Established in 1936, the Fatima Group has expanded the scope of its business from trading in commodities in the early era to the manufacturing of textiles, sugar, fertilizer as well as in the fields of mining and energy generation. Eyeing the mushrooming demand for fertilizer in Pakistan; Fatima Fertilizer Company Limited (FATIMA) was incorporated on December 24, 2003 as a joint venture with Arif Habib Group.
The company's fertilizer plant has recently commenced production and the company's initial public offering took place earlier this year in February, when 200 million ordinary shares were offered to the public. The fertilizer plant has a capacity to produce 500,000 tons of urea per year, along with an annual capacity for the production of 420,000 tons of calcium ammonium nitrate, 360,000 tons of nitro phosphate and 420,000 tons of NPK. The company's production complex is located in Sadiqabad, Rahimyar Khan, complete with a captive power plant with the generation capacity of 56 MW.
Operational activity During 2009, the company's fertilizer plant had not become operational and as a result it did not produce any output during that period. Consequently, the company reported a loss of Rs 97.121 million in FY09, which was mostly attributable to expenses entailed in the running of its head office and other related expenses; not directly linked to the cost of establishing the plant.
The company's ammonia, urea, nitric acid and CAN plants started trial production by the end of March, 2010. CAN trial production was, however, successfully achieved for a short period in late 2009 with imported raw materials. Related offsite and utilities' units and product handling and storage sections have became operational since March-April 2010.
The ammonia plant produced 254,909 tons during FY10, with an availability factor of 79 percent, while the maximum operating load achieved by this plant was 88 percent. During the same period, FATIMA's urea plant produced 322,756 tons with an availability factor of 84 percent.
CAN plant operations have stabilised gradually and the plant produced 175,619 tons during 2010 with an annual availability factor of 70 percent while the maximum operating load achieved by CAN plant was 84 percent. The company produced a total of 131,797 tons of nitric acid during 2010. Its production is driven by the company's own demand for the acid in the CAN plant. After completing the trial run, the company commenced commercial production on July 1, 2011.
Financial performance The urea and CAN trial production volumes were sold amounting to Rs 7 billion during FY10, during the first year of trial operations. Loss after tax of Rs 164 million represents mainly administration related costs and minimum tax liability for the year 2010.
Additional project finance amounting to Rs 1,919 million was arranged during the year. The IPO held during February 2010 sold 10 percent of the company's ordinary shares to the public and helped to fatten the company's equity by Rs 2790 million. The major costs incurred on the project during that period were associated with the NP plant and mark-up serving to the lenders.
The market demand for urea and CAN continued to be strong during the Rabi season of FY11, which resulted in high sales volume. Increase in the prices of fertilizer also contributed to improved margins during the year. Urea and CAN sales during the first six months of FY11 stood at Rs 8 billion and the trial run gain amounted to Rs 4,123 million. The formal profit and loss account reflects a loss after tax of Rs 152 million.
Liquidity position Financing requirements in FY10 were met through internal cash generation as well as external sources, where necessary. The company arranged short-term credit from financial institutions in order to ensure the availability of working capital required for the smooth operations of the project.
In FY10, the company's sponsors increased their investments in the company by Rs 12.3 billion to a tally of about Rs 30 billion, enabling trial production and addressing any potential liquidity concerns which may have otherwise risen. The liquidity position of FATIMA has improved after the NP plant came online in FY11 and all financial obligations of the company are being met through cash generated from operations at present.
Future Prospects FATIMA has entered into an agreement with N. Serve Environmental Services GmbH; a German firm which specialises in development and implementation of clean development mechanisms (CDM). The CDM project will generate and issue CERs or other abatement benefits resulting in revenue generation for FATIMA in foreign currency and is expected to start production by the end of 2011.
There is an ever-increasing demand for fertilizer in the domestic market. The company appears all set to capitalise on this, especially considering the fact that Fatima Fertilizer will provide a one-window solution for the farmers with its four different fertilisers.
However, given the continuing specter of gas curtailment, unless addressed otherwise by the government; the fertilizer industry will be hard pressed to meet the urea demand for Rabi season. On the other hand, the phosphate market is expected to remain under pressure with high opening inventory in this season. Prices of di ammonium phosphate (DAP) are expected to remain relatively high, due to which the demand for urea will likely remain high in the foreseeable future.
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