Contents

IBA-API
May, 2015

Presented by:
Munib Mujeeb Jilani
S M Jawad Shamim
1

Executive Summary
Economys Direction
Macro improvement = Valuation
rerating
Subdued E&P performance
Slower clip to circular debt
accretion (+ve for OMCs/IPPs)
+ve for Petrochemicals/Transport
margins

DR (Target):
8.5%
Stocks to Play: PSO,
HUBC,
PNSC, BERG

ICE Brent Down 50%FYTD

Lower Oil
Prices

Equities gain charm vs. other asset

classes
Lower financial charges for Corporate
Pakistan (+ve for Leveraged sectors
esp. Textiles)

Lower
Interest
Rates

High D/Y names even more attractive

Stocks to Play: MLCF, FCCL.
EFOODS, ENGRO, PTC, NML, POL.,
HUBC, FFC, FFBL

Faster GDP growth

Fixed capital investment rises
Consumerism picks up
Stocks to Play: PAEL, PSMC,
PTC, HUMNL

GDP Growth on an
inflection

Credit
Cycle
Revival

20%
15%
10%
5%
0%
-5%

17%

Credit Loan Growth%

16%

11%

6%
0%

4%

0%

2%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Higher
GDP
Growth

Valuation rerating especially for

Banks
Higher Per Capita and Disposable
Incomes
Stocks to Play: UBL, BAFL, ABL,
EFOODS, PTC, MLCF, FCCL

Pakistan Economy

Pakistan Economy Snapshot

Pakistan Economy Snapshot

GDP Growth on an Inflection

Macro stability under the new IMF program
enabled Pakistan to post 4.1% real GDP
growth in FY14, highest since FY08. We
believe this represents the start of a
sustainable U-shaped recovery where GDP
growth could sustain and exceed 5% over the
medium-term.

GDP Growth (%) on the Rise

We expect GDP growth of 4.3% in FY15 to be

driven by:
Agriculture growth of 2.5%
Manufacturing growth of 5.0%
Services growth of 4.5%
In this regard, manufacturing may see a
slowdown from 5.5% in FY14. However, while
declining crop prices could drag immediateterm Agriculture growth lower, respite should
emerge from livestock which accounts for >
50% of the Agriculture sector.
We see GDP growth at 4.9% in FY16 before
crossing the 5% mark in FY17. There is room
for +ve surprises on:
Earlier than expected resolution to energy debt
crisis, which shaves an estimated 2% off GDP
growth.
Pickup in construction activity with backward

Credit Cycle Growth Trend

Inflation & Interest Rates

The overall price level has been on a decline
with CY14/9MFY15 CPI average standing at
7.2%/5.1%YoY. At the same time, trimmed Core
CPI has averaged 7.3%/5.7%YoY in the same
timeframe. Soft inflation remains a function of:
Lower food prices, inline with lower global soft
commodity prices, despite floods in Autumn of 2014.
Lower transport costs due to lower intl oil prices
CPI came in at 2.49% in Feb15 - although price
pressure are set to increase as the high base
effect erodes amid expectations of gas and
fuel price hike, CPI should still average 4.5%
5.5%YoY in fullyear FY15.
Interest rates returned to single-digit figures
with SBP cutting DR by
200bps in three
consecutive policies. This was a function of:
Improved external a/c position with total FX
reserves crossing US$16bn in Feb15
A lower inflation forecast SBP expectations of
4.0%-5.0% for FY15.
With real interest rates at +2.9%, considerably
higher than the historical average of +1.7%,
we see space for a further 50bps cut in FY15.
Controlled inflation can help singledigit
interest rates to sustain particularly as the

CPI & Trimmed Core Inflation Trend (YoY%)

Lower Inflation = Monetary Easing

Cement

Cement:
Introduction
Composition of Pakistan's Cement Sector:
North Zone (majority of the players)
South Zone (Lucky Cement)
Total rated cement capacity in Pakistan currently stands at 45.6mn tons
Major Events:
Between FY02-FY05 when manufacturers converted from furnace oil (FO) to coal
Wave of expansions between FY05-FY09 when industry heavyweights LUCK, DGKC and MLCF all
underwent expansions.
Manufacturing capacity in the country subsequently increased from 17.9mn tons in FY05 to 42.4mn
tons by FY09.
Regulations:
All Pakistan Cement Manufacturers' Association (APCMA).
Informal understanding on pricing exists between the various players of the country with companies
such as Lucky Cement, DG Khan Cement and Maple Leaf Cement holding much sway.
As a result of this alleged understanding, manufacturers have faced accusations from time to time,
with the harshest coming in the form of a penalty of PkR8.8bn imposed by the Competition Commission
of Pakistan (CCP) for alleged collusion on price setting. That said, the penalty was challenged in courts
and never materialized due to lack of evidence.
Indirect Taxes - GST and FED:
Federal Excise Duty (FED) - 5% of Maximum Retail Price (MRP) on local sales
General Sales Tax (GST) 17%
9

Cement: Location of
Plants

10

Cement Sector Porters five

forces
Threat of new
competition

Very low given an informal

understanding between the
players in the industry over
pricing of cement within the
country .
With supply outstripping
demand, the capacity
overhang is likely to keep new
investors away from the
industry
.
Major players had already
expanded in the cement rush
of 2007, making it difficult for
new entrants

Bargaining power of
customers

This remains limited in our

view given the structure of the
clientele. While demand
factors do have a slight impact
on pricing, it has continued to
be largely dictated by the
arrangement between
manufacturers
Economic activity and
reconstruction efforts dictate
prices more than end
customers

Threat of substitutes

Competitive rivalry
Given an informal
understanding among major
players on pricing as well as
market share, competition
amongst players remains
sparse
However, pricing
arrangements have broken in
the past leading prices to fall
sharply. Debt and production
efficiency play an important
role in determining winners
Greater demand and supply
are concentrated in the
Northern region, where if the
price understanding is
broken, stiff competition
could stifle profits

Potential low cost imports from

China and the Middle East
could become a threat in the
future
There are no other natural
substitutes for cement

Bargaining power of
suppliers

Remains high given that

individually, these
companies (as well as the
country) remain small player
in the international market

Gas prices are dictated by

the GoP (inline with
international oil prices),
with manufacturers having
low to zero negotiating
power

11

SWOT Analysis
Cement Industry:

Strengths

Weaknesses

Opportunities

Strong underlying demand in the country where historically local volumetric

growth has averaged 5.6% over the last 3 years while per capita cement usage is
low (avg. household size is more than 6 members)
Understanding between the major players which effectively creates a barrier to
entry
Pakistans cement is considered of high quality and has the required certifications
for export destinations such as South Africa and even India
Highly leveraged sector with sector Debt / Equity at 50% (albeit much lower than
97% in FY09) especially within the backdrop of a reversal in monetary easing
Heavy reliance on coal which results in profits see-sawing with coal prices
Seasonal off take which is adversely impacted by untimely arrival / duration of
winters and monsoon season
Increased urbanization within the country leading to sustained increase in
domestic volumes
North based manufacturers are ideally placed to capitalize on warming of
relationships between Pakistan and India
South based (as well as some North) manufacturers have also ventured into
exporting cement to African countries. In this regard, big players such as LUCK are
also eyeing manufacturing facilities in the African continent (DR Congo)
Competition from cheaper Iranian cement threatens Pakistans exports to
12
Afghanistan, the single largest export destination for Pakistan (FY14 exports to
Afghanistan: 3.7mn tons)

Review & Outlook

3QFY15 (based on ~80% of the listed companies):
Our sample of 11 companies representing ~80% of the listed cement space's market cap saw its
bottom-line increasing by 19%YoY to PkR10.3bn in 3QFY15 against PkR8.6bn in the same period
previous year.
Moreover, 3QFY15 also proved to be the most profitable 3q in the past 7yrs.
Cost of sales came off by 4%YoY on the back of falling commodity prices (oil and coal down 20%YoY
and 53%YoY, respectively). Resultantly, sample's gross margins were bolstered by 220bps to 37.0% in
3QFY15.
Figures for the 9MFY15 have also remained astounding as our cluster of companies posted net
earnings of PkR27.3bn, 16%YoY higher than NPAT of PkR23.5bn declared in 9MFY14.
Chinese Projects:
Chinese president's recent visit to Pakistan promising development of heavy infrastructure projects. In
this regard, our preliminary analysis suggests that unavailability of mega cement plants in Xianjiang
(Chinese region closest to Pakistan) and higher transportation charges, along with weather
incompatibility would ensure Pakistani cement to be used for construction purposes of these projects.
Iran is troubling!
Entry of cements via unofficial channels
Eating up share in the Afghani market
13

Fertilizer

14

14

Fertilizer Sector Porters five forces

Threat of new
competition
Low as Fertilizer is a capital
intensive industry which bodes
well for incumbents
Establishment of distribution
channels requires significant
investments and time
Scarcity of natural gas supply
limits new investments. Even if
gas supply resumes, rated
capacity approximately equals
demand

Bargaining power of
customers
Moderate - due to commodity
nature of product, switching costs
are low
A large no. of small buyers
reduces bargaining power
Timely application of fertilizer on
crops is required so buyers cannot
defer purchase to negotiate
better pricing
However, the glut of subsidized
imported urea has recently
increased the bargaining power of
customers

Threat of substitutes

Competitive rivalry
Rivalry among competitors
has historically been low to
moderate given lower supply
vs. demand (due to gas
curtailment)
That said, in current scenario
of GoP's subsidy on imported
Urea, rivalry among
competitors has increased
In the recent past, some
manufacturers undergoing
less gas curtailment have
piggy-backed on the price
increases of rivals

Low as lower nutrient content in

manure prohibits its application on
a large scale
Both CAN and NP, which are
substitutes of Urea and DAP, have
expensive Nitrogen and Phosphate
content, limiting their use as
substitutes

Bargaining power of
suppliers
Low for Mari gas based
producers as they face very low
gas curtailment (~10%), but
high for Sui gas supplied
producers which are facing gas
shortage of upto 80%
Although the country is
suffering from a persistent
natural gas crisis, OGRA
regulates its price, limiting the
bargaining power of suppliers

15

SWOT Analysis
Fertilizer Industry:

Strengths

Weaknesses

Rising need for food security in both global and Pakistan context is a long term positive
Pakistan's agrarian economy has historically led to favorable GoP policy response for the agriculture
sector
.
Subsidized feedstock gas rate (historically at 1/3rd the price of gas supplied to other industrial users) has
substantially benefitted fertilizer manufacturers although urea export is not allowed

Shortage of natural gas supply is forcing lower capacity utilization as Sui network based fertilizer
manufacturers are facing more than ~80% gas curtailment
GoP has imposed restrictions on the export of fertilizers due to subsidized supply of natural gas
Urea is sold at discount to int'l prices (locally manufactured urea is being sold at US$311/ton ex-GST
compared with int'l price of US$328/ton)

Opportunities

Return of pricing power if urea imports are curtailed/ improved farmer economics (higher wheat support
price)
Removal/reduction of GST (17%) on fertilizers and Gas Infrastructure Development Cess (GIDC), which
should lower prices and enhance farmer purchasing power
.
Fertilizer given priority in gas supply given its strategic nature. If plants operate at full capacity, Pakistan
can even export urea
Direct subsidy on multi-nutrient fertilizers in order to encourage balanced fertilizer application

Threats

Continuation of GoP policy to import urea and sell at discounted rates

Failure to add to natural gas supplies particularly if circular debt erodes E&P efficiency while
infrastructure for planned imported gas takes time
A monetary tightening environment where some fertilizer manufacturers are highly leveraged
16

Fertilizer Sector Dynamics

Fertilizer Industry:

Industry

Two types of business models are operational Manufacturing and Distribution (imports)
Seven local fertilizer manufacturers with two largest firms Engro & Fauji accounting for 78% of total urea
production capacity
Urea is dominant fertilizer; accounting for 74% of total fertilizer offtake, followed by DAP (11% share).
Urea market share: FFC 41% & EFERT 35%

Demand

Agriculture is a systemically important sector; accounts for 21% of GDP and 44% of labor force
Annual urea demand is ~6.2mn tons met by a combination of domestic production & imports
Demand drivers include growing population, increasing cultivable area, GoP crop support prices and
access to irrigation

Supply

Total domestic rated urea production capacity is 6.42mn tons (total fertilizer production capacity: 8.11mn
tons), overall CY14 urea capacity utilization stood at 77% due to limited gas supply.
Industrys 5yr average production: 4.79mn tons (due to gas curtailment)
Production dependent on gas supply where fertilizer sector competes with power, industrial and domestic
sector for natural gas. Signing of GSAs with E&P companies is a positive development
Imports accounted for 14% of total urea offtake in CY14. This can reduce if capacity utilization improves
and/or discount to intl urea prices expands.

Profitability

Gross margins for the sector have averaged 39% over the last 5yrs (CY14:38%)
ROA/ROE for the sector has consistently increased; from 6%/17% in CY09 to 29%/52% in CY14
Sectors sales/profits have grown at a 5yr CAGR of 8%/15%.

17

Fertilizer Sector Demand & Supply

Agriculture Growth trend vs. GDP

Pakistan Urea Production & Offtake (incl.

Imports)
Low production in CY12 due to severe
gas curtailment

Agriculture constitutes 21% of Pakistans GDP and accounts for

44% of total labor force

International vs. Local Price trend

Capacity utilization has space to expand

The country remains net importer of urea (5-yr

average imports: 981k tons) despite of current
installed capacity higher than the demand.
From CY05, urea demand grew at a 5-yr CAGR of
6% and peaked at 6.5mn tons in CY09 gradually
decreasing to 5.3 MT in CY12. The fall in demand
resulted from higher Urea prices owing to
unprecedented gas curtailment and increase in
gas prices.

Domestic urea price has remained substantially lower than

equivalent imported urea price. Current discount to intl prices at
18%

18

Fertilizer Sector - Structural Overview

Industry Manufacturing Capacity

Company

Plant Locations

Production Capacity (MT per. annum)

Location

Fauji Fertilizer Co. Ltd

Total

Urea

NPK

DAP

NP

CAN

2048,000

Plant 1

Goth Machhi, Punjab

695,000

Plant 2

Goth Machhi, Punjab

635,000

Plant 3

Mirpur, Sindh

718,000

551,000

Fauji Fertilizer Bin

Qasim Ltd
Engro Fertilizer Ltd
Total

Karachi, Sindh

650,000

2,275,000
150,000

Base

Ghotki, Sindh

975,000

Enven

Ghotki, Sindh

1,300,000

Karachi, Sindh

150,000

Sadiqabad, Punjab

500,000

300,000

360,000

Multan, Punjab

120,000

Chichoki Mallian, Punjab

445,000

Haripur, Punjab

483,000

NPK plant
Fatima Fertilizer Co. Ltd
Pak Arab Fertilizers
Dawood Hercules Ltd
Agritech
Total

6,422,000 450,000 650,000

350,000

710,000

EnVen
Base
Plant

420,000

Gas Supply Network:

340,000

Engro Fertilizer Ltd

-Base
-Enven
-NPK plant

760,000

Source: NFDC & AKD Research

Fauji Fertilizer Co.

Ltd
-Plant 1
-Plant 2
-Plant 3
Fauji Fert. Bin Qasim
Ltd

Mari / SNGP
Mari / SNGP
SSGC

Mari
Mari
Mari
SNG
P

Fatima Fertilizer
Co. Ltd
Mari
Pak Arab Fertilizers SNGP
Dawood Hercules
Ltd
SNGP
19
Agritech
SNGP

Fertilizer Sector Pricing & Profitability

Margins Trend

Margins took a hit after increase in GIDC

Fertilizer Sector Profitability trends

ROE vs. ROA

Return profile: ROA/ROE increasing after COD of EnVen and FATIMA

plants

While the fuel gas is at commercial rates, the GoP

gives concessionary prices on feed gas to keep
urea prices low for farmers protecting them from
the higher intl prices.
The GoP, under Fertilizer Policy 2001, guaranteed
a discounted feed gas price for initial 10-yrs
incentivizing investment in this capital intensive
sector.
Given the GoPs policy to reduce the gap between
feed and fuel stock, the urea prices have been on
the rise in the past years. However, these are still
low compared to the international price.

5-year NPAT CAGR: 61.8%

20

Q&A

21

21

Pakistan Market

22

22

KSE Snapshot
KSE100 Historical Return - CY

KSE - Market Data

KSE - Market Data

KSE-100 Index (Apr 17, 2015)

33,234.73

Allshare Market Capitalization (US$mn)

71,091.68

12m High KSE-100 Index

34,826.51

KSE-100 Market Capitalization*

(US$mn)

17,423.85

12m Low KSE-100 Index

27,774.43

Avg. Yearly New Listings (last 5 years)

3m Avg. Daily Traded Value (US$mn)

126.62

# of Listed Companies

12m Avg. Daily Traded Value (US$mn)

103.45

Free Float Estimate

3m Avg. Daily Volume (shares mn)

266.38

# of Sectors

12m Avg. Daily Volume (shares mn)

227.74

US$/PkR Exchange Rate

4
560
25%
32
101.78

*Free Float based

23

Genesis of Market Performance

Monetary Easing on single
digit CPI

Risk perception
reduces

Corporate profitability
remains strong

Increased Domestic
Investor Confidence

Discount to
regional markets
narrows

Foreign Portfolio fund flows

rises

KSE100 Index Record Territory (up 96% in 2Yrs)

24

CY14 Review

Other than a bout of volatility in Autumn due to escalation

in political noise, the KSE-10 Index maintained its upward
rise, gaining 27% in CY14. In US$ terms, Pakistan was one
of the best performing markets in the world!

Foreign buying continued to be the main driving force; net

buy of US$383mn bringing cumulative 5yr flows to
US$1.3bn (with privatization: US$1.7bn).

Top Sectors in CY14 were Autos, Pharmaceuticals and

Cements while Banks also performed well. On the flipside,
key laggards were Oil & Gas and Telecoms.

Within our coverage universe, the top performing names

during CY14 included; HCAR +371%, INDU +164% & PSMC
+141%, while on the flipside, OGDC , PTC and POL were the25
notable losers.

KSE Timeline

26

Global Markets Performance

27

Pakistan Market Outlook

Flags for 2015/16

Index Target

Market likely to focus on:

KSE-100 can cross 37,000 points in

2015

US Monetary Policy & Global Funds Flow

Check Points

In absence of any catastrophic event,

downside limited by:
High dividend yield (2015F: 5.2%)
Corporate earnings resilience
Largely cash based market
Valuation discount to region
Upside to Target

Key drivers to include:

Valuation expansion if:

GDP growth trajectory & Sovereign Ratings

Economic growth accelerates

External a/c stability & Monetary Easing

Monetary easing picks pace

Foreign inflows (FDI + FPI incl.

Privatizations)

Import cover keeps expanding

Corporate results and Earnings outlook

Privatization program continues

Market Liquidity/Calls for upgrade to EM

Political stability sustains

Commodity prices (Oil + Crops)

Pakistan Macro uptick
Corporate Sector profitability
Political/Law & Order conditions

Corporate earnings surprise

Political/Law & Order environment

Key Macro Risks
Worsening security dynamic

Commodity price shock

Disruptive political change

Fiscal indiscipline

Weather related agri-sector

failure
Fx reserves depletion
28

Pakistan Market Outlook Eyeing 37,000+!

Blended Index Target
Current Index
E/Y vs. T-Bill
Mean P/E
TP Mapping
Regional Discount
Blended Index Target
Upside to BIT

33,234

KSE-100 Index 2015F PER Band (x)

37,141
38,163
36,882
38,115
37,000
11%

Regional Valuations 2015F

29

Pakistan Market Valuations vs. the Region (2015F)

PER (x) vs. EPS Growth (%)

ROE (%) vs. PBV (x)

2015F Dividend Yield (%)

Market Cap to GDP ratio

30

Foreign Portfolio Investment and KSE-100

Over the last 10yrs, the benchmark KSE-100 Index has on average returned close to
20% p.a. The bull run over the last few years has primarily been driven by foreign
investors that now own ~30% of the available free float.
KSE100 Annual return CAGR

KSE Annual Portfolio Inv.

US$mn

31

Top Picks

32

32

Top picks

Symbo
ls

Pakistan Oilfields Ltd.

POL

Bank Al-Falah Ltd.

BAFL

United Bank Ltd.

UBL

Engro Fertilizer Ltd.

EFERT

Fatima Fert.Co.

FATIMA

Pak Suzuki Motor Co. Ltd.

PSMC

Pakistan Telecommunication

PTC

Maple Leaf Cement Factory

Ltd.

MLCF

Hub Power Company Ltd.

HUBC

Price
(PkR)
17-Apr15

Mkt. Cap
(US$mn)

374.7 886

Target Upside Dividen

Price
to
d
Yield
(PkR) TP (%)
(%)

Total

Stance

Return
(%)

538.3

43.7

12.0

55.7

27.2

431.57

38.0

39.7

8.3

48.0

168.1

2,057.72

210.0

24.9

5.7

30.6

85.1

1,132.09

103.2

21.4

7.8

29.1

41.0

860.58

50.3

22.7

9.8

32.5

397.8

327.41

499.9

25.7

1.8

27.4

21.2

1,082.73

25.1

18.0

9.4

27.4

65.3

344.82

68.0

4.1

1.5

5.6

91.6

1,060.42

86.3

(5.8)

9.3

3.5

Buy
Buy
Buy
Buy
Buy
Buy
Buy
Accumulat
e
Neutral

33

Engro Fertilizer Ltd. (EFERT)

Buy
Price-PkR85; Target Price-PkR103.2; Upside to Target Price
21.4%

Market Data
Price PkR
KATS Code
Bloomberg Code
Market Cap
(PkRmn)
Market Cap
(US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
1Yr High (PkR)
1Yr Low (PkR)

85.06

EFERT 3M Avg Turnover '000

5,725
1 Yr Avg Turnover
EFERT.PA

4,358.2
'000
3M Avg DT Value
112,138

481.57
(PkRmn)
3M Avg DT Value
1,110

4.77
(US$mn)
1,318.34

Stock
92.17
1M
6M FYTD
Performance
73.47 Absolute (%)
7.2 53.4
45.3
92.17 Rel. Index (%)
8.9 38.5
33.2
51.75 Absolute (PkR)
5.6 28.9
25.9

Valuation Multiples
Valuation Multiples
EPS (PkR)
EPS Growth (%)
PER (x)
ROE (%)
ROA (%)
BVS (PkR)

CY13A

CY14F

CY15F

CY16F

4.13

6.17

13.23

14.07

49.28

114.52

6.32

20.59

13.79

6.43

6.05

21.93

23.81

40.67

35.55

5.00

7.36

16.23

17.28

18.84

25.91

32.53

39.56

n.a

P/BVS (x)

4.52
3.28
2.61
2.15
EFERT was incorporated in Jun09, following a decision to demerge
DPS (PkR) fertilizer concern from its parent company (Engro
2.97(compound)
6.61
Corporation Limited). It is primarily in the business of manufacturing and marketing of Urea, NPK
& 7.03
DAP
fertilizers. With the establishment of 1.3mn metric ton state Dividend
of the art
fertilizer
complex
in
2011,
the
companys
annual
yield (%)
3.49
7.78
8.27
urea production capacity stands at 2.3m tons representing 33% of entire Pakistans capacity.
Payout Ratio (%)
50.00
Ever since commencement of commercial production of EFERTs 1.3mn tons EnVen plant in June 48.19
2011, the50.00
company
has

been marred with gas outages. Come 2013, the company actively pursued alternative solutions to resolve gas issues and
in this regard, diverted Mari gas from its base plant to its more efficient EnVen plant. This shift brought in with itself
incremental production capacity of around 10-15%.

EFERT has posted all-time high sales of PkR61.42bn in CY14. In CY14 alone, revenue grew by 23%YoY on account of 1)
16%YoY volumetric growth in offtake to 1.82mn tons urea sold in CY14 and 2) increase in urea prices by 5%YoY.

EFERT trades at a forward P/E multiple of 6.4x vs. sector P/E of 5.7x. Our Dec15 TP at PkR103/sh provides 21.4% upside,
along with a dividend yield of 7.8%.

Risks: While intl urea prices are at a premium to local prices, the GoP has resorted to imports from time to time.
Propensity to import can increase if gas is diverted away from the fertilizer sector and/or intl urea prices further reduce.
34

Fatima Fertilizer Limited (FATIMA)

Buy
Price-PkR41; Target Price-PkR50.03; Upside to Target
Price 22.7%

Market Data
Price PkR
KATS Code
Bloomberg Code
Market Cap
(PkRmn)
Market Cap
(US$mn)
Shares (mn)

40.98
FATIMA
FATIMA.P

A
86,058
852
2,100.00

3M High (PkR)

41.33

3M Low (PkR)
1Yr High (PkR)
1Yr Low (PkR)

35.57
41.33
25.90

3M Avg Turnover '000

1,438
1 Yr Avg Turnover

1,463.0
'000
3M Avg DT Value

54.98
(PkRmn)
3M Avg DT Value

0.54
(US$mn)

Stock
1M
6M FYTD
Performance
Absolute (%)
0.2 34.2
27.3
Rel. Index (%)
1.8 19.3
15.3
Absolute (PkR)
0.1
9.4
7.9

Valuation Multiples
Valuation Multiples
EPS (PkR)
EPS Growth (%)
PER (x)
ROE (%)
ROA (%)
BVS (PkR)
P/BVS (x)

CY13A

CY14F

CY15F

CY16F

4.33

4.61

5.05

5.47

48.82

6.42

9.48

8.50

9.46

8.89

8.12

7.49

27.76

25.29

23.72

24.11

11.32

12.13

13.97

15.66

15.60

18.23

21.27

22.71

2.63

2.25

1.93

1.80

FATIMA produces a diversified product mix of Urea, CAN

and NP. FATIMAs gas supply from Mari Network
DPS (PkR)
2.50
2.75
4.04
4.38
faces limited 8%-12% gas curtailment (vs. 40% curtailment for peers on Sui network). Furthermore, cost
Dividend yield (%)
9.85
10.69
of feedstock is fixed at US$0.7/mmbtu for 10yrs vs. US$4.25/mmbtu
for older 6.10
plants. 6.71
Payout Ratio (%)

57.73on competitors
59.67
80.00increase
80.00
Lower gas curtailment and a fixed feedstock rate implies FATIMA can piggyback
in urea price in response to gas curtailment. Key trigger in the near term is a potential gas tariff
rationalization, which could induce a urea price hike.

FATIMA trades at a CY15F P/E of 8.1x, D/Y of 9.5% and provides an upside of 22.7% to our TP of
PkR50/share. FATIMAs P/E multiple is trading at a discount to the industry average P/E of CY15F 9.7x, we
believe the stock is undervalued given its robust CY12-CY17F earnings CAGR of 19% and strong business
fundamentals.
Risks: Hike in DR and changes in the GoP policy stance regarding feed-gas subsidy to the new fertilizer
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plants, though we see little traction in the former being implemented in the near-term.

Economic Data

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AKD Securities does not warrant the accuracy of the information provided herein.

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