FFC - Current situation dipicts dull prospects_SELL_ (27-09-2016)

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Integrated Equities

Integrated Equities PVT Ltd seeks to do business with companies covered in its research report. As a

result Individual and Institutional Investors should be aware that “IEL” may have conflict of interest that

could affect the objectivity of this report. This report is provided for information purposes only. The

information and opinions contained herein have been compiled with sources believed to be reliable and

in good faith. Such information has not been independently verified as to its accuracy.

Key Highlights:

Sector Fertilizer

Stance “SELL” (Underweight)

Target Price (PKR/Share) 87.7

Current Price (PKR/Share) 104.99 (26-Sep-2016)

Total Return (9.5%)

Bloomberg FFC.PA

Reuters FAUF.KA

Market Cap 131,676,654

Trailing P/E 7.85

Leading P/E 9.86

Justified Leading P/E 6.55

Justified P/S 1.33

Justified P/BVPS 3.25

Muhammad Umair Altaf

[email protected]

+92-42-35741714-15

http://www.jamapunji.pk/

-4%

-2%

0%

2%

4%

6% KSE 100 vs FFC Return

KSE-100 FFC

s

Research Entity Notification No. (REP-239) 27 -Sep-2016

Fauji Fertilizer Company Limited (FFC) We initiate our coverage on Fauji Fertilizer Company Limited (FFC) with a “Sell”

recommendation based on the target price of PKR. 87.6/share, offering a

negative total return of 9.5 % (Price depreciation of 16.5% + dividend yield of

7%)

Overall industry situation caused FFC to face a big hit with recent development

and expected growth not enough to revert it back in the coming years.

In a given subsidy scenario, fertilizer sector is exposed to another sensitivity in

terms of Urea and DAP with keeping continuation of subsidy in question.

Recent under consideration decision of allowing urea export gives hope as in

history FFC had the honor of being pioneer in export of surplus urea.

However, if subsidy continues along with urea export verdict then this will help

to liquidate inventory. FFC was able to maintain its off-take at 98% of

production on average even in the recent decline while utilizing an average rate

of 119% of total capacity.

FFC is occupying on average 48% share in local urea market. Competition is

expected to pick a hike to cater the coming demand contingent to subsidized

price.

If demand continues as expected along with export permit then FFC may face

capacity constraint requires expansion or to rely on imported urea.

1HCY16 result review: FFC reported earnings of PKR4.89bn (EPS: PKR3.85) in

1HCY16, down 41%YoY while 20%QoQ. The downtrend in earnings was witnessed on

the back of lower urea off-take as farmers delayed purchase in anticipation of

subsidy announcement. Gross margins declined by 8ppsYoY on account of lower

prices during the period. On sequential basis, however, off-take for the company

clocked in at 584KT, up 64%QoQ on account of higher off-take in Jun’16 post

announcement subsidy on Urea (PKR184/bag GST and PKR156/bag cash subsidy).

Expected CY16 result: Earnings for CY16 are estimated at PKR13.35bn (EPS:

PKR10.55), another down of 20.34%YoY. Utilization of subsidized prices going to

enhance the earnings of 2HCY16. EPS for the third and fourth quarter are estimated

to clock in at PKR2.98 (3%YoY, 74%QoQ) and PKR3.67 (-3%YoY, 23%QoQ)

respectively, supported by the expected Urea off-take of 2.34 Mln tons, representing

a nominal decline of 2.97%YoY, with resultant inventory of 295KT. The slump shall be

reduced on the back of higher off-take in 2HCY due to utilization of the subsidy by

the farmers. Net revenue of the company is expected to drop by 18.8%YoY where the

lower prices will cause GP margin to report at 26%, a fall of 8ppsYoY.

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Integrated Equities






Valuation: We employed various valuation methodologies such as Discounted Cash

Flows (FCFF, FCFE, DDM), Relative Valuation (Comparable Method), Residual Income

(RI, EVA) and Asset based valuation. Application of rational weights leads to the

target price of PKR 87.6/share. For calculation purposes, we assume the terminal

growth rate of 3% and WACC of 11.74%. WACC for the company is calculated based

upon the following assumptions:

Risk Free rate is taken at 8.75%

Return on market is taken at 20.79%

Market Risk Premium of 12.04%

Stock beta of 0.66

Cost of Equity at 16.73%

After tax weighted average cost of debt at 4.42%

Discounted Free Cash Flows Methods: Prices are based on the following estimated

figures:

(Source: IEL Research)


Discounted Free Cash Flow to Firm (FCFF) '(000) 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

FCFF 29,334,776 11,317,252 13,270,592 14,781,487 15,720,273 16,758,505

Rolling FCFF 7,741,121 11,317,252 13,270,592 14,781,487 15,720,273 16,758,505

Present Value of FCFF 7,513,909 9,075,451 9,546,479 9,517,818 9,052,200 8,608,647

Sum of Present Values 53,314,505

PV of Terminal value 101,427,939

Total Value of the Company 154,742,444

Value of the Debt 39,300,762

Value of the Equity 115,441,682

Discounted Free Cash Flow to Equity (FCFE) '(000) 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

FCFE 8,639,519 14,110,248 15,392,551 16,489,386 17,368,843 18,142,985

Rolling FCFE 2,279,873 14,110,248 15,392,551 16,489,386 17,368,843 18,142,985

Present Value of FCFE 2,188,682 10,355,601 9,677,688 8,881,490 8,014,429 7,171,843






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Integrated Equities







Relative Valuation: Share price estimated through relative valuation is based on the

Price to Earnings, Price to Sales, Price to BVPS, Price to Cash flow per share (CFPS)

and EV to EBITDA multiple of peers having similar products with major weights in

their product mix. These multiples are then applied to both trailing and leading

results of FFC and final relative price is calculated.


Residual Income Valuation: Profits are adjusted for equity and total capital charge

which are then employed to valuation of the company. FFC is expected to create a

value addition of PKR4.67bln over the 5 year horizon which is much less as compared

to the history of the company.


Dividend Discount Model '(000) 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

Dividend 5.66 11.44 12.42 13.25 13.93 14.52

Present Value of Dividends 5.44 8.39 7.81 7.14 6.43 5.74

Sum of Present Values 41

PV of Terminal value 43




Trailing

P/E

Trailing

P/S P/BVPS P/ CFPS EV/EBITDA

FFBL 11.95 0.78 3.40 5.61 7.28

EFERT 5.51 0.82 1.95 2.72 3.49

Average Multiples 8.73 0.80 2.67 4.16 5.38

Residule Income (RI) '(000) 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

Profit After tax 13,417,470 17,349,205 18,833,137 20,095,052 21,132,923 22,035,504

Equity Charge 4,569,001 5,127,540 5,669,393 6,244,977 6,848,177 7,477,879

Residule Income (RI) 8,848,470 12,221,665 13,163,744 13,850,075 14,284,746 14,557,625

Rolling RI 2,335,013 12,221,665 13,163,744 13,850,075 14,284,746 14,557,625

Present Value of RI 2,241,616 8,969,559 8,276,380 7,459,909 6,591,348 5,754,566



Opening Book Value of Equity 27,311,465




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Integrated Equities







KSE-100 vs FFC Performance: FFC has been underperforming the benchmark KSE 100

index. Price of FFC depreciated by 15% over the last 12 months while KSE-100 index

has reported a return of 21%. PER of the company has not been showing significant

variation which left the price overvalued based on PER basis ignoring the company

unsatisfactory growth prospects. We expect multiple to decline as price moves

towards its fundamental value.


