Introduction
Fauji fertilizer Company Limited known as FFC was incorporated in 1978 as a fertilizer
company. It was a joint project Haldor Topsoe (Technology licenser) and Fauji Foundation a
well reputed and well-known charitable trust operating in Pakistan since 1954. Fauji is among
one of the biggest groups in Pakistan working in different fields like Foods, Meat, Energy,
Banking, Power, Oil and Gas exploration.
Fauji Fertilizer is a public listed company and registered in Pakistan Stock Exchange. The Head
office of FFC is based in Rawalpindi and the plant is located in different locations i.e. Saidabad,
Mirpur Mathelo & Goth Machi. Unlike other companies marketing team of FFC do not sit in
head office and have a separate division and sit in marketing office based in Lahore. The main
areas where FFC is operating is buying, manufacturing, marketing and selling of Fertilizer.
General operations of FFC was started in 1982 when 1st commercial production was done under
an installed plant of capacity 570,000 metric tons. Now the capacity has been enhanced and FFC
is operating with total installed capacity of 2 million tons for Urea production. FFC is leading in
Urea production with current market share of 52% and share of DAP is 56% in the existing
competition. Since the start of production till to date FFC has generated 56 million tons of
Fertilizer with contribution of 13 billion Us dollars in to the national exchequer of Pakistan.
In 1992, FFC has invested in another Fertilizer company named as Fauji Fertilizer Bin Qasim
Limited (FFBL) which is the first and the sole producer of Granular Urea in Pakistan with a
market share of 49.88%. FFBL is not marketing their products by their own to avoid cannibalism
with his mother company and the marketing of FFBL products is done by the FFC because FFC
has the largest network of distribution and the well connected with the farmers since being a long
time back. FFC is not providing farmers with the fertilizers but also guiding them with the latest
farming techniques and providing them Agricultural services to make them more equipped with
the latest methods of sowing and how to improve the crop yield.
FFC is recognized among Farmer’s community with the name of “Sona” which means gold
which show helping them to produce gold from fields in order to uplift their economic conditions
and to enhance the income level of the most deprived community of the Pakistan.
In order to ensure the consistent supply of raw material FFBL has done a joint venture with
Morocco group and FFC holds 12.5 % equity in this Pak Morocco venture. Other than that,
FFBL also has a share of 6.79 in Fauji Cement Limited known as FCCL. Green energy is the

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growing trend in Pakistan and in order to capitalize the market FFC has also diversified into
wind energy and installed the first ever wind energy plant in Karachi, that plant is wholly and
solely owned by FFC known as FFCEL. Other than that, FFC has also invested in Food sector as
well and acquired quick frozen food project of Al-Hamd Food and are working as Fauji Fresh
and Freeze (FFF). FFF is the biggest plant of production of frozen food in Pakistan. The main
idea behind this investment is to diversify into new sector and capture the export market of
frozen food especially in Europe.
FFC has also invested in Financial sector of Pakistan and acquired 43.15& share of Askari bank
in 2013. Initially, Askari was in loss but after a few years it has started generating profits and
now is one of the profitable projects of FFC. In a nutshell, FFC product portfolio is mainly
fertilizer, renewable energy, processing of fresh fruits and vegetable and financial services in
Pakistan.
Since last 20 years, FFC is doing great in Karachi Stock Exchange and among the top 25
companies. There was not a single year when FFC name was not included in the list of top 25
companies and most of the time FFC remained on top in listed companies of stock exchange.
FFC has consitently at the top of the list in the ICAP and ICMAP’s best report of the year for 11
years. Another big milestone of FFC is on the top of the list of listed companies since last seven
years which is a huge success of the company.
In Pakistan Gas situation is getting worse and worse with every passing day and now the
situation has come where FFC has started to explore new markets to install fertilizer plants in
those countries which are rich with the gas reservoirs so that gas shortage will not affect the
company production / economic performance. FFC is also working on capacity building of the
farmers by introducing and guiding then new means of farming so that the productivity and yield
of the farms can be enhanced which will eventually alleviating the poverty level of the farmers.
FFC is also working on farmers to educate them about the balance use of fertilizers to improve
the productivity which is part of the CSR activities of the company.

1.1 Vision
“To be a leading national enterprise with global aspirations, effectively pursuing multiple growth
opportunities, maximizing returns to the stakeholders, remaining socially and ethically
responsible”

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1.2 Mission
“To provide our customers with premium quality products in a safe, reliable, efficient and
environmentally sound manner, deliver exceptional services and customer support, maximizing
returns to the shareholders through core business and diversification, providing a dynamic and
challenging environment for our employees”

1.3 Corporate Strategy

“Maintaining our competitive position in the core business, we employ our brand name, unique
organizational culture, professional excellence and financial strength diversifying in local and
multinational environments through acquisitions and new projects thus achieving synergy
towards value creation for our stakeholders”

1.4 Management Objectives

1.4.1 OBJECTIVE 1
Enhance agricultural productivity through balanced fertilizer application by educating farmers
regarding balanced fertilizer usage through Farm Advisory Centers (FACs)

1.4.2 OBJECTIVE 2
Maintain industry leadership using technological developments and continuously upgrade
production facilities to maximize efficiency

1.4.3 OBJECTIVE 3
Expand sale through geographical diversification and improved farmer awareness

1.4.4 OBJECTIVE 4
Create / enter new lines of business to augment profitability and achieve sustained economic
growth by continuously seek profitable avenues to diversify within and outside the Fertilizer
Industry

1.4.5 OBJECTIVE 5
Enhance operational efficiency to achieve synergies by aligning our business processes, reducing
time and money losses

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1.4.6 OBJECTIVE 6
Costs Economization by keeping our resource utilization at an optimum level through strict
governance policies

2 ORGANIZATIONAL STRUCTURE
FFC has a centralized decision making model with more than 3500 employees, fixed duties, stiff
hierarchical relationships, high work specialization, limited span of control and unity of
command which makes the managerial hierarchy taller and formalized processes. The CEO of
FFC is the gatekeeper elected by the Fauji foundation, a parent group of FFC. He manages the
overall operations solely as the managing director.

There is a reward system to motivate employees to achieve objectives and FFC follows a
traditional transactional form of leadership that maintains normal workflow. FFC is shifting to
having transformational leadership due to stiff cut throat competition, globalization and
instability in the country to new and novel ideas for maintaining competitive advantage and
following sustainable business practices. Autocratic leadership style is followed in FFC and
active participation is limited to centralize decision making.

FFC has a Urea process license from Italy for the Urea manufacturing technology. FFC also has
an ammonia production technology license from Denmark. FFC has developed strong
relationship with both licensors in order to stay updated with the latest technological
advancements and for the supply of technical labor services to domestic and international
sectors. FFC also provides manpower services to the fertilizer sector of the Middle East and KSA
during their annual turnarounds.

FFC is a mammoth organization which has a stable environment contemporarily. It mostly

experiences calm water changes however the current situation due to globalization and market
competition the overall scenario is changing to “white water rapids” any change is managed by
the organizational development under Human Resource (HR) division. OD educates and
communicates with the employees thru seminars and workshops if there is any misconception
about the new change.

All leaders in FFC have a military background that makes them proactive, participative,
charismatic and supportive in all the jobs they carry out. Fauji foundation, the parent group of

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FFC is responsible for electing the top leader who is also the managing director or the COO. MD
of the company is highly credible and trustworthy with characteristics of honesty, enthusiasm
and competency. All of these characteristic develop a trust among employees such that we
believe in fairness, openness and high commitment to our company.

FFC uses both formal and informal channels to communicate inside or outside the organization
following a set of fixed rules and regulations. Written or verbal forms are used formally when
the communication is done inter department or inter division. However, informal written or
verbal communication methods are used when the communication is done within the same
department or section. Moreover, formal channels are used for communicating with the outside
of the organization for annual reports, vendors etc.

2.1 Globalization Effect

Previously, the FFC was not only meeting the domestic demand of urea but also exporting to
other countries the surplus production. However, currently the situation has changed and
government is importing urea due to cheap international prices to meet domestic demand. FFC is
not being able to meet domestic demand due to shortage if electricity and gas for optimal
utilization of resources therefore not being able to compete internationally.

Moreover, FFC has recently entered into a global strategic alliance the development of an
fertilizer complex offshore. They have joined with the Haldor Topsoe from Denmark and
Ferrostaal Industrial program from Germany and joined by the state claimed TPDC. This will
benefit FFC by giving international experience and exposure and promotion of agriculture in
Tanzania.

2.2 Organogram
The general manager heads the main division of the FFC namely: technology and engineering,
finance, marketing, human resource, internal audit, IT and business development. All general
managers directly report to the MD and all division except the marketing division are further
divided into functional departments and leaded by their respective skilled and specialized
managers. Moreover, each department is divided into section and these sections have their
managers responsible for everything under that particular section. The marketing department is

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divided province wise and headed by senior managers. Afterwards, there is a Department level-
headed by Manager followed by a Sectional level-headed by Deputy Manager.

The FFC administration department consists of the following sectors: Procurement, Corporate
Social Responsibility, Corporate Affairs, Corporate Services and Civil Works, all of which are
led by Senior Managers. These sections are then further divided into Departments which are
managed by Managers and Deputy Managers.

Business Development Group comprises of two essential divisions of FFC, and those are
FFCEL, also known as Wind Energy, and FFF (Fauji Fresh and Freeze). These two divisions are
headed by their corresponding Heads and Executive Vice President.

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Figure 1.0. Organogram

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3 AGRICULTURE SECTOR OF PAKISTAN
Pakistan has total 79.6 million hectares of land and out of the total land only 21.2 million
hectares of land is under cultivation. The rest of the land is rangelands and is still uncultivated.
Out of the 21.2 million hectares of land, 80 % area is irrigated. Although Pakistan has the worlds
largest contagious irrigation system but still 20 % is un-irrigated and we are unable to get any
product from this 20% area. As per the statistical analysis of Federal Bureau, 45 % of the
Pakistan labor is involved in in agriculture and the overall contribution of the agriculture sector
in the country’s GDP is 20%.

Agriculture sector of Pakistan is plying a critical role in order to ensure the food security and to
supply food for huge population of the country which is around 200+ million. Other than that,
agriculture is also one the major supplier of raw material for other industries especially the
cotton industry. Almost 80 % of the export earnings of Pakistan come from the agriculture sector
of Pakistan.

In Pakistan normally two major seasons of crops, 1st season is called Kharif season which
usually starts its sowing from June/July and harvesting of the crops is done in the month of
October and November. After this second season starts from November / December and
harvesting of the crop is done in the month of April and May. The major crops which are grown
in Pakistan are wheat, rice, sugarcane and cotton.

Punjab is the major contributor of production of agricultural products. If we compare the total
cropped area of Pakistan, Punjab almost covers the 69% area of Pakistan and has the major
contribution of the product yield and productivity. If we see the production of crops in Punjab it
comes as under

Cotton: 83%

Wheat: 80%

Aromatic Rice; 97%

Sugarcane; 63%

Maize; 51%

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The second major province for production of agricultural crops is Sindh and the major crops
which are produced in Sindh are tomatoes, chilies and banana and in these crops, Sindh has
higher share even if compared with Punjab. Other than that, major cash crops are also produced
in Sindh and play a significant role to uplift the economic conditions of Sindh’s farmers.

The slow growth of agriculture in recent years is particularly problematic. Annual agricultural
growth rate has averaged just 2.8 percent over the four years 2010-14, less than the average of
3.7 % per year during the previous decade of 2000-2010, and approx. 2 % lower than the period
between 1990 and 2000.

Pakistan is still lagging behind in terms of average yield per hectare in major crops. As per the
global survey Pakistan is under performing almost all of the agricultural crops because of less
farm mechanized techniques. In Annex – 10 comparison of average production of Pakistan crops
as compared to the regional production and global production is shown.

If we compare the different methods which are being used to enhance the production of the
agricultural crop’s fertilizer is still one of the most expensive mean to increase the yield. It has
been observed that only 40 to 50% areas of Pakistan is using balance fertilizer use for different
crops in Pakistan. Majority of the soil of Pakistan is deficient with one of the main nutrients
which are nitrogen. 80 to 90 percent of the Pakistan soil is deficit with phosphorus and the
potassium deficiency has been found in almost 30% of the cultivated land of Pakistan.

With better farm management, especially using quality seed, timely application of right
proportion of N, P and K fertilizers, quality crop protection products and governmental support,
there is ample room to improve on farm productivity and farmer’s profitability.

3.1 FERTILIZER USE IN PAKISTAN

Fertilizer products can be categorized according to micronutrients i.e. nitrogen, phosphate,
potash & complex fertilizers. In terms of final products, Urea and DAP are the most standardized
products traded worldwide. Nitrogen, Phosphate and Potash are complementary products rather
than substitutes.

In Pakistan, Urea and DAP are the most widely used products accounting for 68% & 17% of
total fertilizer consumption on average from 2000 to 2010. The choice of fertilizer to be used can

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depend on climatic conditions, soil fertility and the crops being grown. Apart from the above
mentioned factors, pricing, distribution flows and incentives from the government also play a
vital role in influencing the farmer’s demand for specific types of fertilizers.

In Pakistan, farmers often treat urea & DAP as substitutes even though they belong to different
classes of nutrients with additional urea being applied due to DAP being expensive. To promote
balanced fertilizer use farmer education is of primary importance. Pakistan is ranked 46th in the
world in terms of fertilizer consumption. Pakistan’s fertilizer consumption in relation to
cultivated is very low as compared to developed countries (Annex-11). It needs to be increased if
we have to enhance farm yields. There are various reasons for this low consumption which
include overall poor farm economics, high prices of fertilizers, low literacy rate and lack of
consistent policies from government. However, this situation presents growth opportunities for
the fertilizer sector also.

3.2 FERTILIZER INDUSTRY

Being as an agriculture-based country size of the fertilizer industry in Pakistan is significant. In
2013 it was estimated that the value generated through sales of fertilizer in Pakistan is 3.57
billion dollars with a 3.4 % contribution in the manufacturing industry of Pakistan. Geographical
map of fertilizer plants in Pakistan is attached as Annex -13.

Among the total consumption of the fertilizer in Pakistan, 80% of the fertilizer is produced
domestically which constitutes 100 % production demand of Urea and almost 54% production
demand of di Ammonium phosphate. Other than that our own production to fulfill the demand of
potash is 29%. Those fertilizers where we need micro nutrients are basically imported from
different countries.

Data showing the mostly used fertilizers DAP is shown in Annex -12.

For five major crops such as wheat, rice, maize, cotton and sugarcane the consumption of
fertilizer is almost 87%. Overall, the fertilizer industry of Pakistan has the total production
capacity of 7.5 million tons per annum.

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3.3 UREA MARKET
Urea is the cheapest fertilizer in terms of rupee per ton of nutrients and therefore is the preferred
fertilizer of Pakistani farmers. Demand for urea over the last 20 years has increased at 2.5%
annually. For urea sales growth since year 2000, please refer Annex-14. Demand for urea is
almost inelastic and price changes do not have a large impact on demand.

Natural gas is the major raw material which is used for both production as well as energy
requirements. It is the single biggest driver of the variable cost. Presently, the fertilizer industry
is the second largest consumer of gas behind the power sector utilizing around 18% of overall
gas supplies with consumption increasing at a CAGR of 2.43% over the last ten years.

However, uncertainty prevails over future on the availability of gas at cheaper rates on account
of depleting gas reserves in the country. The major issue with imported gas (Iran-Pakistan gas
pipeline, TAPI Project or LNG imports) remains of the cost feasibility as it is not viable to
produce fertilizer with imported gas at current urea market prices. The likelihood of additional
investment in the industry are low in the near to medium term due to increasing pressure on gas
supplies which has significantly affected urea production.

Urea producers market has an oligopoly market structure with power concentration in two main
players namely Engro and Fauji have combined share of more than 70%. Urea industry, in its
current state, is conducive for existing producers because of high barriers to entry for new
entrants. Barriers to entry include the capital intensive nature of manufacturing operations, low
bargaining power of buyers and suppliers, lack of available substitutes and practically non–
existent rivalry amongst existing producers.

Country has the capacity to fully meet domestic urea demand. In year 2016 and 2017, no urea
was imported to meet the local demand. Moreover, locally manufactured urea is generally
available at lower rates than the imported urea. However, gas curtailment led to decline in urea
production in recent past. Resultantly, urea had to be imported over the previous several years to
meet domestic demand.

Urea consumption is seasonal owing to the two crop seasons of Rabi and Kharif (Annex-15).
Punjab being the biggest province in agricultural production also consumes the biggest
proportion of urea; proving wise urea consumption is shown in Annex-16.

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Urea price is deregulated as per the Fertilizer Policy 2001. Price of urea in the domestic market is
influenced by demand & supply dynamics, GOP subsidies & level of imports. Nonetheless,
Government, in the past, has had to intervene in the market on occasions like it placed a cap on
rising urea prices thus asking manufacturers to absorb the burden of increasing input costs. This
shows that the fertilizer market is partially regulated in terms of controlling the price.

4 COMPETITORS

4.1 Engro Fertilizer:

Engro fertilizer is the pioneer in fertilizer industry in Pakistan and is a subsidiary of Engro
Corporation. Engro started his operation in Dharki by installing the plant with an average
production of 173,000 Metric tons. In 1978, ESSO has changed to Exxon and become the part of
the international group. After this the name of the company has changed to Exxon Chemical
Pakistan Limited. After some years in collaborative work, Exxon has sold their shares and
bought out by the employers. In collaboration of the local and the international financial
institutes employees of Exxon has bought 75% equity and renamed Exxon as Engro Chemical
Pakistan Limited. Engro has also diversified into different other business such as food, energy,
trading, industrial automation, chemical storage and petrochemicals.

The Company undertook its largest urea expansion project in 2007 which has augmented the
total urea annual capacity to 2.3 million tons. Urea is the primary fertilizer product which is sold
by the brand name “Engro Urea”. Besides it, Engro also sells Engro DAP, Engro NP, Zingro,
Engro Zarkhez, Engro MOP, Engro SOP, Engro SSP + Zinc, Engro Ammonium Sulphate,
Zabardast Urea, Zoron and Power Potash.

Urea production for the year 2017 was 1,807,000 MT. It hold the 2nd largest share of 30% in
local urea market and its sales are particularly strong in Sindh province.

4.2 Fatima Group:

Fatima Group is the most recent entrant in the fertilizer market. They have established one
fertilizer complex while acquired two older fertilizer plants. Details of three fertilizer plants
operating under the banner of Fatima group and their products are as below:

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Fatima Fertilizer started its operations in Pakistan from December 2003. The fertilizer plant of
Fatima is located in Sadiq Abad and Rahim Yar Khan and has quite a diverse range of products
named as Ammonia, Urea, Calcium nitrate, nitro phosphate and phosphorus potassium.
Production capacity of Urea in 2017 was 474,000 metric tons.

In November 1973 another big name in fertilizer sector has started its operation which was
PakArab Fertilizer. Privatization of PakArab fertilizer was done in July 2005 with sold cost of
Rs. 14.125 billion. It was acquired by Arif Habib group and the Fatima group. Location of
Pakarab plant is Multan and the only fertilizer company in Pakistan which produced compound
fertilizer, CAN and nitro phosphate. In 2017 production capacity of Urea of Pakrab fertilizer was
42,000 metric tons.

Fatimafert Limited is the wholly owned subsidiary of Fatima Fertilizer Company Limited.
Fatimafert Limited was incorporated on August 2, 2010. Fatimafert Limited is also importer of
DAP. The manufacturing facility located at Sheikhupura. Urea production for year 2017 was
112,000 MT.

Fatima group is selling urea under two brand names. Urea produced at Pakarb and Fatima
Fertilizer is sold as “Sarsabz Urea”. While, Fatimafert is selling urea under the brand name of
“Bubber Sher”. Together they held around 12% urea market share in 2017.

4.3 National Fertilizer Marketing Limited:

NFML (National Fertilizer Marketing Limited) is solely owned by National Fertilizer
Corporation and started its operation in 1976 as a public listed company.

After the privatization of NFC fertilizer Government has asked the NFML to trade urea through
Training Corporation of Pakistan. Other than that, NFML has developed intermediate
warehouses at different locations such as Eminabad, Jhang, Lodhran, Risalpur and Shahdadpur
with a total storage capacity of 115,000 Metric tons.

In Pakistan NFML is operating with more than 2200 distributors network and some areas are
also served through satellite warehouses.

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5 COLLABORATORS

5.1 Mari Petroleum Company Limited:

Mari Gas Field was joint venture between Govt. of Pakistan and ESSO eastern incorporation
with share of 49% and 51% respectively. In 1983, scenario has change and the ESSO has sold
out all of their shares to Fauji Foundation of Pakistan. In 1984, shares were divided in three
major partners named as FF (Fauji Foundation), Govt. of Pakistan and OGDCL with
shareholding as 40, 40 & 20% respectively.

In November 2012 the name of the company was changed as MPCL (Mari Petroleum Company
Limited) to show it diversifies business operations and activities. Mari Gas Petroleum is the
second largest gas producer in Pakistan

Mari is the sole supplier of natural gas for all of the FFC’s fertilizer plants. Gas is sold to FFC
through a Gas Supply Agreement. However, natural gas price is set by GoP. Mari also supplies
gas for power generation and domestic consumers.

Mari gas reserves however are rapidly declining. Out of original 7 trillion cubic feet gas reserves,
only 2 tcf are left. Moreover, in order to reap the benefits of Petroleum Policy 2012, Mari has
enhanced its gas production and selling that additional gas to other customers (Annex – 8). In
2005 FFC share of Mari gas reserves was 52 % which has declined to 40 % of the overall
production for the same reason. (Annex-7).

6 CUSTOMERS – LOCAL FARMERS

Pakistani farmer is in recent past severely hit by poor arm economics throughout the country. For
multitude of reasons including excessive fragmentation of farms beyond economically viable
farm size, inadequate agriculture policy and support by government, thin farm land market,
declining soil nutrition levels and declining water resources, farmers do not have enough
resources to invest in advanced farming techniques and technology to improve farm yields and
thus their profitability.

Moreover, farmers still lacks proper awareness of latest agricultural practices technology.
General fertilizer awareness though has increased but still farmers do not understand which of
the so many fertilizer to use for which crop and when.

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Except the big landowners (landholding > 50 acres), who hold around 20% of the farm land in
Pakistan, rest farm land is divided into smaller farms and in the hands of small, poor farmer.

Thus for vast majority of the farmers, decision making process for fertilizer selection is
fundamentally price driven. Urea being the cheapest fertilizer in terms of Rupees per ton of
nutrients is the most used fertilizer in country.

Those farmers who have used one brand of urea fertilizer for many years become relatively loyal
brand customer. Historically, Engro is strong in Sindh, while FFC enjoys biggest share of market
in Punjab.

7 Financial Overview
The Govt. started the gas curtailment in 2012 among the different sectors to conserve the natural
gas reservoirs, which were depleting drastically. The overall curtailment had also impacted the
fertilizer industry. This has not only reduce the plant utilization of fertilizer industry but also
caused the undersupply of fertilizer to the market. Accordingly, the Govt. started to import the
fertilizer to meet the market demand. This import policy had caused a huge loss of foreign
exchange reserves. Along with the gas curtailment, the Govt started to increase the gas tariffs for
the Fertilizer Industry. The unfavorable Govt polices such as imposition of levies, increase in gas
tariffs, obligation of Gas Infrastructure Development Cess and reduction in urea selling price had
reduced the Operating Performance and Efficiency of the fertilizer industry. In 2016, the
agriculture sector of Pakistan has recorded a negative growth of 0.20% which is the lowest for
the past fifteen year due to overall international oversupply of fertilizer. Moreover, the inventory
level has also increased to its highest level up to 2.25 million tons due to poor farm economics.
Accordingly, the Govt. announced subsidy on urea fertilizer to cope up with this situation.

7.1 Balance Sheet

The size of FFC’s Balance Sheet has been increased from Rs. 86.56 billion to Rs. 90.71 billion
from 2014 to 2016. However, there is a decrease in the Balance sheet for Rs. 80.13 Billion in
2015. There is a growth of 9.9% in Shareholder’s Equity from 2014 to stay at Rs. 28.21 Billion
in 2016. The sales of FFC have reduced from Rs. 81.24 Billion to Rs. 72.88 Billion from during
2014 – 2106 due to poor farm economics and unfavorable Govt. polices for fertilizer sector.
Accordingly, Net profit before taxation has been reduced by 26.91% from 2014 to stay at Rs.

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19.80 Billion in 2016. Moreover, Net profit after taxation has also been reduced by 33.71% from
2014 to stay at Rs. 17.39 Billion in 2016.

7.1.1 Assets
FFC has non-current assets of Rs. 53.4 Billion in 2016 as compared to Rs. 50.78 Billion in 2014
that shows an increase of 5.4%. Moreover, Long term investments decreased from Rs. 24.66
Billion to Rs. 24.58 Billion during 2014-2016 showing a reduction by 0.3%. However,
investment in Subsidiaries increased from Rs. 3.5 Billion to Rs. 5.1 Billion from 2014 to 2016
that records an increase of 46.1%. Plant, Property and Equipment also showed a growth of 5.7%
from 2014 to stay at Rs. 21.23 Billion in 2016.

FFC has also current assets of Rs. 35.88 Billion in 2016 as compared to Rs. 37.29 Billion in 2014
that shows an increase of 3.91%. The inventory levels of the company increased substantially
from Rs. 0.98 Billion to Rs.4.23 billion from 2014 to 2016 that showed an increase of 331.6%. In
the same manner, Trade debts and other receivables also have an increasing trend from 2014 i.e.
increased by 423.6% and 781.1% respectively to stay at Rs. 4.31 Billion and Rs. 6.23 Billion
respectively in 2016. Poor farm economics have increased the inventory levels and extended the
credit policy to the framers for the sale on credit. There is also an increase in Cash and bank
balances of FFC by 115.2% from 2014 to achieve at Rs. 2.5 Billion in 2016.

7.1.2 Liabilities and Shareholder’s Equity

FFC’s equity increased from Rs. 25.67 Billion in 2014 to Rs. 28.21 Billion in 2016. The Share
capital, unappropriated profit and reserves stayed the major contributors to Equity with portion
of 14%, 8% and 7% respectively during 2014 to 2016. FFC’s capital reserves remained
unchanged at Rs. 120 Million during 2014 to 2016

FFC’s current liabilities reduced to 32.32 Billion in 2015 as compared to Rs. 53.82 Billion in
2014. However, it increased to Rs. 41 Billion in 2016. Trade and Other payables reduced from
35.95 Billion in 2014 to Rs. 6.6 Billion but it increased to 10.44 Billion in 2016. Short Term
borrowings has substantially increased by 91% from 2014 to reach at Rs. 22.2 Billion in 2016

Whereas, FFC’s non-Current Liabilities increased from Rs. 7.1 Billion to Rs. 21.46 Billion from
2014 to 2016 that shows an increase trend by 203.4%. This increasing trend is due to an increase
of long term borrowings from Rs. 2.5 Billion in 2014 to Rs. 16.65 Billion in 2016.
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7.2 Income
Sales of FFC have a mixed trend during 2014 to 2016. The sales have increased from Rs. 81.2
Billion in 2014 to Rs.84.8 Billion in 2015 but it decreased to Rs. 72.88 Billion in 2016.
Accordingly, there is negative growth of sales by 10.3% from 2014 sales figure. Cost of sales has
an increasing trend by 9.35% from 2014 to reach at Rs. 54.83 Billion in 2016. Decrease in
overall sales and Increase in cost of sales have reduced the Gross Profit margin from Rs. 31.1
Billion in 2014 to Rs. 18.05 Billion in 2016. Profit after taxation stayed at Rs. 11.78 Billion in
2016 with a negative growth of 35.2% from 2014.

7.3 Key Performance Indicators

The KPIs of the company shows a negative growth in terms of earnings, profitability and
efficiency during 2014 to 2016. FFC’s net profit margin decreased from 22.37% to 16.17%.
Efficiency in terms of Utilization of total asset has also reduced from 1.05 to 0.85. Inventory and
Receivable turnover has also reduced from 12.78 to 6.78 and 106.68 to 23.97 respectively.
Return in terms of ROA and ROE both have a decreasing trend from 23.54% to 13.79% and
71.51% to 42.44% respectively.

Liquidity of the company has a positive outlook in terms of current ratio and quick ratio during
2014 to 2016. The current ratio has increased from 0.67 to 0.91 due to increase in inventory
levels, receivables and cash balances. Similarly, the quick ratio has increased from 0.59 to 0.72.

The financial leverage has a mixed trend in terms of debt to equity ratio during 2014 to 2016.
The leverage of FFC decreased from 2.37 in 2014 to 1.93 in 2015 but it increased to 2.22 in
2016. On the other hand, Interest coverage of FFC has a decreasing trend from 31.91 to 8.23
times of EBIT

Dividend yield of FFC along with Market-Book ratio has a decreasing trend during 2014 to
2016. Dividend yield reduced from 11.7% to 7.6%. Similarly, Market to Book ratio has also
reduced from 5.80 to 4.71. However, Price-Earnings ratio has an increasing trend from 8.20 to
11.27.

Besides unfavorable Govt. Polices, poor farm economics, increase in cost of sales and undue
Govt. pressure on the selling price, FFC has a stable financial position in the overall sector of
Chemical, Chemical Products and Pharmaceuticals. The company’s ratios such as Margins,

Page 17
utilization, returns and EPS are at above par from the Industry Benchmark. The trends of FFC’s
ratio w.r.t Industry Benchmark during 2014 to 2015 are as follow:

Net Profit Margin Total Asset Utilization

Industry FFC Industry FFC
22%
1.05 1.02
20%
15% 0.85 0.78

8%

2014 2015 2014 2015

Return on Total Assets Return on Equity

Industry FFC Industry FFC
24% 72%
20% 63%

12%
28%
7% 18%

2014 2015 2014 2015

Earnings per Share Financial Leverage

Industry FFC Industry FFC
14.3 2.63
13.2 2.43
2.37
9.4 1.93

4.9

2014 2015 2014 2015

7.4 Financial Ratio Analysis

Fatima Engro FFC

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 2015 2016 2017 2015 2016 2107 2015 2016 2017
Liquidity Ratios:
Current Ratio 0.66 1.03 1.1 0.9 1.2 1 0.84 0.91 0.95
Leverage Ratios:
 42:5
Debt to Equity Ratio 33:67 32:68 23.77  37:63 8  35:65 37:63 37:63 35:65
Interest Coverage 5.85 5.24 6.79 5.6 5.3 7.3 17.61 8.23 7.37
Financial Leverage 0.75 0.63 0.34  2.51 2.47 2.63 1.41 1.6 1.16
Activity Ratios:
Fixed Assets Turnover 0.41 0.43 0.48 1.2 1 1.1 3.97 3.43 4.07
Total Assets Turnover 0.34 0.33 0.36 0.8 0.7 0.7 1.06 0.8 0.84
Inventory Turnover 2.73 2.38 3.44 13.7 7.5 7.5 20 12 35
Profitability Ratios:
Gross Profit Margin 56.3 53.27 54.07 36.7 25.1 30.1 34.05 24.77 19.95
Operating Profit
Margin 46.08 42.55 39.71 34.6 31.4 31.5 32.97 30.07 22.47
Net Profit Margin 30.61 28.97 28.12 16.8 13.4 14.5 19.76 16.17 11.81
Return on Stockholder's
Equity 23 20.65 19.68 38.6 22.1 26.5 61.39 41.76 36.49
Earnings Per Share 4.41 4.66 5.04 11.1 7 8.4 13.18 9.26 8.42
Dividends Per Share 0 3.25 2.25  6 7.58 8  11.86 7.90 7
Dividend Payout 0 69.77 44.68  48.6 79.6 95.5  90 85 83

7.4.1 Liquidity Ratios

 Current Ratio:

The current Ratio of Fauji Fertilizer is less than Fatima Fertilizer and Engro Fertilizer. Looking
into the trend for the three years, though Fauji has an increasing trend in current ratio but still the
lowest current ratio is for Fauji Fertilizer. This means that current assets are not properly
fulfilling current liabilities. The value of the ratios below 1 also indicates that the company has a
negative net working capital for the year 2017.

7.4.2 Leverage Ratios

 Debt to Equity Ratio:

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The ratio of all the above companies indicate that the firms leverage position is low because the
firms are financed by the creditors with a lower ratio as compared to the equity holders and
owners of the firm. The overall equity position of all the companies is better but when compared
with each other; Fatima Fertilizer has a better Equity position than Fauji Fertilizer.

 Interest Coverage Ratio:

The overall trend for Fauji Fertilizer regarding the interest coverage ratio is decreasing and for
Fatima Fertilizer and Engro Fertilizer it is increasing. But still the trend of FFC is much better
than the other two companies i.e. Fatima and Engro Fertilizer. This depicts that Fauji Fertilizer
has enough cash to pay the interest payments on the outstanding debt.

 Financial Leverage Ratio:

The overall trend of financial leverage ratio is decreasing but Fauji Fertilizer has a better ratio
than the other companies. The trend for FFC is above 1 throughout which shows that FFC that
the company has enough capital to meet its financial obligations. The overall debt and equity
position of FFC is much better than the other companies.

7.4.3 Activity Ratios

 Fixed Asset Turnover:

The fixed assets utilization of Fauji Fertilizer is much better than other two companies i.e.
Fatima Fertilizer and Engro Fertilizer by looking at the trend for the three years; that is from
2015-2017. The values for Fatima and Engro Fertilizer are near to 1 whereas for Fauji, it ranges
from 3.97-4.07. The fixed asset turnover ratio for Fauji Fertilizer shows that the company is
effectively utilizing its fixed assets and as a result it sales are being generated that are 3-4 times
of fixed assets.

 Total Asset Turnover:

The total asset turnover of Fauji Fertilizer is better than other two companies i.e. Fatima
Fertilizer and Engro Fertilizer. Fauji stands first in number then Engro and lastly Fatima
Fertilizer. Looking at the three years for Fauji Fertilizer we see that sales number are good due to
effective utilization of assets and the turnover ranges from 1.06 to 0.84 times a year for the year
2015 and 2017.

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  Inventory Turnover:

Inventory Turnover ratio depicts that whether sales of the company are effective and what is the
ratio of sales to the inventory in hand. The trend for the three companies i.e. Fauji fertilizer,
Fatima Fertilizer and Engro Fertilizer shows that there was an overall decline in industry ratio for
the year 2016 as compared to 2015 but in 2017 the ratio is then again increased overall. This
shows that the companies have enough inventories for the smooth flow of sales. Lastly, as the
inventory turnover trend of Fauji Fertilizer is more than the other two companies, it means that
the company is generating more sales than the other two from the inventory.

7.4.4 Profitability Ratios

 Gross Profit Margin

Comparing gross profit margin ratio we see that Fauji Fertilizer has the least gross profit margin
i.e. 19.95% for the year of 2017 whereas Fatima Fertilizer and Engro Fertilizer have 54.07% and
31.1% respectively. This means that Fauji Fertilizer has low gross profit margin as compared to
average industry gross profit margin. The trend shows that for the past three years Fauji Fertilizer
gross profit margin is dropping compared with other two companies.

 Operating Profit Margin

Fauji Fertilizer has lower operating profit margin relative to Fatima Fertilizer and Engro
Fertilizer. Fauji Fertilizer generated 22.4% OPM whereas Fatima and Engro generated 39.71%
and 31.5% respectively in the year of 2017. These values show that Fauji has OPM above
average i.e. 20% and it is managing its sales and expenses efficiently but still is lacking behind
other companies.

 Net Profit Margin

Looking at the trend for the time period 2015 to 2017 from above table it shows that net profit
margin is decreasing for overall industry whereas FFC has the lowest NPM for the time period. It
depicts that Fauji Fertilizer’s net profit margin has dropped down from 20% to 11% for the three
years mentioned.

 Return on Stockholder’s Equity

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The trend for the three companies shows the overall decline in the ratio from the previous years
but still the ratio for Fauji Fertilizer is much better than the Engro and Fatima Fertilizer. Engro
stands second in number whereas Fatima on the third. The ratio shows that Fauji fertilizer has the
greatest capability to generate profits from the stockholder’s equity. So, FFC ha the best position
in terms of this ratio.

 Earnings per Share

Earnings per ratio trend is increasing for Fatima and Engro Fertilizer and decreasing for Fauji
Fertilizer. But still the earnings of Fauji Fertilizer (FFC) are better than the other two companies.
If the same trend continues for the next coming years, FFC would end up falling below the other
two companies. The trend recently shows that the earnings of FFC are better.

 Dividends per Share

The dividend per share trend of Fauji Fertilizer is better than the other two companies. This is
because of the fact that Fauji Fertilizer declares better dividends to its shareholders. The
justification behind the company paying high dividends is that Fauji Fertilizer is a mature
company and does not account for any growth whereas the other two companies i.e. Fatima and
Engro Fertilizer are at the growth stage. This is the reason they do not pay much dividends to
shareholders as compared to Fauji Fertilizer.

 Dividend Payout

Similarly, the trend of dividend payout ratio for Fauji Fertilizer is better than the other two
companies. The same justification applies to the Payout ratio that Fauji Fertilizer is a mature
company so it has a better payout to the shareholders while when considering the other two
companies, they are at their growth stage so the payout trend for these companies is less. Since
the overall trend of Profits for fertilizer industry is decreasing, the overall dividend payout is also
decreasing while FFC has the highest dividend payout.

7.5 Remarks:
The trend of all the three companies has resulted in multiple opinions. First, the current ratio of
Fauji is less than the other two companies. Since, the ratio is low so the other two have greater

Page 22
efficiency of current assets to current liabilities performance. But FFC is still doing good based
on the ratios mentioned.

Moving on to the leverage ratios, the leverage position of FFC is better than the other two
companies as shown in the trend. This means that the company meets its financial obligations
better or the way it manages its debt obligations is better than the other two companies.

The activity ratios are again better for FFC as compared to the other two companies. Since, the
trend goes down overall but still FFC is turning inventory and assets to generate sales for FFC in
an overall greater ratio.

In contrast, the Profitability margins of Fatima Fertilizer stand first in number then Engro
Fertilizer and lastly Fauji Fertilizer. But the earning per share for Fauji is the best among the
three competitors.

Thus, overall the position and operations of Fauji Fertilizer is better than the other two
companies but the other two companies i.e. Fatima and Engro Fertilizer are somehow generating
more profits than FFC. FFC should look into the reasons for this shortage. Lastly, the margins
and profits of overall fertilizer industry are decreasing so they should take special measures such
as reducing operating cost or other non-operating expenses to overcome this shortage. This will
enable the overall position to get better for the industry.

8 PORTER’S FIVE FORCES MODEL

8.1 Supplier Power

In Fertilizer Industry, the bargaining powers of suppliers, which are gas suppliers, are quite
higher as most of the big suppliers are Govt. owned or foreign companies. Their concentration is
low as most of the suppliers work as independently. The switching cost among different
suppliers is very high as negotiations on gas supplies are tough to make. Forward integration is
not possible as both industries have separate agenda to work on.

8.2 Buyers Power

In Fertilizer industry, the main buyers are the famers who are uneducated and have no bargaining
powers. They are big in numbers and purchase large quantities of the product. Farmers have no
proper association available to protect their rights. Everything is managed by the Govt. The

Page 23
switching cost among different powers is very low as the prices are almost fixed. Imported
Fertilizer and Bio Fertilizer are the two substitutes which are available to the buyers.

8.3 Potential Entrants

This is a huge barrier for the new entrants to enter in this industry owing to high capital
requirements, govt. polices & regulations and monopoly & brand equity of existing players.
Extensive capital is required to run the fertilizer business. The main raw material is the National
Gas, whose price and quantity is being fixed by the Govt. regulatory bodies. The Govt. doesn’t
allow new entrants in this industry due to gas shortages and curtailments. Moreover, Ecological
Survey also acts a barrier for the new entrants to begin the manufacturing.

8.4 Substitutes
There are two main substitutes available in the market, imported fertilizers and Bio-Fertilizers.
Imported Fertilizers are the same as of the Industry’s Fertilizer. They are available at the same
price but with Govt. subsidy. However, Bio-Fertilizers are comparatively better than the
industry’s fertilizer as it has less environmental impact, cheap, and increase the crop yield. But
the overall production of Bio-fertilizers is very low. So, the industry’s product does not have any
threat from the Substitutes.

8.5 Rivalry
The fertilizer industry is at the maturity stage due to the low growth potential. Moreover, the
competition among the rivals is very low owing to the high fixed cost. Similarly, the prices of the
products are fixed during the season which has ultimately no impact on the existing competition.
The main competition among the rivals is on the product quality.

Page 24
9 BCG Matrix:

Askari Bank Limited represents the QUESTION MARKS in the BCG matrix. Overall market
share of AKBL is at minimum w.r.t its competitors but the Bank is growing substantially as
compared to its performance in the previous years. With this growing trend, there is a potential in
the bank to become a market leader and moves into the STAR. But if it does not succeed to

Page 25
become a market leader in future then it will fall into the DOG due to slowed market growth.
Based on Revenues (TTM) of main competitor banks, the market share is as follows:

National Bank of Pakistan 27% Bank Alfalah Limited 11%

Bank Al Habib Limited 11% Bank of Punjab 8%

Askari Bank Limited 8% Habib Metropolitan Bank Ltd. 8%

Fauji Fertilizer Company Energy Limited represents the STARS because it has a relative
strong presence in the renewable energy sector as being the pioneer in the wind energy sector of
Pakistan. The Company has also substantial potential growth rate due to current energy crisis and
high demand of alternate renewable energy resources in Pakistan.

FFCEL 50MW Foundation Wind Energy Pvt. Ltd 50MW

Jhimpir Wind Power Plant 50MW Sapphire Wind Power Plant 52.8MW

Three Gorges First Wind Farm 50 MW Metro Power Company Limited 50 MW

FFC Urea and DAP Fertilizer represent CASH COWS as FFC is a market leader in Fertilizer
Sector of Pakistan. FFC has high returns on assets but the overall industry has now matured i.e.,
slowed growth rate. Now FFC is reducing administrative costs of the company and investing in
such businesses that can turn question marks such as AKBL and FFCEL into the market leaders.
Moreover, FFC is funding its R&D to diversify their businesses and introduce new question
marks such as Thar Coal Mining and Offshore Fertilizer Complex.

FFC Urea 52% ENGRO Urea 30% Fatima Urea 12%

Fauji Fresh n Freeze Limited represents the DOGS because it has a relative weak market share
in frozen fruits and vegetables and slowed growth rate. Till now, the investment in this business
is trapped because of little growth in the current market. But with the help of strategic planning,
this business has the potential to become a question mark or even star in the future.

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10 EXTERNAL ENVIRONMENT ANALYSIS

10.1 Political trends:

Political trends have always been in favor of this industry. The Government has provided
following incentives under Fertilizer Policy, 2001, to encourage fertilizer production in the
country:

 The government is giving subsidy to local production and import of the fertilizer to be able to
fulfill local demand at affordable by masses prices.
 Investors will be able to relocate second hand/used plants, machinery and equipment with the
same regulations, concession of a new plant.
 For the production of urea, the government is providing discounted feed gas stock to the
plants.
 the import of phosphorus and rock phosphate is being done entirely free of customs duty.
 Government has offered tax relaxation.
 Exporters are being given benefit for supplies of capital goods for new projects.
 New projects will have the same gas price for the next 10 years as it has been fixed for their
relaxation and convenience.
 With Baghliar dam construction completed in India and constant process of filling reservoir,
Chenab has been left dried out in the season of Rabi, leaving behind 44million acres of fertile
land barren. As a result, those areas which relied on the irrigation of their land through the
Chenab River will not have any crops this year resulting in no demand of fertilizers in those
areas.

10.2 Economic trends:

Currently, the Pakistan’s economic is going with a rough patch as compared to the performance
of last four years. In the last four years, some economic reforms to revive the economy along
with ongoing CPEC contributed to the overall economy. During the last four years, Pakistan’s
economy hit the ever highest GDP of 5.28% as compared to the performance of past ten years.

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Agriculture Sector is one of the main sectors that contribute around 19.5% to GDP. Without the
Fertilizer Industry, this sector would be able to contribute that much to the economy.
Accordingly, Govt. tries to support this industry by:

 Supporting the manufacturers of fertilizers in importing Rock Phosphate with free custom
duty.
 Supporting the local manufacturers to export capital goods for modernization projects to
enhance their production capacity.

10.2.1 Interest Rates

On the course of economic decline globally, economies are in deep depression and its effect is
apparent on the Pakistani economy. For the past one and a half year, Pakistan’s economy has
adversely effected by inflation through high oil prices and rupee devaluation. With overall
inflation of 4.15% and core inflation being 8.5%, State Bank of Pakistan has taken drastic
measures to control skyscraper rise in inflation through compressing monetary policy which has
significant impact on discount rate by 6.5% concluding increase of business cost in Pakistan.
Concerning such incline in cost, business activities of FFC will be affected and their cost will
increase due to the increase in the interest expense.

10.2.2 Credit Availability

With high interest rates, it is becoming difficult for companies and also FFC to take further loans
at such a higher cost of borrowing. Furthermore, banks in Pakistan are also facing extreme
challenges in maintaining their key capital ratios due to which they have very limited credit
available to them. On the other hand if FFC goes for equity financing, which seems severe in
current situation as the buyers of their shares will face liquidity issues. With the course of few
days, the floor has been removed causing KSE to drop about 1400 points in only days.

10.2.3 Inflation

Pakistan has been facing ongoing inflation rates over the past few years. It increases the overall
price of goods which includes raw material, fuel, commodity goods etc. Considerably, when
FFC’s raw material price would inflate the corresponding product price will also increase due to

Page 28
which they might face a reduction in their sales because the purchasing power of the customer
will decrease.

10.2.4 Foreign Exchange:

 The new government’s rule is bringing several changes to the country, such as in the case of
foreign exchange. Ever since the new government has been elected, Pakistan’s foreign exchange
reserves have dropped drastically, $ 14 billion. The moment the foreign exchange reserves
dropped SBP increased the LC margin requirements up to 100 percent. This increase has caused
a liquidity problem for the importers. This problem is seen as crucial because of the involvement
of the fertilizer industry which has the component of phosphorous, a raw material which is
important for import for DAP production. Moreover, depreciation in the Rupee currency has
caused the cost of imports to increase by 40 percent, another major problem in the face of foreign
exchange. One positive outcome of the depreciation is that fertilizer has become cheaper, mainly
for international buyers. This allows space for more export to take place in the fertilizer industry,
increasing the country’s foreign exchange reserves.

10.2.5 Fuel Prices:

 Fuel, a natural resource, is the most important component in the fertilizer industry. Most of the
industries are using natural gas as their relying source, but FFC has its own gas fields, thus it
does not have to depend on Southern Gas Company, which is already facing a shortfall, a major
factor for load shedding occurring in the gas department. Another reason that has caused an
increase in the cost of production for FFC is the cancellation of special gas feed support on its
expansion plant. Transportation cost also poses as a problem for FFC’s products. Although FFC
works all across the country, its main working hub of production is in the center of Pakistan.
Hence, when FFC works across Pakistan, its transportation cost increases. This is especially
while distributing in the Northern Region.

10.2.6 GDP Growth Rate:

According to the targeted growth rate of GDP, the growth remained above 4% during the past
four years. This means that the economic growth rate and development would be very limited for
in Pakistan. Therefore, FFC has chances of experiencing reduced sales and profits because of

Page 29
decrease in the economy of Pakistan. Moreover, it could experience a drop in the export orders
mainly because of international financial crisis.

10.2.7 Deregulated Industry:

Fertilizer industry of Pakistan is liberalized; therefore companies have the independence to set
their own prices. However, in accordance to grow the agriculture department, Pakistan’s
government intervenes in the industry. This interception ensures that prices of urea are kept at a
low level which would encourage the government of Pakistan to provide the farmers with
maximum production of agricultural products.

10.3  Social Trends: 

The urea waste in the fertilizer industry is not treated appropriately which leads to different
diseases such as kidney diseases, hepatitis and asthma. This however does not mean that
fertilizers are to be stopped from usage as it provides farmers with a lot of benefits, for example
their time is saved. Bio-fertilizer is hardly used anymore ever since artificial fertilizers were
introduced, thus these fertilizers prove to be beneficiary for farmers.

10.3.1  Uneducated Farmers:

Fertilizers need to be used tactfully, as they are a scientific product. Pakistani farmers, however,
do not know the scientific method of using these products. They are not aware of the proper
procedure that needs to be followed to gain the maximum benefit and use of the fertilizers. The
entire land needs to be leveled, and only afterwards should the fertilizer be spread on the field.
This allows an even spread. The leveling tool is provided free of cost to the farmers but they do
not use it because they are unaware of the advantages that these tools and treatment provide.
What else the farmers ignore in their lack of awareness is the analysis of the land for every
suitable land. This again is to gain maximum productivity. In order to resolve these issues FFC is
carrying out free of cost mobile workshops. Through these exercises they aim to educate the
farmers for appropriate procedure of farming as they consider it to be part of their social
responsibility.

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10.4 Technological trend:

 Through original production, to meet demand target of the fertilizer in the country, self-
dependence on design engineering anf new project execution of fertilizer is highly
imperative. In order to be done effectively and efficiently, it requires a proper development
of process, strong technological base under planning, expert project management and
structured execution of the project.
 The plant operators have managed to fully incorporate latest technology that is using
environment friendly processes and are in the position to maintain the plant at the optimal
level keeping in consideration the international standards in terms of energy consumption,
capacity utilization and pollution levels.
 The industry is also trying to enhance their production capacity, reduce per unit level of
energy consumption, and carrying out de-bottlenecking for smooth flow of production. They
are also planning to convert their energy generation to LNG.
 Moreover, they will experience largest usage of SAP in the country that will assist in
improving business processes by eliminating duplication of tasks and reducing time lags to
increase efficiency.

10.5 Legal trends:

These legal trends are being practiced:

 Strengthening of the Fertilizer Review Committee.

 Rationalization of the quotas to the private marketing organization.
 Setting up of the transport sub-agencies.
 To ensure accuracy, weight baggers are being replaced with volumetric machines
 Drafting and enactment of fertilizer legislation to provide a legal framework within which
marketing agencies and dealers should operate in a privatized system.
 Pursuing low-cost storage options in high consumption areas and purchasing off- season at
discount.
 Postponing widespread custom blending until in-land bulk handling is practiced.

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10.6 Environmental Trends:

 When chemical fertilizers are added to salt, gets converted into different form called iconic
form after being dissolved in the soil solution. Pesticides are more dangerous and exhibit
poisonous and toxic properties on living systems. All the quantities used are not fully utilized
by the plants.
 50% of the used fertilizers is left behind as residue. Inorganic fertilizers are responsible for
upsetting the existing ecological balance if it doesn’t directly intoxicate man and other life
forms. The nutrients are found in water, rivers, and lakes as they escape from the fields.
 When used in excess thy can become a dangerous source of pollution. Only the potassium
fertilizers are not considered to be polluting the environment. Nitrogen and phosphorous on
the other hand if used unreasonably cause environmental pollution and mainly through
increasing the level of nitrate in agricultural products.
 There is a gaseous loss of nitrogen into the atmosphere when there is an excessive use of
nitrogen fertilizers. The release of gases is harmful to human health especially high doses of
ammonia and carbon dioxide. Moreover, the oxides of nitrogen are reported to harm the
ozone layer.
 The gaseous release of nitrogen can cause respiratory related diseases that can cause
bronchitis, lung cancer, and asthma.
 Another major issue is of cadmium accumulation. These can cause damage to the kidneys,
bone deformities and problems with the cardiovascular system.

11 Internal Analysis

11.1 Management

FFC management’s main concern at this point is the effective management of the resources
in the present strategy. This includes the top management of strategic planning. Because of
the complexities present in strategic management, it is crucial to make sure the decisions and
conclusions are based on by keeping the difficult issues in mind. This is the main reason for
top level management to be involved in strategic planning. It also helps in situating future
long term goals. For this sole purpose of making decisions, the MD of the company is
involved. For other planning decisions, annual or quarterly meetings are held; in these

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 meetings MD of the company, CFO and the functional heads are involved. In order to reach
at decisions, top to bottom approach is used. For this approach, the major part of decision
making and setting goals is handled by the top level management and the middle
management while for achieving those set goals and for task setting is managed by the lower
management. The maximum amount of time given for setting goals is five years, in which
FFC makes annual budgets and financial plans. The company is seen as a united front by
FFC and its each department sufficiently contributes to its strategic planning

 Structural Design & Levels

FFC has three different management levels at which it currently operate. The first one is the Top
management level, and then comes the Middle and lastly the junior level of management. The
Chief Executive Officer (CEO) is above the top management Level which is also known as the
“Gatekeeper” of the company. The CEO of the company also handles the Board of Directors as
an Executive Director. The CEO operates the company and acts as Disturbance handler within
company, Spokes Person, the figure head and lastly the party entrepreneur within company.

 Top Management

All the senior positions of the company fall in the category of top management. These include
the departmental managers of the company, the senior managers and lastly the General
Managers. They oversee the workings within their divisions and direct their juniors to work on
the key tasks assigned to them. The top management works within the company as Monitoring of
activities, allocating the resources and lastly working as a Liaison.

 Middle Management

The middle management tries its best to keep the junior employees motivated; they lead and train
the other members of the team for performing their operations and the daily tasks assigned to
them. They also work to keep the smooth flow of operations to be performed within the
company. They work within the company as the Negotiator, the disseminator and also Leader of
the company.

 Junior Management

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The junior management includes basically the members of the team who perform the actual tasks
that need to be performed. They carry out the routine tasks, the routine operations and any new
activities that need to be performed within the company. The junior management includes the
junior level executives within the company, the assistant executives as well as the Deputy
executives in the company. The deputy executive acts as a team leader within FFC if the team is
big and if there are issues handling the team therefore a hierarchy is developed for them. Three
Cadres of management staff exist in between the management level and the junior staff level.
They are the officers, the senior officers and the junior officers. These senior officers are
basically promoted to the senior management level from the staff level. They are the one who
motivate staff level employees of the company. They are also held responsible for training and
leading them.

11.2 Human resource

Owing to the importance of human resource, FFC prioritizes the personnel management. From
the very start, The Human Resources Department has played a crucial role in leading the
company through all its operations, progresses and phases. The human resource development and
personnel management are operating in parallel tracks and its productive approach and dynamic
viewpoint prove to be the main reason for the Personnel Management to be up to date with the
latest method of management. This allows a successful level of motivation and satisfaction of the
team under different scenarios. The policies of the Personnel Management are kept up to date
and are improved from time to time so they could sync with the latest socio-economic changes
and the trends that are taking place in the market at the time.

11.2.1 HR Policies

FFC has very distinguished and well-established policies for HR that work towards the
appraisals and promotions to keep the employees motivated, the compensation and benefits
packages provided by the company are unique. It also includes the policies for the learning and
development of the employees to foster a continuous and detailed sense of tasks within the
employees. There are policies for the Recruitment and separation of the employees, Relocation
policies, and then there are Administrative policies, Long service Award policies and the Anti-
Sexual Harassment policies within the company. HR has also some policies regarding the Child

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Labor, Discrimination among the employees and the seniors or subordinates, the sexual
harassment and Child Labor. There is no discrimination within the company regarding the
gender of employees. Both are provided equal opportunities to work within different positions at
the company. There is a system developed under HR policies that encourages good working
relationships and motivate the employees to raise any of the work related issues.

11.2.2 Personnel Planning and Forecasting

FFC ensures that there is the right kind of people that fit to the jobs within the Company. It also
looks into that these people are carrying out the works tasks in an efficient and effective manner
to achieve the set targets and the overall goals are achieved by coordinating with the help of
these employees. Human resource department works to access these Human Resource needs and
look for opportunities to fill those gaps. So, to fill in the human resource gap, the company
enlists the Human Resource Inventory. This generally includes the Name of the employee, the
education, capabilities, prior employment, any specific training or any specialized skills the
person holds within the organization.

To keep aligned with the work tasks and for the smooth flow of operations, the behaviours and
the skills needed to perform the relevant activities are identified. It helps in realizing the potential
required to successfully perform the work tasks to compete the jobs. It is named as “Job
Analysis” in which the information is gathered regarding the job and based on that the job
descriptions and job specifications are rebuilt.

The Human resource needs are then identified in the company based on the strategic direction
set by FFC. Based on the needs and the skills required the company develops an analysis which
indicates that where the staff is the staff is overstaffed. The gaps of the skills and employees
required are fulfilled by job rotations within the company while the company does not encourage
or promote Job rotations within the company.

The company makes sure that there are persons working in the departments that have the
capability and the capacity to perform the particular job. There is a pre-defined criterion that
enlists the Qualification, the individual’s potential and any other professional attitudes and
behaviours. These are updated regularly based on the requirements and the potential required.

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11.2.3 Recruitment: Screening & Selection Tools

Recruitment Policy entails the centralized recruitment process through advertisements,

customized written tests and well-structured interviews for hiring new candidates. FFC has set up
a Web Career Portal to manage the recruitment process from submission of job application to the
screening of best potential candidate for the specific job based on knowledge, skill and
experience.

Based on the successful evaluation of a candidate through customized tests and interview, the
candidate is offered the position of Management Trainee in the specific department for one-two
years. After the completion of the trainee program, the management trainee is assessed for the
confirmation as a permanent employee based on the overall performance in the specific
department and the final recommendation given by the departmental head. Moreover, the hiring
of a management trainee as a permanent employee also depends on the vacancy in the specific
department.

11.2.4 Orientation

Orientation at Technical Training Center comprises of 30days. This orientation familiarizes the
new hires about the Company policies, rules, regulations and organization’s structure and
culture. Moreover, new hires are taught some basic technical and managerial topics as per the
requirements of their departments. In the end, the employees are posted to their departments for
further orientation about their job and workplace.

11.2.5 Learning and Development

Learning & Development broadly implies all forms of company-managed learning and
development opportunities focused on providing employees with knowledge, skills, and abilities;
helping them correct their performance deficiencies; and improving their overall potential and
versatility with the ultimate purpose of enriching the human resources to enable the organization
to achieve its stated goals. The L&D plan is based on an objective Learning Needs Assessment
(LNA) – based on organizational, task & individual context and needs – or else the training
might end up being organized for the wrong reasons and toward the wrong ends. Relevance and
transferability of the training to the job always remain a top priority. Management’s commitment

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and support are needed to create an enabling environment and culture that embraces the change
propagated by the training. Learning and Development Policy includes the framework for Local
& Foreign Training Plan and their feedbacks, job rotation and on-the-job training thru classroom
lectures at the In-house training centre.

11.2.6 PERFORMANCE MANAGEMENT AND APPRAISAL

FFC has a very well developed performance management as well as the appraisal policies that
translate the actual work performed in achieving the goals in achieving recognition within the
company. It fosters the appraisal based on the performance of the employee. Feedbacks are also
provided to employees based on their performance over the time period specified. Therefore the
motivation to work hard is encouraged this way and jobs are further designed the way employees
work better and give better results. Moreover, if the employee does not hold specific skills to
perform the job successfully, trainings i.e. on job and off job trainings are provided to them for
the better performance of the employee.

The appraisal system of FFC gauges the performance of the employees based on their Job
Knowledge, Skills, Quantity &, Quality of Work, Decision Making capability, Leadership skills,
Time Management, Team Work and self-development through training. All of these aspects are
analyzed and documented in a prescribed format of Annual Performance Report of each
employee. This Annual Performance Report consists of Narrative Forms along with ranking
criteria. Supervisor actually performs the appraisals and ranks his subordinates from the
outstanding performer to the average one. Moreover, there is also a fixed quota (determined by
the Top Management) for ranking number of outstanding and average performers in each
department. Mostly, 10% of total employees need to be ranked as outstanding performers.
Similarly, 25% of total employees need to be ranked as excellent performers. In the same way,
40% of total employees need to be ranked as good performers. And 25% of total employees need
to be ranked as average performers. Based on the employee’s annual performance, rewards in
terms of increments are given to the employees.

FFC has also established a criterion (Promotion Gird) for promoting the employees to the next
higher position. This criterion is based on the service time and the past performance of the
employee. Accordingly, an employee will be promoted to the next higher position if he/she has

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completed a minimum service time and has good track record of his / her performance in the
previous annual appraisal reports.

 Job Knowledge and Skills

Job knowledge and job duties are clear to every employee; Fauji Fertilizer knows that how
effective it is for an employee to have knowledge of their tasks to work in a team. The company
encourages their employees to bring new methods of solving problems. Abundant resources have
been used in the company to enrich job skills through different pieces of training and in-house
exercises.

 Quantity vs Quality of Work

In Fauji Fertilizer, more attention is given towards the quality of work. Work is assigned to
individual employees and teams as per their capacity. The company trusts their employees in
handling pressure and production of effective results.

 Decision Making

Fauji Fertilizer trusts their employees in making effective decisions, company encourage their
employees to participate in decision-making through teamwork. Time management is what
employees learn here because they know how timely decision will give an advantage to the
company.

 Leadership

Fauji Fertilizer encourages their employees to take part in discussions and show their leadership
skills. Goals are established through planning and control to identify the team leaders in teams.

 Time Management

FFC encourages their employees to take initiative to show their willingness to work without
being told. Moreover, effective management of Resources and meeting the deadlines with
accuracy is also very important to show timely completion of work without errors.

 Team Work

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Teamwork skills entail the good relationship with Colleagues, Subordinates and Superiors along
with healthy corporate relationships outside the company. This shows an employee’s ability to
Create Synergy amongst the Team Members and act as unifying force.

 Training and Development

FFC promotes the employee’s self-development and improvement initiatives to search, learn and
teach new technology and Management Tools. Moreover, employees are also encouraged to
improve their coaching Capabilities to guide and train their colleagues and subordinates. In this
way, employees can set standards for self and others to benchmark training and development
needs.

11.2.7 Management by Objectives

The strategic goals of the company are defined by the management i.e. the Board of Directors
during the planning process. SMART Objectives are developed by different divisions. Based on
the smart objectives, directions are set by different departments and sections are then assigned.
Afterwards when there is the finalization of the plans, they effort is then put to implement and
organize.

Within the domain, the department working is then monitored. It is then compared with the goals
set and if there is some difference then preventive and corrective actions are implemented for the
smooth flow of actions. This overall activity is performed every quarter and the management
reviews it.

11.2.8 Rewards and compensation

The rewards and the compensation policies are part of the company HR policies. The company
with respect to paying monetary benefits also accounts for promotions and appreciations within
FFC. These policies are made to keep the employees motivated within their job and work hard to
achieve their targets.

11.2.9 Compensation and Benefits

Compensation & Benefits Policy includes direct and indirect financial payments to the
employees. Direct financial payments include Compensation Packages, Bonuses and Leave fare
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Assistance. Compensation packages consist of basic salary and other allowances owing to
market inflation and based on employee’s experience, location and skill level such as House
Rent, Site Allowance, Utilizes, Telephone, etc. Moreover, Bonuses are also given quarterly to
each employee based on the overall company profits. On average, around five times the basic
salaries are given as bonuses to the employees. Leave Fare Assistance is provided to assist the
company employees to meet private travel expenses for themselves and their dependents. As per
current LFA Policy, 5.5 times the basic salaries are given annually to each employee.

Indirect financial payments include Pension, Gratuity, Provident Fund, Insurance, House
Building Load, Car Loan Facility and Severance Package (on Separation). Moreover, different
kind of leaves such as Annual Leaves, Sick leaves, Casual Leaves, Maternity Leave is also
provided to the employees. Similarly, FFC also facilities and provides DA and TA during Local
& Foreign Company Assisted Trips and Relocations.

Indeed, FFC also pays regards and recognize the long-term service and loyalty of those
employees who have served FFC for more than 10, 20, 25 and 30 years. A Prize Bond of the
specific value is also awarded to these employees.

 Healthcare

Health Care means all necessary services provided by the company directly or indirectly to the
employees and their dependents including Preventive Healthcare, Occupational Health Services,
Emergency Healthcare, Outpatient Healthcare and Inpatient Healthcare.

11.2.10 TURNOVER AND RETENTION

FFC has different separation policies within the company. Some of them are listed as below:

 The company has a very detailed and a very food Separation Policy. The separation is either
based on voluntary exit or involuntary separation from FFC. There is a policy developed to
manage these layoffs. The completion of medical contract as well as the Death is all included
in the separation Policy for FFC.
 When we talk about the Voluntary separation, it is further divided into three main
categories. One is the Resignation; other is premature retirement and lastly the golden
handshakes. A resignation includes the separation from the company by the employee itself

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 for some specific reasons. Premature retirements are beforehand or completion of period and
Golden handshakes are basically for the encouragement of the employees when they leave
and serving the company for some specific time period.
 Involuntary separations are not controlled by the employees since it is put by the
management or the seniors. It is either based on poor performance by the employee for
consistently two years or due to any disciplinary issues of that employee within FFC. There
are also some employees who have no chance for any further growth and have some stagnant
performance so they are given a remarkable package for exiting the company.
 Retention Strategies are also developed by FFC to retain Competent and high performing
employees for the smooth flow of operations and achieving their goals at its best. To
encourage retention, HR continuously work to keep employees motivated by providing
learnings, and encouraging Job rotation and enrichment. Exit interviews are also held by the
company to realize the actual reason behind the separations.

11.2.11 Safety Procedures at FFC

Before the start of any work, Job Safety Analysis is performed to minimize risks and hazards
inherently involved in the job. This will ensure the personnel and the plant safety. Due to
religious following the safety procedures and guidelines, FFC has recorded 14.61 million Man-
Hours of safe operations at its manufacturing facilities of fertilizer at end of the year 2016. In this
regard, FFC received a certificate with excellence for “Protect & Sustain” from the International
Fertilizer Industry Associations (IFA), demonstrating the Company’s commitment towards the
management of Safety, Health and Environmental (SHE) issues related to its product’s lifecycle.

FFC’s commitment to providing a safe and healthy working environment for employees is
evidenced by the voluntarily attaining and maintaining certification of Quality, Environmental &
Occupational Health and Safety Management Systems according to the requirements of ISO
9001:2008, ISO 14001:2004 and OHSAS 18001:2007 at both Plant sites and the Head Office.
Occupational safety of contracted workforce is also ensured through Code of Conduct for
contractors.

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11.2.12 Contingent workers

FFC has hired a number of workers on a temporary basis. Such as workers on daily wages like
Gardner, office boy, drivers, waiters, etc.

 Ex-Servicemen

Retired army officers are also appointed in HR, Admin and Procurement department based on
their skill sets. These officers are hired for 3-years contract. They are treated in the same way as
the permanent employees of FFC. All their perks, benefits and compensations are well defined in
the HR policies.

 Contractual Manpower for Projects

FFC mostly hire consultants and specialists for the specific jobs, projects and assignments. They
are hired on contracts/agreements for the fixed time period based on the type of required work.

 Secondment

Some of the FFC employees are also sent to FFC’s subsidiaries and associated companies on
secondment. For example, employees were sent to Fauji Fresh n Freeze and FFC Energy Limited
for 3 years’ time period during the EPC phase. In the same way, FFC sends its engineers on
special assignments to Pakistan Maroc Phosphore S.A., in Morocco for a 3-year time period on
the secondment. These employees worked there but there are on the payroll of FFC. Similarly,
FFC also sends engineers to its Urea and Ammonia Process Licensors in Italy and Denmark on
secondment for 3 years. These engineers work there on special R&D projects as Resident
Engineers in collaboration with Process licensors.

 Interns

FFC contributes and participates in improving the quality of education in the country and
identifies prospective bright candidates for future hiring in the company. In this regard, FFC
offers regular internship (paid & unpaid) to graduating students in different discipline every year
to provide on job exposure and experience. The duration of internship ranges from one to two
months. Selection of internees is based on established merit by the HR.

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11.3 CSR initiatives

In order to improve the productivity of the farms, FFC is providing capacity building services to
the farmers. FFC is also aiming to remove poverty by applying new successful farming methods,
and also through the use of balanced fertilizers as well as through farm mechanization. FFC’s
aim is to bring socio-economic stability in the farming department. Also, FFC also donates to the
victims of Chitral flood and also provides means of restoration to the victims of the earthquake.
FFC’s current expenditure on CSR interventions is more than one percent, and these
interventions include education, healthcare, disaster relief and rehabilitation, sports promotion,
community uplift and partnerships with renowned NGOs and different Trusts.

11.4 Marketing

Since, company’s target customers are all farmers across the Pakistan, so therefore no further
market segmentation is required. Marketing Group of FFC is overall responsible to execute the
above strategy. It is managing marketing operations of the company including Planning, Sales,
Distribution, Agri. Services, Field Warehousing, Advertising & Sales Promotion and Marketing
Research. Marketing group is responsible for marketing and sales of all fertilizer products
produced or imported by FFC of FFBL.

11.4.1 Product

FFC markets its produced urea under the brand name of “SONA” (Annex-19). Brand name
SONA is simple, evocative, meaningful and timeless. It evokes very positive perception in the
mind of local farmers which definitely helps in building a positive association with the product.

Product line of Sona Urea includes prilled urea and granular urea (manufactured at sister
company FFBL). Sona Urea is sold in two SKUs. Predominantly, Sona urea is packaged and sold
in 50 Kg bags. However, for mountainous regions, 25 Kg bags are also offered.

When FFC started its operations, the other urea manufacturers namely Engro, Dawood Hercules
and National Fertilizer Corporation were already well established in the market. Engro and
Babber Sher urea were considered premium brands in Sindh and northern Punjab respectively.
The brand competition coupled with a huge surplus of urea in the domestic market posed a great

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challenge to the Company from the very beginning of its operations. However, over the years,
FFC by virtue of its quality product and good marketing strategy has successfully managed to
make “Sona Urea” the choice brand of most of the farmers of Pakistan.

FFC positions Sona Urea as the premium quality brand which is readily available everywhere in
the country. Such positioning for a commodity product where there is theoretically not much to
differentiate between competing products is a huge task. FFC has differentiated Sona Urea from
other urea products in the market and cultivated a premier brand image in following ways:

 Consistent delivery of high quality urea product. Following physical and latent properties
define the quality of urea product:
a. Physical Properties: total fines, avg. prill size, prill uniformity factor

b. Latent Properties: Moisture content, % of biurate in product

Sona urea not only meets the minimum requirement set out by Pakistan Standards and Quality
Control Authority (PSQCA) for abovementioned urea characteristics but also consistently
outperforms competitor brands in terms of above quality parameters. Through strict quality
control, it’s ensured that any product which does not meet the quality standards, is not dispatched
to the dealers / farmers and instead recycled at the production plants.

 Besides above quality parameters, FFC ensures that quality of Sona Urea packaging is also
maintained. Special attention is paid to avoid short weighing. Quality of urea liner and its
stitching is closely monitored so that the product reaches to the farmer without spillage or
any damage.
FFC’s marketing division conducts periodic surveys of dealers / farmers to take their feedback
on following product attributes; survey questionnaires are generally sent by mail with prepaid
return envelope:

o Product quality vis-à-vis products physical and latent attributes

o Product packaging – liner, stitching and printing quality
Results of above surveys are reported to the Senior Management and appropriate actions are
assigned to the concerned divisions based on the report recommendations.

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11.4.2 Place – marketing channel

The most important element of the Marketing Mix for selling urea like commodity is “Place /
Channel”. Since room for product differentiation is very little, it’s the easy, convenient,
consistent delivery of the urea product – definitely product meeting customers’ quality
requirement at appropriate pricing is a must - which counts the most in decision making of
dealers and farmers.

The Marketing Group undertakes its marketing and sales activities through country wide setup of
three zones (central, north and south), thirteen sales regions, sixty three sales districts, a strong
dealership network and extensive warehousing setup. Marketing group setup is shown in Annex-
20. Organizational structure of marketing group is shown in Annex-21. FFC has strategically
concentrated its marketing efforts in Punjab and not tried to aggressively take Engro’s share in
Sindh. Province wise share of urea producers in shown in Annex-18.

Marketing group maintains a vast network of around 250 warehouses with total storage capacity
of 380,000 tons of urea throughout the country. Warehouses are divided in three categories:

 Strategic Warehouse: FFC maintain two such warehouses in Sahiwal and Chiniot. The
Sahiwal warehouse caters to the urea demand of central zone. While, Chiniot warehouse
caters to demand in North zone. Each warehouse has storage capacity of 30,000 tons of urea.
 Satellite Warehouses: 2 – 4 such warehouses are maintained in each sales district. To
minimize the capital cost, these warehouses are hired on rent.
 Temporary warehouses: these warehouses are rented for 6 – 8 months in special
circumstances like floods or during slow sales period.
Marketing group’s Distribution department manages logistics of urea product from factories to
abovementioned warehouses. In case of imported fertilizer, marketing group is responsible for (i)
purchase, (ii) packaging of urea and other fertilizers in bags at port using moving bagging plant
arranged by contractors and (iii) transportation of these bags up-country to company warehouses
through contractors. FFC makes sure that fair distribution of urea takes place; in this respect
efforts are made to restrict short selling as much as possible by tracking the product from
factory / warehouse to the dealer. The company makes sure that Sona urea is delivered to the
dealers and farmers in every corner of the country. Even when there is urea shortage, company

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does not look for short-term benefit by supplying urea to the nearest locations thus minimizing
distribution cost, instead it ensures equitable distribution throughout the country. This policy has
over time benefitted company in winning farmer’s loyalty. FFC maintain a highly motivated and
energetic sales force. One sales officer looks after the sales in every sales district. Minimum
qualification of sales officer is MBA from a reputable university. Salary packages of sales
officers are one of the best in the fertilizer industry. Besides, every sales officer gets a 1000 cc
car for official and personal use.

FFC has established a very strong network of 3500 – 4000 distributors / dealers throughout the
country. FFC sells Sona urea to dealers only; it has no direct contact with retailers or farmers as
far as selling of product are concerned. Most of the dealers are small to medium scale rural
dealers. Many dealers carry different brands of urea in their stores. Similarly, most of the dealers
take the dual role of traders and retailer. Thus, FFC maintains following two channels to sell urea
to the farmers:

1. FFC > Dealers> Retailers.>Farmers

2. FFC > Dealers > Farmers

Strong relationship with dealers of utmost importance for success of any fertilizer product in
market .Accordingly, FFC’s whole sales strategy is geared towards the dealers. The marketing
team considers the dealers as their primary customers and farmers as end consumers. Sales
officers are required to visit each dealer in their region at least once in a week. Moreover, they
are expected to establish a close relationship of trust with each dealer in their respective districts.
In many cases the mutual trust and respect between sales officer and dealers is such dealers seek
advice from FFC sales officers in their personal and professional matters. As part of its long term
relationship building sales strategy, FFC’s sales officers give equal value and importance to each
dealer whether he is small or big. Equitable distribution of urea product is ensured among the
dealers within a region whether there is shortage or oversupply of product in market. Any dealer
who places the order for urea first, gets the product delivered first. This FIFO policy ensures that
small dealers also get their due share especially at times of urea shortage. This strategy pays
dividend in times of urea over-supply; while FFC and other competitors have to fight over
winning the big dealers; FFC makes significant sales through small dealers uncontested. Sales

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strategy based on equity among dealers has over the years allowed FFC sales officers to develop
a close relationship with dealers which cannot be easily replicated by competitors. Leveraging on
this strong relationship, sales officers get the front shelf space for Sona Urea at dealer stores and
get the dealers to stock Sona urea preferentially in their stores in the periods of urea over-supply.

11.4.3 Promotion

FFC allocates around 5% of its Marketing Division’s budget for advertisement / promotion.
Around 50% of this budget is used in annual sales promotions. It could be either a dealer loyalty
program (trade promotion) or customer sales campaign (customer promotion).

In recent years, company has preferred dealer loyalty programs over customer sales promotion.
In dealer loyalty programs, dealers with best performance in terms of sales of urea are given
foreign tours of Europe and America.

Radio is extensively used to reach to the farmers. Advertisements in local FM stations of all sales
regions are aired. Region wise surveys are conducted to identify the most popular FM channels.
Radio is preferred over TV for following reasons:

 Radio especially FM channels are listened widely by farmers during day time on their
tractors when they are in their farms or on the road.
 TV advertisement can be easily skipped as compared to radio ads.
 TV advertisement is very expensive as compared to radio. As target audience for urea is
farmers who live in rural areas, heavy TV advertisement is not required.
A newspaper advertisement and still images of Sona urea TVC and are shown in Annex 22 & 23.

Point of sale advertising is done using posters, buntings and shop boards. Good amount of
budget is allocated for this mode of promotion as normally the dealers and retailers have
different brands of urea under one roof and such advertisements positively influence the buying
decision of customers / farmers.

Besides above, FFC also undertakes following promotional activities to increase awareness /
education of farmers / dealers which helps in promoting SONA Brand:

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 As part of its customer oriented strategy, FFC is providing farm advisory services to the
farming community since 1981 to develop the fertilizer market through practical and
innovative farmer education. Initially, these services were offered to increase only fertilizer
awareness in farmers. In recent years, FFC has also started brand image building through
these activities. These services are delivered all over the country through its five Farm
Advisory Centers and Regional Agri. Services Officers. Farm Advisory Centers are located
at Hassan Abdal, Sahiwal, Multan, Bahawalpur & Sukkur. Survey results show that more
than 95% farmers who receive FFC’s farm advisory services and implement their
recommendations achieve better farm yields.
 FFC runs dealer training programs annually. Dealers do not only get training about fertilizer
products and their usage but also about the payment method and accounting system FFC uses
in sales of urea. Based on survey results, around 90% of dealers feel satisfied with the
training imparted by FFC.
 Marketing group distributes calendars and diaries among the dealers.
 FFC also telecasts crop documentaries on PTV before the onset of every sowing season of
major crops.
 SMS on current agriculture issues are also sent to farmers on the mailing list.
 FFC also publishes crop, vegetables and fruits brochures, posters and pamphlets containing
latest information regarding production technologies of crops, vegetables and fruits.
 A newsletter, Zari Report in Urdu is published on quarterly basis. This contains season
specific information regarding crops, fruits, vegetables, improved agronomic practices and
articles on agricultural issues.
 FFC operates a toll free farmer helpline number to provide agricultural advisory services to
interested farmers.

11.4.4 Pricing

FFC uses cost + model for pricing of Sona Urea. The general range of different cost components
in the price / 50 Kg bag are as follows:

 Fixed Cost = 25– 30%

 Variable Cost = 50 – 55%

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 Taxes = 10 – 12%
 Dealer Margin = 2 – 3%
 Profit = 9 – 10% FFC gives dealers margin of 35 – 50 Rs / bag. In case dealer sells the
product to retailers, they keep around half of the margin as their profit. Urea bags purchased
by dealers from company warehouses are charged Rs 10 / bag extra. Normally, big dealers
directly take product from the plant sites.
Gas price is the main component of variable cost. Price of feed gas charged to FFC for producing
urea currently is in the range of 460 – 490 PKR/mmbtu. While, fuel gas is currently charged at
900 – 950 PKR/mmbtu. Considering the plant efficiencies, a feed to fuel gas ratio is used to
work out gas price / bag of urea. Gas infrastructure development surcharge (GIDC) has also been
considered part of variable cost in above figures.

As per GoP’s Fertilizer Policy-2001, fertilizer sector is deregulated therefore, FFC and similarly
other players are free in setting price of their fertilizer product. However, since fertilizer industry
has an oligopolistic structure in Pakistan, the top two firms FFC and Engro play the role of urea
price settlers. Any adjustment in the urea price is generally a function of following variables:

 Gas price
 Fiscal Policy: Taxes, subsidies, GST etc.
 Inflation
The most significant element which has caused price adjustments in the recent years has been the
gar price. Urea price trend is attached as Annex-24. Whenever, there is a hike in cost associated
with above factors, FFC like other competitors normally passes on the effect of price hike to the
farmers by increasing the urea price. However, government generally intervenes in the market to
avoid supply side shortage by importing urea. Moreover, in recent years GoP had to intervene in
the market in order to cap selling price of urea in order to support farmer who is badly hit by
poor farm economics in recent years. In such instances, GoP generally has taken the approach of
subsidizing urea product by asking urea manufacturers to sell urea to farmers at a lower price and
take fixed amount per bag (subsidy) from government.

There are other two less obvious imperatives which have a bearing on urea pricing. Price of
locally manufactured urea should not be higher than the international urea price at least for

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longer periods of time. Otherwise, it makes a strong case for importing urea to displace the local
urea from the market. The second one is that in general highest market offtake of urea happens
when Urea price is less than half of the DAP price. This is due to the fact that many farmers
owing to their limited resources use cheaper urea to make up for the nutrition deficiencies which
actually require application of expensive DAP. If the ratio between urea and DAP prices is not
maintained, then farmers switch to using DAP as it makes more financial sense.

Another important aspect of pricing strategy is the fact that both of the main competitors of FFC
in urea market have set-up fertilizer plants within last decade and resultantly enjoying
significantly reduced feed gas price as part of incentive package of Fertilizer Policy – 2001. This
enables them to show more flexibility in pricing as compared to FFC which has smaller profit
margin to begin with.

Recognizing its position as the biggest player in fertilizer market and the fact that any price war
will hurt FFC the most, company makes conscious efforts to avoid taking any step which can
lead to a price war. Even at times of oversupply in market, FFC never takes lead in reducing its
urea prices; it only follows other players. While, FFC is slowly and steadily increasing its share
in Sindh, but it is not pushing hard just to avoid any price war. In normal circumstances, almost
90% sales of urea are done on advance. The dealer either makes advance payment through cash
or demand draft to place an order with the company. It is ensured that urea bags are transported
to the dealer within 1 – 2 days of cash receipt.

Marketing division periodically performs survey of dealers to take their feedback on urea
pricing. Outcome of the survey quantifies how much the customers are purchasing urea at
company defined price, how much are getting it on higher or discounted price. Based on the
extensive data collected from the field, marketing group’s planning department keeps updated
the price elasticity curve of urea in the local market. This naturally helps in developing the
pricing strategy.

11.5 Technology

Innovation in technical sector and engineering sector is very important in fertilizer sector. It is
important to bring technological development and latest processes to enhance the efficiency,
output productivity, lower average cost of production and to achieve economies of scale to

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remain competitive in neck throat competitive market. If company is unable to attain new
method and technology that will resultantly give space to the competitor product which will be
available at cheaper rates. Eventually company will lose market share. In order to sort this issue,
company has formed a dedicated division of technical team which work to keep the company
updated with all those technological issues that the companies is facing and how the company
can take advantage by improving processes and procedures.

IT sector has also a critical role in organizations in order to improve the communication process.
In order to integrate the processes of the company SAP is installed in the organization. Company
policies and guidelines are also available on SAP portal for employees. Company is using
Microsoft exchange as an emailing tool for better connectivity and communication. Other than
that company also facilitates their employees by providing latest technologies of connectivity,
such as video conferencing, teleconferencing at both locations of Head Office and plant as well.

All permanent management employees have their own portal where they can apply leaves, build
their own production board, Guest house reservation, transport and trip management.

In a nutshell, the whole processes of FFC has been reengineered starting from hiring of
employee, purchase requisition for services and materials, differences in budget report and
appraisal system of employees.

12 Internal Factor Analysis Matrix

Internal Factor Analysis Matrix is a tool used to formulize the strategy based on the internal
factors of a company in the context of its business area. This tool summarizes the strengths
and weaknesses of the company’s core functional areas. IFEA will also assess the relative
relationship among different areas of the company’s strategic factors based on its results.

KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE
Internal Strengths
1. Military support and backing 0.05 2 0.1
2. Technological advancement 0.05 3 0.15

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 3. Trained & experienced labour 0.05 3 0.15
4. Strong distribution network 0.15 4 0.6
5. Strong brand name and recognition 0.1 4 0.40
6. Market leader 0.05 3 0.15
7. Strong financial position 0.15 4 0.60
8. World class plant site 0.05 3 0.15

Internal Weaknesses
1. Short Tenure of MD 0.1 3 0.3
2. Increased transportation costs 0.05 2 0.10
3. Dependency on natural gas reservoirs 0.15 4 0.60
4. Thin product portfolio 0.05 2 0.10
TOTAL 1.00 3.4
(Wheelen, T. L., & Hunger, J. D., 2011, p. 164)

Above matrix show us all the relevant strengths and weakness of FFC. The factor which has
most importance in terms of impacting the strategic position of FFC is given weights close to
1 whereas; the factor which has less importance is given weights close to 0. Moreover, the
respective factors are given the ratings based on the company’s response in contrast to the
industry’s response.

FFC’s major strengths are strong distribution network, strong brand name and strong
financial position. Moreover, FFC’s major weaknesses are dependency on existing gas
reservoirs and short tenure of MD. However, the total weighted score tell us that FFC’s
performance is above average w.r.t its internal strategic factors.

13 External Factor Analysis Matrix

Wheelen, T. L., & Hunger, J. D recommends another matrix to the strategist for identifying
and analyzing the external factors governing the business area of a company. This tool
focuses on the societal factors known as PESTLE. PESTLE stands Political, Economic,
Socio-cultural, Technological, Legal and Environment forces.

KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED

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 SCORE
Opportunities
1. Related & unrelated business diversification 0.15 2 0.30
2. Value addition of micro-nutrients fertilizers 0.10 2 0.20
3. Alternate raw material 0.20 3 0.60
4. Export avenues 0.05 4 0.20
Threats
1. Declining prices in global fertilizer market 0.05 3 0.15
2. High gas cost 0.15 4 0.60
3. diminishing existing gas reservoirs 0.15 3 0.45
4. Increased competition 0.05 2 0.10
5. Poor economic condition of farmers 0.05 3 0.15
6. High corporate taxes 0.05 3 0.15
TOTAL 1.00 2.9
(Wheelen, T. L., & Hunger, J. D., 2011, p. 126)

Above matrix shows us all the applicable opportunities available for FFC to exploit to have a
competitive advantage while avoiding the relevant threats.. The external factor which has
most importance in terms of impacting the strategic position of FFC is given weights close to
1 whereas; the external factor which has less importance is given weights close to 0.
Moreover, the respective factors are given the ratings based on the company’s response in
contrast to the industry’s response.

FFC has major opportunities which it can exploit in the future such as related & unrelated
business diversification and alternate raw material. Moreover, FFC’s major threats are high
gas cost and diminishing existing gas reservoirs.

The total weighted score tell us FFC’s response to its external strategic forces. The value of
2.9 is above the average. This also shows that FFC has a satisfactory response to the external
strategic factors. FFC is trying to exploit the available opportunities and minimize the impact
of threats. But the score is very close to the average score which shows that FFC is unable to
fully capitalize the opportunities

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14 Strategic Factor Analysis Matrix
Opportunities Threats

Strengths S5O1 S5T2

Utilizing Brand name to
diversify
S7O3
Capitalize strong financial
muscle to explore alternate
reservoirs
Weaknesses W3O3
Minimize the dependency
on existing NG reservoirs
by exploring alternate gas
sources
W4O2
Expand product line by
introducing micro-
nutrients fertilizers
Charge premium to
minimize the impact of
high operating cost
W2T1
Increased transportation
due to oil prices may be
minimized by important
low priced international
fertilizers
W3T1
Dependency on natural
gas reservoirs may be
minimized by important
low priced international
fertilizers

15 Formulation of New Strategy

The various strategies which are available for FFC to have a competitive advantage in future are
as follows:
1. S5O1 : Utilizing Brand name to diversify
2. S7O3 : Capitalize strong financial muscle to explore alternate reservoirs
3. S5T2 : Charge premium to minimize the impact of high operating cost
4. W3O3 : Minimize the dependency on existing NG reservoirs by exploring alternate gas
sources
5. W4O2 : Expand product line by introducing micro-nutrients fertilizers
6. W2T1 : Increased transportation due to oil prices may be minimized by important low
priced international fertilizers
7. W3T1 : Dependency on natural gas reservoirs may be minimized by important low priced
international fertilizers

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The weighted score of the specific strategy based on the strategic factors defined in IFEA and
EFEA is calculated as follows:

Strategy WEIGHTED WEIGHTED FINAL Score

SCORE 1 SCORE 2 (1*2)
S5O1 0.40 0.30 0.12
S7O3 0.60 0.60 0.36
S5T2 0.40 0.60 0.24
W3O3 0.60 0.60 0.36
W4O2 0.10 0.20 0.02
W2T1 0.10 0.15 0.015
W3T1 0.60 0.15 0.09

Based on the above calculated final score for the alternative strategies available, the best strategy
for FFC to remain competitive in fertilizer Industry is to capitalize its financial strength to
explore alternate gas reservoirs or sources.

16 Formulation of New Business Strategy

FFC need to decide whether it intends to perform activities differently or to perform different
activities as compared to its rivals. The fertilizer industry has standardized production methods
which have been established many years ago with innovations increasing the efficiency day by
day. We have decided that FFC will perform the same activities but will introduce greater
efficiency in them. Keeping in mind the overall analysis of the company, we opted for a cost
leadership strategy. There are two ways to implement the cost leadership strategy:

 Rightsizing the Workforce

During the HR analysis of the firm, we found that the employee workforce is much more than is
required. The over employment can drive the overhead costs up unnecessarily. FFC can take
some measures to decrease the workforce yet retaining the skillful employees.

 Sustaining an effective Organizational Culture through BPR

An appropriate organizational culture encourages the development of an entrepreneurial
orientation among employees. Rather than organizing a firm into functional specialties (like

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production, accounting, marketing, etc.), complete processes from materials acquisition, to
production, to marketing and distribution should be considered.

FFC will be re-engineered into a series of productive processes. Business process reengineering
is one approach for redesigning the way work is done to better support the organization's mission
and reduce operating costs.

A business process can be decomposed into specific activities, measured, modeled, and
improved. It can also be completely redesigned or eliminated altogether. Reengineering will help
identify, analyze, and redesign FFC's core business processes with the aim of achieving dramatic
improvements in critical performance measures, such as cost, quality, service, and speed.

17 Conclusion & Recommendations

FFC has a strong financial position in the Fertilizer Industry. However, due to the gas
curtailment and depleting existing gas reservoirs, FFC need to think about alternate gas resources
such as Coal Gasification in order to remain competitive in the industry. This will not only allow
FFC to sustain the core business in the future but also restore the net profit margins of the
company.

Moreover, FFC also need to focus on reducing the expenses by implementing the Cost
Leadership Business Strategy. One of the ways is to look for rightsizing the current workforce
through organizational restructuring and/or optimizing the processes via Business Process
Reengineering approach.

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References:
1. Fauji Fertilizer Company Limited, Annual Report 2017
2. Fatima Fertilizer Annual Report 2017
3. Engro Fertilizer Annual Report 2017
4. FFC’s Internal Records
5. FFC’s HR Policies and Procedures
6. FFC’s Internal Marketing Report
7. FFC’s Management Interviews and Phone Calls
8. https://markets.ft.com/data/equities/tearsheet/profile?s=AKBL:KAR
9. https://en.wikipedia.org/wiki/Wind_power_in_Pakistan
10. Wheelen, T. L., & Hunger, J. D. (2011). Strategic management and business policy:
Towards Global Sustainability. Upper Saddle River, N.J: Prentice Hall.

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