Press Release

Ratings of Fatima Fertilizer Company Limited

Karachi, October 23, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima Fertilizer Company Limited (FATIMA) at ‘AA-/A-1’ (Double A Minus /A-One). The medium to long-term rating of ‘AA-’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned rating is stable. The previous rating action was announced on August 26, 2019.

The assigned ratings take into account strong sponsorship profile as majority of the shareholding of the company is held by Fatima Group (FG) and Arif Habib Group (AHG) through their group companies and individual representatives. The business risk profile of FATIMA is also underpinned by well-diversified product portfolio. The Company is engaged in manufacturing and supply of Urea, Nitrogen Phosphate (NP), and Calcium Ammonium Nitrate (CAN) fertilizers through a dealer network of 4,863 retailers in 61 districts of Pakistan.

In 2019, given round the year operations at RLNG-based Sheikhupura plant, FATIMA posted strong topline growth albeit margins were lower. Conversely, the company’s off take was notably lower in 1HCY20, and the margins improved, as operations at relatively lower margin Sheikhupura plant remained halted. This volatility in top line has been factored into the business risk profile of the entity, which is supported by the level of FATIMA’s gross margins that have averaged 43% over the past 4-year period.

Lately, the company has acquired the fertilizer plants of Pakarab, effective September 1, 2020, as a result of which, the company’s annual nameplate capacity has increased to 2.57m MTs. The additional capacity should allow the company to grow its top line revenue, going forward. However, the margins are expected to be impacted post-2021 as the concessionary Gas Sales Agreement (GSA) - with Mari, under Fertilizer Policy 2001 - expires. Subsequently, FATIMA’s margins are projected to become aligned with other industry participants. The ratings factor in this projected decline, with liquidity and capitalization metrics projected to remain in line with the threshold for the assigned rating. The assigned rating maybe revisited, if the impact on the company’s financial indicators notably deviate from VIS’ expectations.

For further information on this rating announcement, please contact undersigned or Mr. Arsal Ayub, CFA at 021-35311861-70/ 042-35723411 or fax to 021-35311872-3.

Javed Callea
Advisor

VIS Entity Rating Criteria: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .