Press Release

VIS Upgrades Entity Ratings of Fatima Fertilizer Company Limited

Karachi, May 31, 2022: VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Fatima Fertilizer Company Limited (‘FATIMA’ or ‘the Company’) to ‘AA+/A-1+’ (Double A Plus/A-One Plus) from ‘AA/A-1’ (Double A /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 highest certainty of timely payment, short-term liquidity including internal operating factors and/or access to alternative sources of funds, is outstanding and safety is just below risk-free GoP’s short term obligations. Outlook on the assigned rating is Stable. The previous rating action was announced on December 01, 2021.

Upward revision in ratings is underpinned by growing importance of food security amidst developing economic situation across the world and consequent enhancement in strategic importance of the fertilizer sector for the Country. Ratings take into account FATIMA’s market positioning in the fertilizer industry, wherein with the addition of the Pakarab Plants has increased the Company’s nameplate capacity to 2.57m MTs, making FATIMA the biggest player in the segment. During the period under review, FATIMA achieved strong uptick in offtake, as production from recently acquired Pakarab plants was added to the mix. FATIMA’s gross margins have remained intact so far, albeit given the expiry of GSA for subsidized feed gas, gross margins slightly reduced in the outgoing year. Nevertheless, the expected volumetric growth in offtake and its impact on gross profit has been incorporated in the rating action as an important rating driver.

In tandem with the strong growth in revenues, cash flow coverage indicators posted notable improvement during the period under review. Uptick in stock of trade debts and inventory is in line with the growth in business volume and provide sufficient coverage of outstanding short-term obligations. In addition the ageing of trade debts is indicative of sound credit risk profile. With the improvement in FFO, DSCR of the company increased to 4.2x for CY21, which compares favorably to peers. Overall equity of the company grew at a CAGR of 13% during the last 3 years (CY18-CY21) on the back of strong profitability and retention. Overall size of the equity, in absolute terms is well aligned with the assigned rating. Consequently, capitalization indicators have strengthened on a timeline basis. With the absence of any major CAPEX during the rating horizon, capital structure is expected to remain conservative during the rating horizon. Ratings are dependent upon retention and improvement in market share, capitalization and liquidity indicators, going forward.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Ms. Asfia Aziz (Ext: 213) or email at info@vis.com.pk.


Javed Callea
Advisor

VIS Entity Rating Criteria: Industrial Corporate - August 2021
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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