Fatima Fertilizer retains AA+ rating from PACRA

July 25, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Fatima Fertilizer Company Limited (PSX: FATIMA) at "AA+" for the long term and "A1+" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

The ratings reflect Fatima Fertilizer Company Limited's association with strong business Groups, Fatima Group and Arif Habib Group.

The Arif Habib Group has successfully established thriving businesses across financial services, fertilizers, cement, steel, and real estate. Meanwhile, Fatima Group has a diverse portfolio encompassing fertilizers, sugar, textiles, commodities trading, mining, and energy sectors.

The assigned rating takes into account the good governance framework, strong control environment, qualified and experienced management team.

The ratings assigned to the company also take into account low business risk profile of the fertilizer sector owing to non-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.

In 2023, the domestic fertilizer market remained steady, with urea demand at 6.6MT, driven by improved farm economics and a 40% price discount compared to imports.

Urea production rose to 6.4MT, while the domestic DAP industry saw a 34% increase, reaching 1.5MT, due to better agronomics and increased farmer liquidity during the Rabi season.

The company holds the leading market share in NP and CAN fertilizers, commanding 42% of the overall market.

FATIMA is committed to position ‘Sarsabz’ as the most premium fertilizer brand in the market and helping to lead the pursuit for a ‘Sarsabz Pakistan’.

During CY23, the Company's topline, mainly comprising of NP, (48%), Urea (23%) and CAN (18%).

The sales revenue for the year jumped up by 47% over last year on the back of remarkable volumetric growth of 39% in NP through effective market penetration strategies and product availability.

During CY23, the Company has maintained noteworthy margins and profitability owing to efficient operations.

The company is also investing heavily in collaboration with other industry players to ensure gas supply at sustainable pressure for its production plant this will bodes well for business risk profile.

Fatima is actively planning to participate in the corporate farming initiative to drive agricultural transformation of Pakistan which will not only provide opportunity for vertical growth to the Company but will also be instrumental in revival of Pakistan’s agricultural economy.

The company has continuously invested in optimizing its production plants and reaps the benefits of having increased utilization and higher run time of its production facilities.

Subsequent to the company's sterling financial performance, income from the trading portfolio provides limited support to the company's bottom line.

At CY23, the company’s financial profile is established on a low leveraged capital structure, of ~7.8%, strong coverages, and efficient management of working capital. Ratings draw comfort from business acumen from the sponsors and strong governance framework.

The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining cushion and adherence to strong financial discipline. Substantial deterioration in margins and profitability would adversely impact the ratings.

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