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Companies:-
1. Engro Chemical Company Ltd
2. Fauji Fertilizer Company Ltd.
3. Fauji Fertilizer Bin Qasim Ltd. (for calculating industry average)
ENGRO CHEMICHALS PAKISTAN LIMITED
Introduction:Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in Pakistan.
The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited until 1991, when
Exxon decided to divest their fertilizer business on a global basis and sold off its equity of 75% shares in our
company.
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The Employees of Engro, in partnership with leading international and local financial institutions bought out
Exxons equity and the company was renamed as Engro Chemical Pakistan Limited. Engro is a public limited
company listed on the Stock Exchanges of Karachi, Lahore and Islamabad.
Location of Head Office:
Clifton Karachi
Regional Offices:
Hyderabad
Quetta
Nawabshah
Rahim Yar Khan
D G Khan
Multan
Lahore
Gurjanwala
D I Khan
Factories:
Dharki, Sindh.
Bin Qasim, Karachi
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PRODUCT OFFERED
FERTILIZER BY ENGRO CHEMICAL PAKISTAN LTD
Nitrogenous Fertilizers:
. Engro UREA is a trusted, high-grade fertilizer which is suitable for all crops on all types of soils. Engro Urea
is an excellent source of Nitrogen for the vast majority of cultivated soils of Pakistan.
Phosphatic Fertilizers
. Engro DAP: contains 46% P2O5 and 18% N. It is a good source of P fertilizer for all crops. It is an equally
good source on problem soils. On an overall basis it suits to about 90% soils of the country.
. Engro Zorawar: is one of the highest grade phosphatic fertilizers. It is acidic in reaction more than 90% is
water soluble. It is a beneficial fertilizer for all crops on all soils of Pakistan and produces excellent results on
alkaline soils, due to its acidic nature.
. Engro Phosphate: is brown colored mono ammonium phosphate with 11% nitrogen and 52% phosphorus. It is
being marketed as relatively cheaper alternate of DAP.
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Blended Fertilizers
. Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield by providing balanced
nutrition for a wide variety of crops through the uniform availability of Nitrogen, Phosphorous and Potassium.
Fertilizers have low moisture content, high crush strength; 2mm-4mm granule size and free flowing nature -
attributes which ensure excellent handling and application characteristics.
. Engro NP: It provides 22% nitrogen, and 20% phosphorus. ECPL entered into NP business in 2005 to Primary
focus area for ENP marketing is South Zone (Sind).
Micro Nutrients:
. Zingro: Zinc Sulphate, a highly effective, primarily targets Zinc deficiency in crops like Rice, Potato, Maize,
Sugar cane, Wheat, Cotton, vegetables and fruits. Zingro increases crop yield and enhances crop appearance.
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FAUJI FERTILIZER CORPORATION
Introduction:
FFC was incorporated in 1978 as a PVT. Basically this was the joint venture between Fauji foundation and
Haldor Topsoe of Denmark. The initial capital of the company was 813.9 Million Rupees. The present share
capital of the company stands at Rs. 3.0 Billion. FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer
Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited).
Location of Office:
Rawalpindi
Regional Offices:
Multan
Lahore
Sukkar
Mirpur khas
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Nawabshah
Plant Location:
There are 3 plants of FFC in Pakistan
2 plants are located in Goth Machhi
1 plant in Mirpur Mathelo
PRODUCT OFFERED
. Sone Urea: most widely used fertilizer in the country. Fertilizer is white in color, free flowing, readily soluble
in water and both contain 46% Nitrogen. Because of its high solubility, it is suitable for solution fetilizers.
. Sona DAP: is the most concentrated phosphatic fertilizer containing 46% P2O5 and 18% Nitrogen. It is the
widely used phosphatic fertilizer in the world as well as Pakistan. The solubility of DAP is more than 95%. Its
nitrogen to phosphorus ratio ( 1 : 2.5 ) makes it an ideal fertilizer, to meet the initial requirement of most of the
crops.
. Sona SOP: This fertilizer is an important source of Potash, which is a quality nutrient for production of crops
especially fruits and vegetables. Potash improves the resistance of the plants against pests, diseases and stresses
like water.
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GEOGRAPHICAL LOCATION OF FERTILIZER COMPANIES
FACTORIES LOCATION
CITIES
NUMBER OF FACTORIES
Bin Qasim 2
Sheikhupura 1
Sadiqabad, Rahim Yar Khan 2Multan 1
Haripur 2Faisalabad 1
Mirpur Mathelo, Dist Gotki 1
Daudkhel 1
WAREHOUSES
Mian Chunnu
Faisalabad
Khanewal
D.G. Khan
Dera Ismail Khan
Sukkhar
Lahore
Karachi
Larkana
Dadu
Thatta
Mirpur khs
Nawabsha
Multan
Sheikupura
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TOTAL PRODUCTION OF FERTILIZER INDUSTRY
(IN
THOUSAND
TONS)
YEAR
UREA SUPER
PHOSPHAT
E
AMMOMIU
M
NITRATE
NITRO
PHOSPHAT
E
AMMONIU
M
SULPHATE
1998-1999 3521.7 21.6 338.8 265.0 -
1999-2000 3785.0 145.8 386.5 261.3 -
2000-2001 4005.1 159.6 374.4 282.5 -
2001-2002 4259.6 161.0 329.4 305.7 -
2002-2003 4401.9 147.2 335.3 304.9 -
2003-2004 4431.6 167.7 350.4 363.5 -
2004-2005 4606.4 163.1 329.9 338.9 -
2005-2006 4806.4 16.8 327.9 356.6 -
2006-2007 472.5 148.9 330.8 325.8 -
2007-2008 4924.9 157.6 343.7 329.7 -
2007-2008(JULY-
MARCH)
3660.5 114.8 246.0 218.4 -
2008-2009
(JULY-
MARCH)
3652.4 143.2 245.7 218.4 -
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CRITERIA FOR SELETING THESE COMPANIES AS MAJORPLAYERS
As the graph shows the market share of all the players of the industry, it is clearly shown that major players
of the industry are ENGRO and FFC. And this is the reason for selecting these companies as the major
players.
IMPACT ON THE INDUSTRY
Since these (ENGRO, FFC) are the major players of this industry, they enjoy as the price setter in the
industry. They have so much influence on the other players and they are also a barrier to the new entrants.
The new comers will not have to face intense competition but huge competitors like these.
TRADE ASSOCIATION
In this particular industry, there is no local trade association in the country. The country is the member of the
International Fertilizer Association (IFA). Pakistan trade Union defense campaign (PTUDC) which works
for safeguarding the rights of the workers
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ANALYSIS OF FINANCIAL RATIOS :- ( FAUJI FERTILIZERS)
Liquidity ratios
Current ratio; 2009 0.84 (2008 0.82)
Current assets increased during the year and the increase was majorly in short term investments and cash and
bank balances which showed that the liquidity position of the company had improved as per the previous
year. The increase in short term investments was by 92% and in cash and bank balances by 300%. However,
this positive increase was offset by the increase in liabilities where trade and other payables increased by
33% and short term borrowings increased by 100%, thus making the overall position stand at the same level
where it was in the last year.
Quick ratio; 2009 0.66 (2008 0.54)
Quick ratio increased because of the decline in stock levels at year ends. In 2009, stores and spares and stock
in trade were significantly lower as compared to 2008 levels, thus affecting the quick ratio. On the other
hand, other things remained the same as per the justifications given in the above paragraph.
Cash ratio; 2009 0.59 (2008 0.38)
The improvement in the ratio can be attributed the significant increase in short term investments which were
made by the company due to surplus cash available being supported by better operations and increased sales
of 18% as compared to last year.
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Efficiency turnover ratios
Receivable turnover; 2009 96.07 (2008 27.58)
The increase in the ratio is supported by the increase in sales by 18% whereas debtors did not report a
significant increase. Credit period remained the same as per the company policy. Thus, the only change in
the ratio is due to sharp increase in sales.
Receivable turnover in days; 2009 3.80 (2008 13.23)
The reasons mentioned above can be used for justification of the change in the ratio. The paragraph above
states that sales increased by 18% as compared to last year, thus increasing the debtor turnover because of
which the ratio in days also improved by greater value.
Total asset turnover; 2009 0.94 (2008 0.96)
The ratio has decreased insignificantly and the reason is the change in assets. Assets increased by Rs. 7
billion in totality whereas sales increased by Rs. 6 million, thus the change in sales being offset by increase
in assets.
Fixed assets turnover; 2009 2.58 (2008 2.40)
The ratio has increased because of the 18% increase in sales as compared to last year whereas the change in
fixed assets was by 6%, the main increase being in property, plant and equipment due to additions of assets.
Equity turnover; 2009 2.76 (2008 2.49)
The reason in the increase in turnover is due to the sharp increase of 18% in sales as compared to last year
whereas the increase in equity was minimal.
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Gross profit margin; 2009 0.43 (2008 0.40)
There are two major components of this ratio; sales and cost of sales. Sales of the company increased by
18% whereas cost of sales increased by 12%. The company was able to manage its margin by increasing its
sales and by controlling its costs.
Operating profit margin; 2009 0.34 (2008 0.32)
The reasons mentioned above, which justify the increase in gross profit ratio can be used to answer the
change in operating profit. The other element, distribution costs, had no major impact as it changed
insignificantly.
Pre tax margin; 2009 0.36 (2008 0.33)
The ratio remained almost same as compared to last year. Although the sales had increased by 18%, Other
expenses and distribution costs increased because of which the increase in sales was affected. However, the
position is better as compared to last year.
Net profit margin; 2009 0.24 (2008 0.21)
The net profit margin increased as compared to last year as a result of increased sales and controlled costs.
The increase in sales was far better as compared to the increase costs, thus keeping the ratio on the positive
side.
Return on assets; 2009 0.36 (2008 0.34)
The return on assets did not change significantly and the slight increase can be observed due to the 18%
increase in sales. Moreover, assets also increased in the same proportion, thus the ratio remained at the same
level.
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Return on total equity; 2009 0.67 (2008 0.53)
The ratio has increased sharply due to equity remaining at the same level, while sales jumped up by 18%,
thus making the position for the shareholders far better as compared to previous year.
Debt to capital; 2009 1.95 (2008 - 1.6)
The main reason behind the increase in this ratio is the increase in current liabilities. Short term borrowings
increased by 100% to reach at an amount of Rs. 6 million whereas trade and other payables also increased by
Rs. 2 million. On the contrary, equity reflected a minor change which was immaterial.
Debt to equity; 2009 0.26 (2008 0.30)
The ratio is changed as compared to last year. The small change is due to the change in amounts of
borrowings which decreased the areas of short term borrowings by Rs. 6 million and in trade and other
payables by Rs. 2 million.
Interest coverage ratio; 2009 12.82 (2007 13.44)
The change in interest coverage ratio is minimal as compared to last year. But still the company needs to
manage its finances properly, the finance cost has increased due to which the interest coverage ratio has
decreased.
Payout ratio; 2009 73% (2008 79%)
last year company declared greater dividends as compared to this year, therefore the payout ratio in the year
2009 was lower than 2008.
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ANALYSIS OF FINANCIAL RATIOS :- (ENGRO CHEMICAL PAKISTAN
LIMITED)
Current ratio; 2009 1.68 ( 2008 2.01)
The ratio has declined significantly due to a fall in current assets by Rs. 2 million whereas current liabilities
increased by a small amount, thus making the difference and creating a negative impact on the ratio.
Quick ratio; 2009 1.46 (2008 1.09)
This ratio has increased because of the decline in inventory levels of Rs. 4 million at the end of the financial
year end, because of which the liquidity position has improved.
Cash ratio; 2009 0.70 (2008 0.54)
The position of cash flow improved for the company and it was able to hold Rs. 2.2 million of surplus cash
as compared to last year, thus contributing positively to the liquidity position of the company.
Receivable turnover; 2009 67.59 (2008 89.16)
The main reason behind the sharp fall in the ratio is the increase of Rs. 2.2 million in trade debts. This
increase in trade debts is the reason for turnover to decrease.
Payable turnover; 2009 31.99 (2008 11.98)
The change can be attributed to change in cost of sales which increased by Rs. 6 million or 35% as compared
to last year. Furthermore, there was a decline in stock levels by Rs. 4 million and which accounted to 90%
of the previous years figure, thus quantifying the decrease in payable turnover in days.
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Payable turnover in days; 2009 11.41 (2008 30.47)
As the above ratio suggests that payable turnover in times has increased, the simultaneous ratio showing that
how many days are required for the turnover is also showing a positive change suggesting that in 11 days the
stock turnover takes place as compared to 30 days in the last year.
Total asset turnover; 2009 0.32 (2008 0.41)
The fall in the ratio can be linked with the fact that assets in totality increased by Rs. 36 million (64%) as
compared to the last year whereas sales increased in a lower proportion of 30% (Rs. 6 million) thus reducing
the asset turnover ratio overall to 0.32 from 0.41 in 2008.
Fixed asset turnover; 2009 0.69 (2008 - 0.36)
The main reason behind the increase in this ratio is the sharp rise in fixed assets due to purchase of property
plant and equipment. The additions were worth Rs. 35 million and were showing an increase of 83% as
compared to 2008. On the other hand, sales did increase by 47% which is huge change and due to which
fixed assets were utilized to its most.
Equity turnover; 2009 1.12 (2008 1.11)
There was not a major change in this ratio as equity changed with almost the same amount as compared to
sales. The change in equity was of Rs. 5.8 million (27%) and the change in sales was of Rs. 6.8 million
(20%) as compared to financial year 2008.
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Gross profit margin; 2009 0.23 (2008 0.27)
In the financial year 2009 costs and sales increased simultaneously by approximately Rs. 6 million. But the
proportion of change in the two elements was different. The change in sales was of 30% whereas in the case
of cost of sales the change was 36%, because of which the gross profit margin declined as compared to last
year.
Operating profit margin; 2009 0.17 (2008 0.19)
The change in the operating profit is evident as compared to last year. The decrease can be justified from the
reasons given in the above mentioned paragraph where it is seen that cost of sales increased in a greater
proportion as compared to the increase in sales which therefore impacted the operating profit margin as well.
Pre-tax margin; 2009 0.17 (2008 0.22)
Pre tax margin has also changed. The main reason is the significant rise in cost of sales by 36%, whereas
other most important element i.e sales reported a comparatively lesser rise. Other elements of the ratio such
as distribution costs, other income, financial charges changed but their effect in totality was immaterial
because of which they did not contribute much to the changing of this ratio.
Net profit margin; 2009 0.13 (2008 0.18)
The reasons given in the above 3 paragraphs also justify the decline in net profit margin. The main reason
being the surge in cost of sales with a greater proportion of 36% as compared to the proportionate rise in
sales of 30%.
Return on assets; 2009 0.07 (2008 0.12)
The net profit for the year remained unchanged however there was a significant rise in total assets of Rs. 36
million (net) or 63% as compared to the financial year 2008. The change can be observed in property plant
and equipment of Rs. 35 million and increase in cash and cash equivalents at year end of Rs. 2.5 million.
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Return on total equity; 2009 0.15 (2008 0.20)
The profit for the year remained unchanged as compared to last year. On the contrary, equity increased
during the year due to further issue of shares, thus making the ratio of return on equity less as compared to
year ended 2008.
Debt to capital ratio; 2009 0.71 (2008 0.63)
The reason behind the surge in this ratio is the significant increase in borrowings by Engro. Long term
borrowings increased by Rs. 30 million which is 111% as compared to year 2008. Similarly, trade and other
payables also increased along with borrowing costs in form of accrued markup. On the contrary, equity did
not increase to match the rise in borrowings because of which the ratio has risen to a negative side.
Debt to equity ratio; 2009 67% (2008 53%)
The reason mentioned above in debt to capital ratio can be used to justify the change in this ratio. The change
in borrowings was greater as compared to the change in equity because of which the ratio has worsened. This
shows that the company is highly geared and the ratios need to be considered and measures need to be taken
to curtail leverage so as to improve the financial position and strategic outlook of the company.
Interest coverage ratio; 2009 1.44 (2008 25.32)
This shows that the company has increased its use of debt financing. The interest coverage ratio of EPCL has
decreased by 94.3% from 25.32 to 1.44. This shows that EPCL is covering its interest charges by a low
margin of safety, and the extent to which its operating income can decline before it is unable to meet its
annual interest costs has greatly reduced
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Cash flow Analysis:-
Engro Corporation Pakistan
The cash flow analysis on Engro Corporation Pakistan is that the cash flow from the operating activities
increased in the year 2009 because of the major increase in sales. In 2008 the value was negative however in
2009 it stretched to positive.
The cash flow from investing activities shows further negative value as compared to 2008. This is mainly
because of the purchase of fixed assets by the company for expansion project. In 2008 the value was
(20,797,108,000) and which became (36,217,620,000). The company is investing heavily.
The cash flow from financing activity showed an increase at the positive side of cash flow mainly because
we have taken a big loan and received its payments.
Cash flow Analysis:-
Fauji Fertilizer corporation
The cash flow of the Fauji fertilizer shows that the cash from operating activities showed a great change on
positive side. The main reason for the positive change on operating cash flow is the increase in sales.
Although the finance cost, income tax has increased but still the sales of the company has increased so much
that the company managed to have a positive operating cash flow.
The cash flow of the Fauji fertilizer from investing activities showed a lower negative side as compared to
the last year. This has happened due to the investment in Fauji cements in 2008; however we didnt invest
any further in Fauji cements in 2009. Therefore the investing side of the cash flow showed a decrease on
negative side.
The cash flow from financing activity also showed a decrease as compared to last year. This happened due to
the less short term borrowing in 2009.
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ANALYSIS OF FINANCIAL STATEMENT
GROUP MEMEBERS:
SANDAL ALI - 7283REHMA SAEED - 7322SIDRA HABIB - 7010KOMAL RANI - 7712
COMPANIES:
1. Engro Chemical Company Ltd
2. Fauji Fertilizer Company Ltd.3. Fauji Fertilizer Bin Qasim Ltd. (for calculating industry average)
DATE OF SUBMISSION: 13TH DECEMBER, 2010
DAY OF CLASS: MONDAY (6:00-9:00)
COURSE INSTRUCTOR: MR. FAISAL DHEDHI
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ACKNOWLEDGEMENT
First of all we would like to thank our teacher Mr. Faisal Dhedhi for giving our group the opportunity to do
this Analysis of financial statements of the important companies of our fertilizing sector. Through which, all
of us experienced the practical side of analyzing financial statements emphasizing on the entrepreneurial
aspects and significance apart from just concentrating and studying the theoretical part. It seems that by
carrying out this project we have realized what the meaning of financial terms and statements is and what the
issues with the start up businesses in the real world are. It is not just selling something or providing a service
but it stands stable on the pillars of customer relation building, persuading them and trying to analyze the
problems of designing and launching a product and then eventually selling it. This project personally has
given all of us an experience and has given a touch of how different it is to conduct business and how to
speculate things in the market related to the companys shares and stocks traded in the stock market
We thank you for providing us this chance to learn something that wouldnt have been possible if we hadnt
stepped into the fields for this plan.
Group members:-
Sandal Ali
Rehma Saeed
Sidra habib
Komal Rani
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TABLE OF CONTENTS
Acknowledgement.
Engro Chemical PakistanLimitedIntroductionProduct offered
Fauji Fertilizer
Corporation..IntroductionProduct offered
Geographical Location of FertilizerCompanies.
Total Production of Fertilizer
Industry.
Criteria for selecting Engro and Fauji as MajorPlayers.
Impact on theIndustry.
TradeAssociation..
Analysis of FinancialRatios.
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Cash flowAnalysis..
Conclusion.