Economic Value Added (EVA) '(000) 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 31-Dec-21

NOPAT 6,181,919 6,742,003 7,474,566 8,304,443 9,165,760 10,084,642

EBIT 11,703,354 11,737,401 13,136,658 14,533,482 15,861,089 17,185,478

Tax Expense (5,521,436) (4,995,398) (5,662,092) (6,229,039) (6,695,329) (7,100,836)

Total Capital Charge 5,988,979 6,718,774 7,433,860 8,144,890 8,861,498 9,593,480

Capital Employed 50,112,764 57,573,200 64,059,238 70,011,387 75,926,193 81,701,749

WACC 11.95% 11.67% 11.60% 11.63% 11.67% 11.74%

Economic Value Added (EVA) 192,939 23,229 40,706 159,553 304,262 491,162

Rolling EVA 50,915 23,229 40,706 159,553 304,262 491,162

Present Value of EVA 49,420 18,628 29,282 102,736 175,203 252,304

Market Value Added (MVA) 627,573


Total Invested Capital 65,734,505




0

2

4

6

8

10

12

PER Band

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Integrated Equities






Imported Urea price curtailed: Government reduced the price of the imported urea

to PKR1,200/bag to liquidate the stock lying with National Fertilizer Marketing

Company Limited imported in 2015. There is around 1.5mln stock piled up with

NFML. Dealers are expected to take the arbitrage opportunity by accumulation of

stock to be sold later. Higher inventory level may harm the company off-take in the

coming quarters.

Higher Leverage expected to stay: Currently, FFC has a leverage ratio of 58.45%. We

expect the debt level reduce as repayments will be made in 2HCY16 amounting to

PKR3.3bln approximately. However, considering the expected cash flows condition as

well as cheaper debt facility, we expect leverage ratio is to be maintained around

40%.

Liquidity continue to suffer: We expect the liquidity is going to be a problem for

coming years and the company will have a focus on short term borrowings with more

proportion to long term borrowings. Current, quick and cash ratio is estimated to be

PKR 0.85, PKR 0.62 and PKR 0.33 for CY16E. Liquidity constraint will force the

company to maintain a negative working capital cycle as observed in recent years.

Dividend Income raises profit: Prominent portion of the net profit comprises of

dividend income that facilitates to present healthy profits. However, removing the

impact of non-operating income reduces the target price to PKR 66/share

representing the company’s true operating worth.

Export decision under consideration: Government is considering allowing export of

surplus urea which will help to liquidate inventory level if allowed. In history FFC had

the honor of being pioneer in the export of surplus urea. As per the data released by

the NFDC, FFC reported inventory of 409KT in July CY16.

Threats from Rivals: Higher demand resulted from the subsidized price is likely to

increase the competition. FFC has maintained on average 48% of the local urea

market, being successful to sale on average 98% urea of total production. The

discount currently offered by the industry in the range of PKR50-PKR100/bag on urea

may dilute the market share of the company if company does not match the highest

given discount level. Profit will more squeeze if FFC offers discount to dealers but

failed to increase the market share, despite being able to maintain the current

market share.

Positive Development requires expansion: If demand comes as expected contingent

to continuation of subsidy along with permit of the government to export, FFC could

get a chance to liquidate its inventory as well as remaining 2% of total production.

However, after that level company may need to go into expansion as company is

already utilizing on average 119% of its total capacity which is expected to increase

to maximum or to rely on imported urea. Hence, limited growth prospects without

either of above options.

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Integrated Equities






Stock Relevancy: Scrip is not favorable for long term perspective investor since

expected movement towards the fundamental value. However, opportunity for the

dividend seeking investors since FFC has the history of 85 to 95% dividend payout

ratio which is expected to attract the funds to accumulate at a price nearest to

fundamental value.

Technical Analysis: Concurrent to fundamental analysis, scrip is not suitable on

technical parameters as well in the long run. Analyzing the lapse CY16, black candles

are used to dominate the white candles demonstrating the history of bearish trend

which is likely to continue. During the past 10 bars, there have been 4 white candles

and 6 black candles for a net of 2 black candles. Whereas during the past 50 bars,

there have been 16 white candles and 34 black candles for a net of 18 black candles.

Candlesticks and Bollinger Bands Analysis

(Source: MetaStock, IEL Research)

Investment Perspective: With i) pressure on company off-take ii) higher leverage

level due to lower operating cash flows iii) pressure to offer discounts to compete

the rivals iv) future capacity constraints and v) the contingency of the demand to

subsidy, growth prospects for company is not enough to maintain the current price

of the scrip. At our target price of PKR 87.6/share discloses a total negative return of

8.5%. Scrip also offers a dividend yield of 7%.

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Integrated Equities






Ratio Analysis:

Ratio Analysis CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21

PKR '000

Net Debt (6,220,295) (11,550,394) 28,088,320 15,246,466 19,493,218 22,583,563 24,988,747 27,208,206 29,165,073

EV 125,456,359 120,126,260 159,764,974 146,923,119 151,169,871 154,260,217 156,665,401 158,884,860 160,841,727

EBITDA 30,021,756 26,511,582 24,061,849 13,542,980 13,553,251 15,058,355 16,553,048 17,971,147 19,379,207

EBIT 28,364,759 24,671,771 22,068,063 11,703,354 11,737,401 13,136,658 14,533,482 15,861,089 17,185,478

Valuation Ratios:

EPS 15.83 14.28 13.18 10.50 13.52 14.58 15.49 16.25 16.93

DPS 15.35 13.65 11.86 7.47 11.34 12.22 12.99 13.63 14.19

Distribution 154% 137% 119% 75% 113% 122% 130% 136% 142%

Payout Ratio 97% 96% 90% 71% 84% 84% 84% 84% 84%

BVPS 19.77 20.18 21.47 24.09 26.58 29.23 32.01 34.90 37.90

PER 7.07 8.20 8.95 9.86 7.65 7.10 6.68 6.37 6.11

EV/EBITDA 4.18 4.53 6.64 10.85 11.15 10.24 9.46 8.84 8.30

EV/EBIT 4.42 4.87 7.24 12.55 12.88 11.74 10.78 10.02 9.36

Price/CFPS 4.74 5.62 6.24 9.72 9.72 8.74 7.95 7.33 6.79

Price/SPS 1.62 1.56 1.48 1.59 1.58 1.51 1.45 1.40 1.35

Earning Yield 14% 12% 11% 10% 13% 14% 15% 16% 16%

Dividend Yied 14% 12% 10% 7% 11% 12% 13% 13% 14%

Profiability Ratios:

GP Margin 46% 38% 34% 26% 24% 25% 26% 26% 27%

EBIT Margin 38% 30% 26% 16% 15% 16% 17% 18% 19%

NP Margin 27% 22% 20% 18% 22% 22% 23% 23% 23%

ROA 30% 21% 21% 16% 18% 18% 18% 18% 18%

ROE 80% 71% 61% 44% 51% 50% 48% 47% 45%

Earning Growth -3% -10% -8% -20% 29% 8% 6% 5% 4%

Liquidity Ratios:

Current Ratio 0.77 0.67 0.84 0.85 0.80 0.78 0.82 0.88 0.94

Quick Ratio 0.66 0.59 0.58 0.62 0.60 0.60 0.65 0.71 0.77

Cash Ratio 0.04 0.02 0.08 0.33 0.38 0.41 0.47 0.54 0.60

Efficiency Ratios:

Receivable Days 10.57 3.42 5.59 8.38 7.83 7.76 7.80 7.87 7.93

Inventroy Days 31.57 32.38 28.55 41.73 57.22 53.99 56.19 57.14 57.55

Payable Days 174.50 217.52 150.11 198.79 180.39 178.29 178.68 179.86 180.77

WCC (132.36) (181.72) (115.97) (148.68) (115.34) (116.53) (114.70) (114.85) (115.28)

Leverage Ratios:

Debt Ratio 19% 18% 48% 23% 25% 27% 27% 27% 27%

Debt to Equity 51% 62% 141% 64% 70% 72% 72% 71% 69%

Gearing Ratio 34% 38% 58% 39% 41% 42% 42% 41% 41%

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Integrated Equities






Statement of Financial Position (PKR '000)

CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21

NON - CURRENT ASSETS

Property, plant and equipment 18,444,188 20,093,898 21,381,702 22,286,178 23,703,685 25,014,341 26,226,201 27,346,710 28,382,756

Intangibles 1,651,592 1,611,204 1,576,720 1,569,234 1,569,234 1,569,234 1,569,234 1,569,234 1,569,234

Long term investments: 20,662,532 28,134,520 29,129,475 29,180,122 29,180,122 29,180,122 29,180,122 29,180,122 29,180,122

Investment in Associate - at cost:

Fauji Cement Company Limited 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000

Fauji Fertilizer Bin Qasim Limited (FFBL) @ Par Value of 10 4,752,330 4,658,919 4,658,919 4,658,919 4,658,919 4,658,919 4,658,919 4,658,919 4,658,919

Askari Bank Limited @ Purchase Price of 19.24 10,461,921 10,461,921 10,461,921 10,461,921 10,461,921 10,461,921 10,461,921 10,461,921 10,461,921

Investment in Joint venture - at cost:

Pakistan Maroc Phosphore S.A., Morocco (PMP) 705,925 705,925 705,925 705,925 705,925 705,925 705,925 705,925 705,925

Investment in subsidiaries - at cost:

FFC Energy Limited (FFCEL) 2,438,250 2,438,250 2,438,250 2,438,250 2,438,250 2,438,250 2,438,250 2,438,250 2,438,250

Fauji Fresh n Freeze Limited (Al-Hamd Foods Limited) 585,500 1,035,500 1,435,500 1,435,500 1,435,500 1,435,500 1,435,500 1,435,500 1,435,500

Investments available for sale:

Certificates of Investment 118,239 113,868 114,758 105,241 105,241 105,241 105,241 105,241 105,241

Pakistan Investment Bonds 59,497 7,178,198 8,230,410 8,383,619 8,383,619 8,383,619 8,383,619 8,383,619 8,383,619

Term Finance Certificates 96,000 99,500 99,917 - - - - - -

Less: Current portion shown under short term investments (55,130) (57,561) (516,125) (509,253) (509,253) (509,253) (509,253) (509,253) (509,253)

Long term loans and advances 740,408 823,188 814,298 936,567 936,567 936,567 936,567 936,567 936,567

Long term deposits and prepayments 2,654 15,624 13,001 13,469 13,469 13,469 13,469 13,469 13,469

41,501,374 50,678,434 52,915,196 53,985,570 55,403,077 56,713,733 57,925,593 59,046,102 60,082,148

CURRENT ASSETS

Stores, spares and loose tools 3,244,645 3,314,823 3,395,762 4,644,250 4,680,593 4,835,006 5,012,154 5,178,453 5,350,609

Stock in trade 301,957 981,750 5,100,020 3,875,474 4,561,035 5,006,183 5,187,320 5,372,582 5,561,802

Trade debts 700,541 822,460 1,773,698 1,676,472 1,716,443 1,796,907 1,885,990 1,971,975 2,060,864

Loans and advances 921,460 1,058,754 1,024,594 1,527,626 1,527,626 1,527,626 1,527,626 1,527,626 1,527,626

Deposits and prepayments 46,984 26,376 39,323 156,926 156,926 156,926 156,926 156,926 156,926

Other receivables 790,163 1,072,461 2,807,262 3,117,560 3,117,560 3,117,560 3,117,560 3,117,560 3,117,560

Short term investments: 18,960,295 27,432,837 10,334,720 4,216,133 4,216,133 4,216,133 4,216,133 4,216,133 4,216,133

Term deposits with financial institutions Loans and receivables:

Local currency 17,420,000 25,400,000 8,239,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000 2,100,000

Foreign currency 1,335,731 1,309,818 1,396,192 1,408,366 1,408,366 1,408,366 1,408,366 1,408,366 1,408,366

Investments at fair value through profit or loss - Held for trading 149,434 665,458 183,403 198,514 198,514 198,514 198,514 198,514 198,514

Current maturity of long term investments - Available for sale 55,130 57,561 516,125 509,253 509,253 509,253 509,253 509,253 509,253

Cash and bank balances 1,361,651 1,173,767 2,739,314 12,211,995 17,658,758 23,105,521 28,552,284 33,999,047 39,445,810

26,327,696 35,883,228 27,214,693 31,426,436 37,635,074 43,761,863 49,655,994 55,540,302 61,437,331

Total Assets 67,829,070 86,561,662 80,129,889 85,412,006 93,038,151 100,475,597 107,581,586 114,586,404 121,519,479

EQUITY

AUTHORISED SHARE CAPITAL 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000

Share capital: 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382

Ordinary shares of Rs 10 each issued for cash 2,564,959 2,564,959 2,564,959 2,564,959 2,564,959 2,564,959 2,564,959 2,564,959 2,564,959

Ordinary shares of Rs 10 each - fully paid bonus shares 10,157,423 10,157,423 10,157,423 10,157,423 10,157,423 10,157,423 10,157,423 10,157,423 10,157,423

Capital Reserves 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000

Revenue reserves: 12,268,881 12,787,149 14,429,083 17,767,784 21,006,741 24,447,326 28,052,993 31,817,073 35,709,592

General reserve 6,802,360 6,802,360 6,802,360 6,802,360 6,802,360 6,802,360 6,802,360 6,802,360 6,802,360

Unappropriated profit 5,456,013 5,681,225 7,092,316 10,335,219 13,574,176 17,014,761 20,620,428 24,384,508 28,277,027

Surplus / (deficit) on remeasurement of AFS Investments- net of Tax 10,508 303,564 534,407 630,205 630,205 630,205 630,205 630,205 630,205

25,151,263 25,669,531 27,311,465 30,650,166 33,889,123 37,329,708 40,935,375 44,699,455 48,591,974

NON - CURRENT LIABILITIES

Long term borrowings 4,280,000 2,500,000 15,892,599 12,950,795 7,363,991 2,246,250 1,605,000 2,250,000 3,000,000

Deferred Liabilities 4,078,369 4,574,028 4,600,324 4,794,685 4,794,685 4,794,685 4,794,685 4,794,685 4,794,685

8,358,369 7,074,028 20,492,923 17,745,480 12,158,676 7,040,935 6,399,685 7,044,685 7,794,685

CURRENT LIABILITIES

Trade and other payables 21,854,125 37,904,434 8,113,918 29,554,319 29,785,589 30,768,220 31,895,527 32,953,791 34,049,332

Interest and mark - up accrued 22,098 30,117 268,094 386,990 269,492 170,045 134,704 106,359 111,792

Short term borrowings 7,000,000 11,602,443 18,020,602 - 10,733,282 19,365,538 23,829,762 26,621,738 27,859,775

Current portion of long term borrowings 1,460,000 1,780,000 4,509,839 6,511,804 5,586,804 5,117,741 3,641,250 2,355,000 2,250,000

Taxation 3,983,215 2,501,109 1,413,048 563,248 615,185 683,409 745,284 805,376 861,921

34,319,438 53,818,103 32,325,501 37,016,361 46,990,352 56,104,953 60,246,527 62,842,264 65,132,820

Total Equities and Liabilities 67,829,070 86,561,662 80,129,889 85,412,006 93,038,151 100,475,597 107,581,586 114,586,404 121,519,479

ForecastActual

Company Financials:

Profit and Loss Statement (PKR '000)


Gross Sales 87,964,892 95,428,648 101,720,021 82,603,604 83,279,658 86,967,930 90,729,936 94,169,174 97,662,433

Net Sales 74,480,611 81,240,187 84,831,024 72,998,561 79,115,675 82,619,534 86,193,439 89,460,715 92,779,311

Cost of sales:

Raw materials consumed 18,614,731 24,372,474 27,022,783 28,324,960 30,145,278 30,748,184 31,363,148 31,990,411 32,630,219

Fuel and power 6,817,258 7,707,652 8,075,315 9,134,293 9,596,160 9,788,083 9,983,845 10,183,522 10,387,192

Chemicals and supplies 377,799 366,674 352,678 351,462 355,388 355,388 355,388 355,388 355,388

Salaries, wages and benefits 4,070,292 5,002,549 5,854,032 6,173,906 6,420,862 6,677,697 6,944,805 7,222,597 7,511,501

Training and employees welfare 708,160 833,770 845,825 864,225 898,794 934,745 972,135 1,011,021 1,051,461

Rent, rates and taxes 21,644 13,533 19,432 16,702 17,370 18,065 18,788 19,539 20,321

Insurance 197,739 184,768 182,950 243,259 252,989 263,109 273,633 284,579 295,962

Travel and conveyance 390,715 478,674 399,650 368,585 383,329 398,662 414,608 431,193 448,440

Repairs and maintenance 1,406,520 1,357,448 1,958,786 1,622,685 1,687,592 1,755,096 1,825,300 1,898,312 1,974,244

Depreciation/Amortization 1,570,384 1,754,626 1,906,400 1,839,626 1,743,314 1,844,933 1,938,893 2,025,769 2,106,097

Other expenses 1,827,762 1,627,187 1,725,948 1,704,795 1,772,987 1,843,907 1,917,663 1,994,370 2,074,144

Opening stock-work in process 45,216 67,903 64,860 106,097 105,122 107,224 109,369 111,556 113,787

Closing stock-work in process (67,903) (64,860) (106,097) (105,122) (107,224) (109,369) (111,556) (113,787) (116,063)

Cost of Goods Manufactured 35,980,317 43,702,398 48,302,562 50,645,474 53,271,961 54,625,724 56,006,017 57,414,468 58,852,694

Opening stock - Manufactured Urea 80,055 71,424 584,930 2,172,446 6,033,480 6,719,041 7,164,189 7,345,326 7,530,588

Closing stock - Manufactured Urea (71,424) (584,930) (2,172,446) (6,033,480) (6,719,041) (7,164,189) (7,345,326) (7,530,588) (7,719,808)

Cost of Sales - Own Manufactured Urea 35,988,948 43,188,892 46,715,046 46,784,440 52,586,401 54,180,576 55,824,881 57,229,206 58,663,473

Opening stock - Purchased Fertilizer 274,029 - 21,504 2,756,037 2,158,006 2,158,006 2,158,006 2,158,006 2,158,006

Purchase of fertilizers for resale 3,685,595 6,969,361 11,968,858 6,883,581 7,446,175 7,803,248 8,177,718 8,570,440 8,982,314

Closing stock - Purchased Fertilizer - (21,504) (2,756,038) (2,158,006) (2,158,006) (2,158,006) (2,158,006) (2,158,006) (2,158,006)

Cost of Sales - Purchased Fertilizers 3,959,624 6,947,857 9,234,324 7,481,612 7,446,175 7,803,248 8,177,718 8,570,440 8,982,314

Total COGS (39,948,572) (50,136,749) (55,949,370) (54,266,052) (60,032,575) (61,983,824) (64,002,599) (65,799,646) (67,645,787)

Gross Profit 34,532,039 31,103,438 28,881,654 18,732,510 19,083,100 20,635,710 22,190,840 23,661,069 25,133,524

Distribution cost (6,167,280) (6,431,667) (6,813,591) (7,029,156) (7,345,699) (7,499,053) (7,657,358) (7,799,981) (7,948,046)

PBIT 28,364,759 24,671,771 22,068,063 11,703,354 11,737,401 13,136,658 14,533,482 15,861,089 17,185,478

Finance cost: (756,215) (848,940) (1,474,801) (2,600,549) (2,279,652) (1,756,182) (1,487,268) (1,389,352) (1,441,221)

Other expenses (2,557,937) (2,302,937) (2,284,624) (1,961,587) (2,040,051) (2,121,653) (2,206,519) (2,294,780) (2,386,571)

Other income 4,367,941 4,720,866 6,194,232 11,711,364 14,717,518 14,818,619 14,922,613 14,989,705 15,059,980

PBT 29,418,548 26,240,760 24,502,870 18,852,582 22,135,217 24,077,441 25,762,308 27,166,662 28,417,666

Tax (9,284,000) (8,070,000) (7,737,000) (5,494,675) (4,930,488) (5,532,578) (6,054,886) (6,490,236) (6,878,047)

PAT 20,134,548 18,170,760 16,765,870 13,357,907 17,204,729 18,544,864 19,707,422 20,676,426 21,539,618

ForecastActual

Statement of Financial Position (PKR '000)


Non- Current Assets

Property, plant and equipment 18,444,188 20,093,898 21,381,702 22,286,178 23,703,685 25,014,341 26,226,201 27,346,710 28,382,756

Intangibles 1,651,592 1,611,204 1,576,720 1,569,234 1,569,234 1,569,234 1,569,234 1,569,234 1,569,234

Long term investments 20,662,532 28,134,520 29,129,475 29,180,122 29,180,122 29,180,122 29,180,122 29,180,122 29,180,122

Long term loans and advances 740,408 823,188 814,298 936,567 936,567 936,567 936,567 936,567 936,567

Long term deposits and prepayments 2,654 15,624 13,001 13,469 13,469 13,469 13,469 13,469 13,469

41,501,374 50,678,434 52,915,196 53,985,570 55,403,077 56,713,733 57,925,593 59,046,102 60,082,148

Current Assets 26,327,696 35,883,228 27,214,693 31,426,436 37,635,074 43,761,863 49,655,994 55,540,302 61,437,331

Total Assets 67,829,070 86,561,662 80,129,889 85,412,006 93,038,151 100,475,597 107,581,586 114,586,404 121,519,479

Equity

AUTHORISED SHARE CAPITAL 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000

Share capital 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382 12,722,382

Revenue reserves 12,268,881 12,787,149 14,429,083 17,767,784 21,006,741 24,447,326 28,052,993 31,817,073 35,709,592

25,151,263 25,669,531 27,311,465 30,650,166 33,889,123 37,329,708 40,935,375 44,699,455 48,591,974

Non- Current Liabilities 8,358,369 7,074,028 20,492,923 17,745,480 12,158,676 7,040,935 6,399,685 7,044,685 7,794,685

CURRENT LIABILITIES 34,319,438 53,818,103 32,325,501 37,016,361 46,990,352 56,104,953 60,246,527 62,842,264 65,132,820

Total Equities and Liabilities 67,829,070 86,561,662 80,129,889 85,412,006 93,038,151 100,475,597 107,581,586 114,586,404 121,519,479

ForecastActual

Page 9

Integrated Equities






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Rating Systems

Integrated Equities employs three tier ratings system, depending upon on total stock returns versus IEL’s index target return for the year. A table presenting IEL’s rating definitions is given below:

Rating

Over Weight Total stock return> expected market return+ 3% Market Weight Expected market return +/- 3% Under Weight Total stock return< expected market return – 3%

Rating is based on 12 months horizon unless stated otherwise in the report. Total Return is sum of any Upside/Downside (percentage difference between the Target Price and Market Price) and Dividend Yield.

Valuation Methodology

We use different valuation methodologies to arrive at our period end target prices including

Discounted Cash Flow (FCFF, FCFE, DDM)

Relative multiples based valuations (P/E, P/B, P/CFPS, EV/EBITDA, P/S)

Residual Income (RI, EVA)

Documents

FFC - Current situation dipicts dull prospects_SELL_ (27-09-2016)