Press Release

VIS Reaffirms Entity Rating of Fatima Fertilizer Company Limited

Karachi, September 03, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima Fertilizer Company Limited (‘FATIMA’ or ‘the Company’) at ‘AA+/A-1+’ (Double A Plus /A-One Plus). The medium to long-term rating of ‘AA+’ denotes high credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1+’ denotes strong likelihood of timely repayment of short-term obligations with outstanding liquidity factors. Outlook on the assigned rating is Stable. The previous rating action was announced on July 20, 2023.

Established in 2003 as a joint venture between Fatima Group and Arif Habib Group, Fatima Fertilizer Company Limited (FATIMA) is a publicly listed company and a leading producer of fertilizers. Headquartered in Lahore, it manufactures, sells, imports, and exports fertilizers and chemicals. The Company has enhanced the product range as well as the capacity base through acquisition of Dawood Hercules and Pak Arab Fertilizer Company. The combined capacity of the its plants located at Sadiqabad, Sheikhupura, and Multan stands at 2.75 million metric tons per annum, and the product range include urea, CAN and NP fertilizers.

The ratings assigned to FATIMA reflect the Company's low business risk profile, which benefits from the inherently low-risk nature of the fertilizer sector due to its non-cyclical characteristics. This stability is further supported by the growing global emphasis on food security, which enhances the strategic importance of the fertilizer industry for the Country. The business risk profile of the sector includes sensitivity of the profitability margins to fluctuations in gas and phosphate prices, as well as the impact of local currency devaluation.

The ratings reflect FATIMA's dominant position in the domestic fertilizer market, where it is the sole producer of CAN and holds substantial market share in other fertilizers. The ratings also consider recent business updates, including a notable 47% increase in sales, driven by increase in sales volume of NP and DAP, along with rising prices of Urea and CAN. Despite growth in topline, gross margins experienced a decline due to elevated fuel and power costs during CY23 and 1QCY24. Despite the increase in finance costs due to high interest rate, net margins remained intact owing to substantial increase in other income during the review period.

Additionally, the ratings are supported by FATIMA’s strong financial risk profile given its conservative capital structure, characterized by the low borrowings. The Company’s equity grew at a CAGR of 9.6% during the last 5.25 years (Jan’19-Mar’24) to Rs 126.5bn at the end’1QCY24. The Company's gearing remains low along with healthy cashflow and debt coverages. In absence of any major expansion plan, aside from routine BMR activities, the leverage indicators are expected to improve over the rating horizon.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.

Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .