Press Release
VIS Reaffirms Entity Ratings of Fauji Fertilizer Bin Qasim Limited
Karachi, August 08, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity rating of Fauji Fertilizer Bin Qasim Limited (FFBL) to ‘AA/A-1’ (Double A/A-One). Long-term rating of ‘AA’ signifies high credit quality, and strong protection factors. Risk is moderate but may vary slightly from time to time because of economic conditions. Short-term rating of ‘A-1’ denotes high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. The last rating action was announced on May 31, 2022.
The ratings of Fauji Fertilizer Bin Qasim Limited (‘FFBL’ or ‘the Company’) incorporate the strong sponsor profile of Fauji Foundation (FF) which is one of biggest and renowned conglomerates of Pakistan with strategically diversified portfolio of companies. The ratings also take into account low business risk profile of the fertilizer sector owing to low-cyclical nature of the industry, increasing significance of food security amidst developing economic situation across the world and consequent enhancement in the strategic importance of the fertilizer sector for the Country. On the other hand, business risk incorporates sensitivity of margins to global phosphoric acid prices, rupee dollar parity and local gas prices. In addition, ratings factor in FFBL’s strategic positioning as the only player of Di-Ammonium Phosphate (DAP) in the domestic fertilizer industry.
Financial risk profile of the Company, was effected due to Dip in margins and higher exchange losses resulted in negative bottom line in 1H’23. Consequently, debt coverages have been affected; the same remains a key rating concern for VIS, going forward. The liquidity profile has also come under pressure, however, comfort has been drawn from sizeable cash & short-term investments along with favorable cash conversion cycle, albeit cash holdings continue to decline on a timeline basis.
Further, FFBL’s capitalization profile also reported decline in the last two financial years. The gearing indicators have scaled upwards on a timeline owing to significant rise in borrowings on account of carryover inventory from lower offtake in FY22. While margins and profitability have been better in 2Q’23, management is expecting a strong second half which should support in easing off the pressure on gearing and leverage indicators. Going forward, improvement in financial risk profile along with its alignment with the benchmark ranges will be vital for assigned ratings.
For further information on this rating announcement, please contact the undersigned at 35311861-70 (Ext: 201) or Ms. Maham Qasim (Ext: 216) at 042-35723411-13 or email at info@vis.com.pk
Sara Ahmed
Director
Applicable Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf