COMPARATIVE ANALYSIS OF ENGRO FERTILIZERS LIMITED & FAUJI FERTILIZERS COMPANY LIMITED

Theory and Practices of Financial Management

Comparative Analysis of
Engro Fertilizers
Limited & Fauji
Fertilizers Company
Limited
Term Project Report

Submitted to: Sir Suleman Ahmed

1
 Acknowledgment

Thanks to almighty ALLAH for giving us strength to complete the task on given time.

We, the student of MBA from the course of “Theory and Practices of Financial Management,”
would like to pay our deepest gratitude to our supervisor Sir Suleman Ahmed for giving us
opportunity and insight to carry out this comparative analysis on financial health of “Engro
Fertilizers Limited” versus “Fauji Fertilizers Company Limited.”

We are really obliged for his selfless support, suggestions and valuables comments for improving
our learning and analytical skills, which gave us an experience on how to engage ourselves in
such influential projects.

It was impossible to accomplish the goal related to this finance based project, without his kind
and priceless contribution.
Contents

ACKNOWLEDGMENT..............................................................................................................................2

COMPANY PROFILE OF ENGRO FERTILIZERS............................................................................................6

BACKGROUND:.........................................................................................................................................6
CORE VALUES:.........................................................................................................................................7
PRODUCT PORTFOLIO:...............................................................................................................................7
1. ENGRO UREA:..........................................................................................................................................7
2. ENGRO DAP:...........................................................................................................................................7
3. ENGRO NP:.............................................................................................................................................8
4. ENGRO ZARKHEZ......................................................................................................................................8
5. ZINGRO...................................................................................................................................................8
6. ENGRO ENVY...........................................................................................................................................8
7. ENGRO MOP...........................................................................................................................................9

COMPANY PROFILE OF FAUJI FERTILIZERS...............................................................................................9

BACKGROUND:.........................................................................................................................................9
ABOUT FAUJI FERTILIZERS:........................................................................................................................10
VISION:................................................................................................................................................10
MISSION:..............................................................................................................................................11
CORPORATE STRATEGY:............................................................................................................................11
CORE VALUES:.......................................................................................................................................11
PRODUCT PORTFOLIO:.............................................................................................................................12
1. SONA UREA...........................................................................................................................................12
2. DAP.....................................................................................................................................................12
3. FFC SOP..............................................................................................................................................12
4. SONA BORON........................................................................................................................................12

MACRO-ECONOMIC IMPACT OF FERTILIZER INDUSTRY.........................................................................13

SWOT ANALYSIS OF FFC........................................................................................................................14

STRENGTHS........................................................................................................................................14
WEAKNESSES.....................................................................................................................................14
OPPORTUNITIES...................................................................................................................................14
THREATS............................................................................................................................................15

PEST ANALYSIS......................................................................................................................................15

POLITICAL.........................................................................................................................................15
ECONOMICAL....................................................................................................................................15
SOCIAL..............................................................................................................................................15
TECHNOLOGICAL...............................................................................................................................16

SWOT ANALYSIS OF ENGRO CORPORATION..........................................................................................16

STRENGTHS...........................................................................................................................................16
WEAKNESS............................................................................................................................................16
THREATS...............................................................................................................................................17
OPPORTUNITIES......................................................................................................................................17

PEST ANALYSIS......................................................................................................................................17

POLITICAL.............................................................................................................................................17
ECONOMICAL.........................................................................................................................................18
SOCIAL.................................................................................................................................................19
TECHNOLOGY.........................................................................................................................................19
ENVIRONMENTAL....................................................................................................................................19

INCOME STATEMENT ANALYSIS OF EFERT:............................................................................................20

BALANCE SHEET ANALYSIS OF EFERT:....................................................................................................21

FINANCIAL RATIOS ANALYSIS................................................................................................................21

LIQUIDITY RATIOS:..................................................................................................................................21
CURRENT RATIO:....................................................................................................................................21
QUICK RATIO:........................................................................................................................................22
NET WORKING CAPITAL...........................................................................................................................23

GROSS PROFIT MARGIN........................................................................................................................24

NET PROFIT MARGIN............................................................................................................................25

RETURN ON EQUITY.............................................................................................................................27

INDUSTRY ANALYSIS.............................................................................................................................28

STOCK ANALYSIS...................................................................................................................................29

CONCLUSION........................................................................................................................................31

RECOMMENDATIONS...........................................................................................................................31
 Company Profile of Engro Fertilizers

Background:

Engro Fertilizers Limited is a subsidiary of Engro Corporation and a renowned

name in Pakistan’s fertilizer industry. It is traded on the stock market under
the symbol ‘EFERT. Engro holds a vast, nationwide production and marketing
infrastructure and produces leading fertilizer brands optimized for local
cultivation needs and demand. Engro is also a leading importer and seller of
Phosphate products, which are marketed extensively across Pakistan as
phospatic fertilizers.

Engro Fertilizers Limited was incorporated in June 2009, following a decision

to demerge fertilizer concern from its parent company Engro Chemical
Pakistan Limited. The continual expansions and diversifications in its
enterprises necessitated a broad restructuring in Engro Chemical operations
and management. To facilitate better oversight, Engro Chemical Pakistan was
converted into a holding company named Engro Corporation, and its fertilizer
business was subsequently demerged to a newly formed Engro subsidiary –
Engro Fertilizers Limited.

Engro’s fertilizer manufacturing facility at Daharki has been experiencing

ongoing expansion. This, coupled with distinct dynamics of highly nuanced
fertilizer industry warranted an independent and dedicated business entity
and approach. The demerger of fertilizer concern was approved by High
Court of Sind on December 9th, 2009, making it effective as of January 1st
2010.
Engro Fertilizers is poised to become the leading urea manufacturer in the
country following major upgrading of its manufacturing capabilities. ENVEN
1.3–a tremendous expansion in Engro’s urea manufacturing facility went into
production in November 2010 and looks set to end Pakistan’s near-term urea
imports, leading to benefits of an expanded local urea base and savings in
national exchequer.

Engro is a dynamic company driven by a vision to improve productivity and

lifestyle for thousands of farmers across Pakistan. Engro Fertilizers Limited
has earned itself a distinguished name by continually striving to uphold its
tradition and trust of its loyal consumer base.

Core Values:

At Engro, to support their leadership culture through unique systems and

policies which ensure open communication, foster an environment of
employee and partner privacy, and guarantee the wellbeing and safety of
employees.

Engro believe that a successful business creates much bigger economic

impact and value in the community, which dwarfs any philanthropic
contribution. Hence, sustainable business development is to be anchored in
commitment to engage with key stakeholders in the community and society.

Product Portfolio:

For the millions of farmers across Pakistan, Engro is a name synonymous

with prosperity and vision. As Pakistan’s first fertilizer brand, Engro Fertilizers
[formerly: Esso Pakistan Fertilizer Company] has developed an endearing
relationship with all stakeholders across Pakistan’s agricultural landscape,
particularly with generations of farmers who have trusted our brands for
more than four decades.

1. Engro Urea:

EFL is the first company to have setup urea

production facility in Pakistan, a landmark event in
agricultural sector of the country. This together
with the fact that urea is the most widely used
fertilizer in the country, gives Engro Urea a special
standing in the domestic fertilizer market.
2. Engro DAP:

Engro Fertilizers has been importing and

marketing DAP (Di-Ammonium Phosphate) in the
country since 1996. Engro Fertilizers is the most
trusted and one of the largest importer of DAP in
the country.

3. Engro NP:

Engro started producing NP (Nitrogen and

Phosphorus) in 2005 and has been extensively
marketing the product whilst especially enjoying a
high market share in lower Sind.

4. Engro Zarkhez
Plants require three major nutrients (i.e.
Nitrogen, Phosphorus and Potassium) for
quality & higher yield. Zarkhez, introduced
in 2002, is the only branded fertilizer in
Pakistan which contains all three nutrients.

5. Zingro

Zingro brings to the market the trust of Engro and

high quality standard which has made it distinct from
all the competition. It is the market leader in a highly
fragmented industry. Zingro has won the prestigious
“Brand of the Year” award for 2009 in the
micronutrient category. Zingro is imported by Engro
EXIMP and marketed by Engro Fertilizers Limited.
 6. Engro Envy

Engro Envy is a product designed for urban markets.

It is ideal for gardens, lawns, flower beds, fruit plants
and ornamental plants. Engro Envy has recently been
launched only in Karachi but soon it is being planned
to expand its distribution to include other urban
markets like Lahore and Islamabad.

7. Engro MOP
In addition to potash based blended fertilizer NPK,
Potassium can also be applied in form of straight
fertilizer, out of which one widely used kind of
potassium based fertilizer is MOP or Muriate of
Potash. We have launched Engro MOP in 50 kg
SKU targeting all potash loving crops

Company Profile of Fauji Fertilizers

Background:

For Fauji Fertilizer Company Limited, social responsibility means facilitating

communities and empowering its people. Sustainability shall always remain
quintessential for the performance of CSR. Historically, FFC has always been
socially a responsible corporate entity. The Company started its CSR per se
as early as in 1982 by introducing Agri-Services thus helping in poverty
alleviation of common farmer and assisting them in sustained empowerment.
Gradually FFC started interventions in most of the defined sectors and has
developed a history of about 30 years of contributions to the society. FFC is
also committed to improve quality and quantum of its interventions by
maximizing on the available resources.

Since FFC has become member of covenants like UNGC, the CSR has to be
aligned with international guidelines. It is necessary to standardize the
interventions and monitor the quality of interventions at a central level. We
need to stay committed to its principles. Keeping the vision of responsible
corporate entity in mind, FFC has moved in this direction. FFC has made
quality as its core value when it comes to CSR intervention at any level, and
in future this will remain as the prime objective.

About Fauji Fertilizers:

With a vision to acquire self - sufficiency in fertilizer production in the

country, FFC was incorporated in 1978 as a private limited company. This
was a joint venture between Fauji Foundation (a leading charitable trust in
Pakistan) and Haldor Topsoe A/S of Denmark.

The initial share capital of the company was 813.9 Million Rupees. The
present share capital of the company stands above Rs. 8.48 Billion.
Additionally, FFC has more than Rs. 8.3 Billion as long term investments
which include stakes in the subsidiaries FFBL, FFCEL and associate FCCL. FFC
commenced commercial production of urea in 1982 with annual capacity of
570,000 metric tons.Through De-Bottle Necking (DBN) program, the
production capacity of the existing plant increased to 695,000 metric tons
per year.Production capacity was enhanced by establishing a second plant in
1993 with annual capacity of 635,000 metric tons of urea.

FFC participated as a major shareholder in a new DAP/Urea manufacturing

complex with participation of major international/national institutions. The
new company Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan
Fertilizer Company Limited) commenced commercial production with effect
from January 01, 2000. The facility is designed with an annual capacity of
551,000 metric tons of urea and 445,500 metric tons of DAP, revamped to
670,000 metric tons of DAP.
In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea
Plant situated at Mirpur Mathelo, District Ghotki from National Fertilizer
Corporation (NFC) through privatisation process of the Government of
Pakistan. It has annual production capacity of 574,000 metric tons urea
which has been revamped to 718,000 metric tons urea in 2009.

This acquisition at Rs. 8,151 million represented the largest industrial sector
transactions in Pakistan at that time.

Vision:

To be a leading national enterprise with global aspirations, effectively

pursuing multiple growth opportunities, maximizing returns to the
stakeholders, remaining socially and ethically responsible.

Mission:

To provide our customers with premium quality products in a safe, reliable,

efficient and environmentally sound manner, deliver exceptional services
and customer support, maximizing returns to the shareholders through core
business and diversification, providing a dynamic and challenging
environment for our employees.

Corporate Strategy:

Maintaining our competitive position in the core business, we employ our

brand name, unique organizational culture, professional excellence and
financial strength diversifying in local and multinational environments
through acquisitions and new projects thus achieving synergy towards value
creation for our stakeholders.

Core Values:

At FFC we seek uncompromising integrity through each individual’s effort

towards quality product for our customers, maximizing returns to the
shareholders and sizable contribution to the national exchequer.

Our business success is dependent on trusting relationships. Our reputation

is founded on the integrity of the Company’s personnel and our commitment
to the principles of:
  Honesty in communicating within the Company and with our business
partners, suppliers and customers, while at the same time protecting
the Company’s confidential information and trade secrets.

 Excellence in high-quality products and services to our customers.

 Consistency in our word and deed.

 Compassion in our relationships with our employees and the

communities affected by our business.

 Fairness to our fellow employees, stakeholders, business partners,

customers and suppliers through adherence to all applicable laws,
regulations and policies and a high standard of moral behavior.

Product Portfolio:
1. Sona Urea

Sona Urea is the most concentrated

solid, straight nitrogenous and most
widely used fertilizer in the country.
 2. DAP

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

3. FFC SOP

SOP is well suited fertilizer for all types

of crops and soil. Use of potassic
fertilizer in Pakistan is minimal, which
needs to be promoted for qualitative as
well as quantitative crop production.

4. Sona Boron

Keeping in view increasing boron

deficiency in Pakistani soils FFC is
providing superior quality Sona Boron
containing 11.3% Boron (Borax). It is
easily soluble in water and readily
available to plants. It can be used as

Macro-Economic Impact of fertilizer Industry

During the early stage in the 1950s, the purpose was introducing and encouraging the use of
fertilizers in farms by subsidizing fertilizer prices. Research on fertilizer use in Pakistan started
in 1909, with the establishment of the Punjab Agriculture College and Research Institute at
Faisalabad (then Lyallpur), followed by the establishment of various research stations in the
country. The response of various crops to nitrogen containing fertilizers was published in 1934.
Phosphorus shortage reported for the first time in 1952. A Soil Fertility Research and Fertilizer
Popularizing Organization established under FAO support in 1958, with the order to conduct
applied fertilizer research and promote fertilizer use. In Pakistan a variety of fertilizers, are in
use, and some of them are locally manufactured and others are imported. In our country, most of
the fertilizers are in use on irrigated wheat, cotton, sugarcane and rice crops. Any shortage of
fertilizers in these crops and the consequent fall in their yield would lower agricultural growth.
According to (Khaskheli) on these crops, nitrogen application rate is close to 75-80 percent of
the recommendations, compared with about 20-40 percent, depending on the crop, in the case of
phosphate. Hardly 1-2 percent of farmers apply potash; that usually applied to fruit, vegetable,
and sugarcane crops only. Micronutrient deficiencies are common but less than five percent of
the farmers apply micronutrient fertilizers. This shows us that urea is found in Pakistan but other
as (DAP) and (MAP) are imported. Pakistan is self-sufficient in urea. The price of DAP which is
the second largest fertilizer product used after urea, is very expensive and is dependent on
international trends. Price disparities lead to high use of urea, and thus to imbalanced fertilizer
use at farm level, ultimately results in low production of crops if the prices are high. In recent
few years, a sharp increase comes in the price of imported fertilizer and a gap between demand
and supply of locally made urea. Both affected the food grain as well as productivity of other
crops.
 SWOT Analysis of FFC
Strengths

 FFCL is the market leader in the fertilizer industry having 44.35% of the market share.
 Being the market leader it sets standards for the industry
 Strong financial strength
 FFCL devotes considerable time and effort to promoting awareness regarding good
farming techniques and methods among the growing community
 FFCL is using a single brand name (SONA) for its products, like SONA urea and
SONA DAP, helping farmers to remember the name, as many are highly illiterate in the
country.
 FFCL has a strong dealer network all over country that helps availability even in far-flung
areas.
 FFCL has developed a well-planned network of 170 field warehouses to ensure that
fertilizers are available to the farmers in an uninterrupted supply
 FFCL has an innovative education-oriented advertising policy utilizing electronic/
print media and road side advertising
 ISO certification

Weaknesses

 The large size of the company produces administrative problems.

 Lengthy organizational hierarchy
 Sales force faced a tough time when being moved to distant areas in other provinces to
ensure they were spread equally. This also contributed to high transportation costs for the
company.

Opportunities

 Urea demand is expected to remain buoyant on the back of improved farmer economics
and seed varieties.
 Increased support prices of crops like wheat sugar etc. Domestic fertilizer demand is
going to be strong in the coming cropping season due to higher farm income from
recently harvested crops. ( Economic survey of Pakistan, 2012-2016)
 Having a strong financial position company can start production of the new product line.
 The government is going focus on the agriculture sector due to its major contribution
towards GDP, and important issues like soil conservation, farm mechanization, land
reclamation and plant protection. (Pakistan assistance strategy report, 2015)
Threats

 The manufacturing costs pertaining to the fertilizer industry were impacted by

inflationary factors, combined with escalations in the prices of feed and fuel gas.
 Shortages of natural gas in the country can limit the opportunities for the company in
future (The Financial Daily, 2015)
 New competitors in the industry like Fatima Fertilizer Company can reduce the market
share of FFCL (The Nation, 2009)

PEST Analysis
Pestle analysis categorically involves the factors which are directly concerned to the macro environment
and they are Political, economic, social and technological

Political

 To fulfill local demand for fertilizers at affordable prices, the Government is providing
subsidy on the production and import of fertilizers. (Shayan Hassan Jafry IGI, 2007)
Investors will be allowed to relocate second hand plant and machinery, with the same
concession/exemption as applicable to new plants.
 Import by manufacturers of Rock Phosphate and Phosphorous of fertilizer free of
customs duty.
 Tax relaxation has also been offered by the Government, giving export benefit to
suppliers of capital goods for new/modernization projects involving fertilizer. (Federal
Board of Revenue, 2009)

Economical

 Tax relaxation has been offered in order to attract new entrants and to reduce the
dependence on imported fertilizers by enhancing the local production capacity.
 The Government is providing a subsidy on the production and import of fertilizers. A
massive subsidy of Rs.27billion in the supply of urea and DAP in FY09. (Zee News,
2010)
 Ban on the export of fertilizer is also imposed for the economic stability.

Social

 Although the adverse effects of this industry is very high because of the improper
handling of the waste. Due to this, many diseases like asthma, kidney diseases, hepatitis
 etc. are caused. Still, the usage of the fertilizers cannot be stopped because it gives
farmers so much ease in terms of saving time and actually using it.

Technological

 In order to meet the expectation of fertilizers in the country, a strong technological base is
required in the planning and development of specific engineering and expertise in project
management and execution.
 The fertilizer industry is also carrying out several schemes, including energy saving and
de-bottlenecking in their current plants to improve the capacity and reduce the energy
consumption per ton of product.

SWOT Analysis of ENGRO Corporation

Strengths
The company has established itself as a leading corporate in Pakistan. Its brand name “Engro” is
perceived as a symbol of quality, transparency and sustainability. It has world-class systems and
processes in place which uphold its core values of commitment to ethics &integrity; health,
safety, & environment; innovation & risk taking; creating an enabling environment for its people;
and building value for community & society. The company and its subsidiaries are in compliance
with various international and local safety and quality certifications such as British Safety
Council (BSC), ISO 9001 and 14001, WWF Green Office Certifications amongst others. Engro
has successfully demonstrated its lead in introducing innovations in the consumer and financial
markets. The company successfully launched two issues of Engro Rupiya Certificate to raise
funds. Engro Foods launched Dairy Among which is an economical alternative to packaged milk.
Engro’s Management is recognized as amongst the best in the country. Through its successful
execution of projects - like the world’s largest single train urea plant; relocation of an EDC and
VCM plant from Baton Rouge, USA to Port Qasim Pakistan; setting up of a220MW power plant
which was completed in a record 29 months, the shortest time to COD taken by IPPs of
comparable size in Pakistan and the construction of two food processing plants over the course
of our first five years of operation, the Company has developed its in-house capability of project
execution and a strong working relationship with leading international technology partners,
constructions partners and financial partners.

Weakness
Although Engro’s businesses are well established in Pakistan, its presence in international
markets is limited. It is becoming more and more important for companies around the world to
diversify globally as the world opens up and new opportunities are created in emerging
economies. Engro is, therefore, investing substantially in building its in-house capability to tap
into global opportunities and to address global challenges. Its investment in Al-Safa was driven
by the need to acquire value added food processing know-how and to understand the North
American consumer market.

Threats
Perhaps the biggest threat facing the company, and Pakistan, is the growing energy shortage
which impacts our different businesses through direct gas curtailment, power shortage, circular
debt or rising variable costs. The company has taken various steps to mitigate this threat most
notable one being securing short and long term gas supply solution with Government for EnVen.

Opportunities
Favorable demographic changes like growing population, increasing urbanization and rising
income levels present good growth opportunities in Pakistan. Engro’s diversified business model
and its presence in multiple stages of the Agribusiness supply chain including fertilizer,
commodities and foods provides it an opportunity to create value throughout the chain and create
competitive advantage. Also, there is growing energy demand supply gap in the country. Engro is
actively engaged with the Government to develop the Thar coal mining project and to possibly
establish a new power plant based on Thar coal. Given the abundance of Tharcoal reserves, the
company believes that this project could lead the way towards solving Pakistan’s energy crisis.

PEST Analysis
Pestle analysis categorically involves the factors which are directly concerned to the macro
environment and they are Political, economic, social and technological

Political
Pakistan is currently suffering from political turmoil. On one hand where it is struggling against
the issue of terrorism which involves the international community and international politics on
the other hand it's facing internal political instability. Because of the continuous military
interference into government and politics the Political forces, in the past, have not had enough
chance to practice fundamental democratic values. In result both political forces and the people
of Pakistan have not yet been able to achieve the political maturity which can be seen in the
western, American and other democracy dominant societies. The overall situation is further
resulting into the empowerment of unreliable and corrupt executives who are usually responsible
of making economic and social policies. That is why Pakistan is not achieving required economic
and social goals yet. The policy makers usually involve in taking kickbacks and turning policies
into their personal interest, after 9/11 the war against terror has put a great impact on Pakistan
and is actually resulting into the destruction of peace of the country. International communities
and investors are hesitating to invest in Pakistan. Even though the tax policy, employment laws,
environmental regulations, trade restrictions and tariff regulations have been formulated but
implementation on these policies is not being conducted in mannered way. Also there is a need of
bringing new economic and agriculture reforms. Especially the agriculture tax reforms where the
per unit land tax price has been a big issue over the times. Employment laws have been
formulated according to the international standards but child labor issue needs to be addressed on
war grounds. Being a member of WTO Pakistan supports the free market and free trade ideology
but in fact no such ''free market'' is in practice in the modern world. Every country has some
trade barriers to protect local industry, so does Pakistan. An anti-dumping duty ordinance is in
place to protect local industry that also encourages local industrialists to invest further. The tariff
rates and policies are being reviewed over the time. Having all these positive indications
Pakistan still needs to modernize the trade and industrial sectors by developing transparent
policies. In the current time the civil society of Pakistan seems to be awakening to break the
political and feudal status quo that will help Pakistan, in future, to develop a civilized political
culture.

When we analyze the Engro Corporation having the above environment in backgrounds and
beyond we need to give considerable attention to the Engro's internal strengths and weaknesses.
Here i would talk about Engros's internal strengths in comparison of that particular environment.
On one hand Engro has tried to keep away from being politically attached to that atmosphere and
has concentrated properly on its business which has helped it to become not polluted professional
organization. On the other hand Engro has been complying with the country's law and cultural
values. Because of the strong internal culture and commercialism company has strengthen itself
to compete with various kinds of political circumstances.

Economical
Pakistan's economic growth rate is currently 5.5% which was 8% once in 2005 but huge shortage
of electricity and political instability has affected the growth rate. Economic growth of Pakistan
can be seen through gross domestic purchasing power parity, which was estimated to be $454.2
billion in 2008. Official exchange rate was approximately $160.9 billion, while real growth rate
in 2008 GDP of Pakistan, as per statistical data was found to be 4.7 percent. GDP per capita
income was $2,600 in 2008. Interest rates are slightly high in Pakistan because of IMF
conditional bailout programme and were rose by 15% in 2009.purcasing power of Pakistanis has
been shaken up by 13% of inflation rate. Wage rates, minimum wages and 60 hours per week
working time in manufacturing sector and 48 hours in service sectors are very suitable for large
and international businesses. High percentage of unemployment is resulting to be suitable for
cheap labor provision but it increases the inflation rate that affects business directly on the other
hand. Country's cost of living is lower comparing to developed countries. Engro Corporation is
directly affected by these factors. Engro has tried to take benefit from availability of cheap labor
but interest rates are putting a negative effect on engro's internal economy because it has
financing relations with most banks in Pakistan also with some international banks like
HSBC,Barclays etc . Inflation rate is also affecting engro especially engro foods which involves
direct relation with public purchasing power on broad levels. On the other side the global
economy is facing a downturn in recent times. The economic recession has rolled largest
economies in the world. Engro needs to have a deep look on this factor in order to develop
strategies for international perspective.
Social
Pakistan is an agricultural country, 70% population living in rural areas, 98% population is
Muslim. 42% population under 15 years of age only 4% over 64 years of age .2% per year
population growth rate, 65% literacy rate. The geographic area of country is known to be one of
oldest civilizations in the world. But because of poor economic condition the awareness about
health consciousness, safety and global warming has not been very significant but now the
awareness ratio on these issues is rising rapidly in the society. Increasing literacy rate especially
in IT and engineering sectors have changed the career attitudes in the country. A strong business
and industry culture is developing itself influencing by different factors. Engro Corporation is
directly serving to 96%of the country's population. A large portion is covered by engro fertilizer.
Engro foods is taking health consciousness into the consideration for its product development.
Engro is building Pakistan's first green power house to tackle the global warming issue.
International health and safety standards have been achieved by Engro within all its industries
especially in chemical industry. Providing employment on large scale Engro has shared the
change in career attitudes.

Technology
In the modern age technology is advancing and improving every day. These advances are not
only influencing corporate businesses but equally influencing the societies as a whole by
bringing the change into social behaviors. On the corporate level as the organizations adopting
the horizontal and vertical integrating method, Getting as more as possible technological strength
is a powerful weapon to achieve the corporative integrity. Pakistan as a developing country needs
technological advancement in every sector of economy ranging from electricity generation, road
construction, port and airport developments, data base structuring, information technology
railway, food industry, oil and gas sector, logistics and many more. Government is privatizing
and out sourcing mega projects and multi industry sectors to save costs and to gain financial
balance. Especially in oil and energy sectors Pakistan needs huge investments. These
requirements and circumstances are actually a massive potential market for the organizations
which have well-built technological resources. Engro takes advantage from this availability and
has offered in sourcing to the government in multi sectors like currently working on a power
house project with the collaboration of government. The project is called ''Thar coal power
project'' which is spouse to produce 1200MW electricity for the country using coal reserves.

Environmental
Being a developing country Pakistan is considered to be one of those countries where the
ecological and environmental aspect needs special concentration. Pakistan has six metropolitan
cities which have heavy industry manufacturing textile, leather products, fertilizers, steel goods
etc. Most of the country's vehicles run on diesel and petrol. Small level industry like brick
making and small steel melting units leave a big amount of carbondyoxide in the air. Clean
drinking water is also a big issue in the country. Handling and recycling wastage from
manufacturing sector is most critical aspect of the ecological concerns in Pakistan. On the other
hand diseases due to dirty water and improper food are also a challenge for the country. All
above issues are influencing Pakistan both economically and socially. But on the same time there
is a huge potential for investments from ecofriendly organizations to compete against these
challenges. Implementation on environmental regulations is on high demand from the global
society as well. Engro being part in this environment is playing its role by internally
implementing the related laws and standards like, process safety, workforce safety, workplace
health, food safety, risk assessment, and environmental performance. In the field engro is
building Pakistan's first green power house in Sindh province and looks ahead for many other
projects.

Income Statement Analysis of EFERT:

 If we compare 2017 with 2016 then there is a variance of -21% in net sales due to
shortage of Gas and government’s new policies. EFERT’s price was increased in 2016
due to gas issue. Government announced subsidy on fertilizer in 2016, therefore farmers
stopped buying Urea and DAP in first and second quarter.
 In the third quarter, EFERT signed a contract with MARI Petroleum Company for the
supply of Gas, hence they increased their production and overall stock of different
products. Due to decrease in demand, they had to reduce their price in 2016. Their
volumes and prices both were reduced in 2016 and this is why their net sales had
decreased with 21%.
 EFERT inaugurated their new power plant in 2016 that has a capacity to produce 2273
KT urea annually while FFC can produce 2048 KT per year. As per the agreement with
Government of Pakistan, EFERT has to pay 70% price per MMBTU through Sui Gas.
 MARI Petroleum is providing gas to EFERT’s old plant, whereas Sui Gas is providing
gas to the new plant as per their contract. Government has decreased the price of gas on
their new plant, however, fuel prices will remain same.
 Finance cost was high in 2015 due to acquisition of new plant.
 Other income is increasing in 2016 because they record the subsidy amount under this
section and no payment has been made by the Government. We can also see the impact of
this receivable account in the Balance sheet.

Balance Sheet Analysis of EFERT:

  Intangible assets have a positive variance of 4,079% because EFERT has acquired some
patents from Engro Corporation that has increased its assets side.
 As discussed in Income statement analysis, Government has to pay subsidy amount to
EFERT which is recorded under receivables section. Government has to pay PKR 4B to
EFFERT against subsidy that they have announced in 2016.
 Short term investment and Cash have a negative variance of 98% because they had
cleared all their dues against GIDC (Gas Infrastructure Development Cess) which were
outstanding since 2015, for which they had to release their cash as well as short term
securities.
 In 2015, EFERT had converted IFC loan into equity. International Finance Corporation
had exercised its option to convert part of its convertible loan amount of $3M into shares
of Engro Fertilizers.
 EFERT started issuing dividends in 2016. Before that, they were trying to pay all their
dues and loan amount that they borrowed for their new plant.

Financial Ratios Analysis

Liquidity Ratios:

Liquidity ratios are used to determine a company’s ability to meet its short-term debt obligations.
Liquidity ratios are a good measure of whether a company will be able to comfortably continue
as a going concern. This ratios measure a company’s ability to pay off its short-term debt using
those assets which can be easily liquidated.

On Liquidity ground, following ratios will be calculated:

1. Current Ratio
2. Quick Ratio
3. Net Working Capital

Current Ratio:
This ratio measures a firm's ability to pay off its short-term liabilities with its
current assets. The current ratio measures whether or not a company has
enough resources to pay its debts over the next 12 months (year).
Current Assets
Current ratio=
Current Liabilities

Financial Year 2017 2016 2015 2014 2013

 Engro
Fertilizers 1.1 0.92 1.02 1.34 0.55
Current
Limited
Ratio
Fauji Fertilizers
(Times)
Company 0.91 0.84 0.67 0.77 1.15
Limited

Explanation: When we analyze the current ratio of Engro Fertilizers it was

0.55 times in 2013, then there is an increasing trend in the ratio from 2013
to 2017 up to 1.1 times. The elevated current ratio in 2017 is due to high
inventory levels due to better gas supply which put significant financial burden on
manufacturers in 2017.

However, Fauji Fertilizers had a good current ratio in 2013 that is 1.15 times
which decreases in the following years with fluctuation. The ratio tells us that
current assets are less than their current liabilities during these years. The
ratio declines in 2013 and 2014 due to increase in trade creditors. On an
average, the current ratios of EFERT of said 5 years are better than FFC.

Quick Ratio:
The quick ratio is an indicator of a company’s short-term liquidity. The quick
ratio measures a company’s ability to meet its short-term obligations
(current liabilities) when they come due with only quick assets (with its most
liquid assets). Quick assets are current assets that can be converted to cash
within 90 days or in the short-term.
Current Assets−Inventory
Quick ratio=
Current Liabilities

Financial Year 2017 2016 2015 2014 2013

Engro Fertilizers
Quick 0.6 0.5 0.9 1.1 0.3
Limited
Ratio
(Times) Fauji Fertilizers
0.72 0.58 0.59 0.66 1.01
Company Limited

Explanation: Trend shows quick ratio of Engro Fertilizers increased in 2014

(from 0.3 times in 2013 to 1.1 times in 2014) because sales revenue for 2014 was
higher by 64% as compared to the corresponding period 2013, also the gross profit increased in
2014. The ratio then decreased from 2015 to 2017 up to 0.6 times because of
decreased sales.
While the Fauji Fertilizers in 2013 shows the higher quick ratio which
gradually decreases from 2014 to 2016 up to 0.58 times because of trade
creditors but again the ratio elevates in 2017 up to 0.72 times because of
higher credit sales.

On quick ratio ground FFC showed better mean results as EFERT

during these 5 years.

Net Working Capital

Net working capital is the aggregate amount of all current assets and current
liabilities. It is used to measure the short-term liquidity of a business, and
can also be used to obtain a general impression of the ability of company
management to utilize assets in an efficient manner. It measures both
company's efficiency and its short-term financial health.
Net WorkingCapital=Current Assets−Current Liabilities

Financial Year 2017 2016 2015 2014 2013

Net Engro
3,080,7 (24084 769241 (118657
Workin Fertilizers 738313
47 89) 1 63)
g Limited
Capital Fauji
(37458 (51108 (179348 (79917
(Times Fertilizers 4137006
78) 08) 75) 42)
) Co. Limited

Explanation: EFERT had Working Capital Deficit in 2013 but then the ratio
became high towards positive side from 2014 to 2015 which showed that
company was able to generate enough from operations to pay for its current
obligations with current assets. The ratio elevated because of the increase
sales during these years. In 2016 the ratio again became negative because
the company invested and had addition of phosphate business.

While the Fauji Fertilizers’ Networking Capital Ratio in 2013 was positive that
became negative in rest of the years in till 2017 due to decrease asset
turnover ratio and credit turnover days.

On Networking Capital ground, EFERT showed better results

comparative to FFC.
 Gross Profit Margin

Gross Profit Margin measures company's financial health by revealing the

proportion of money left over from revenues after accounting for the cost of
goods sold (COGS).
Formula:
Gross Profit
Gross Profit Margin= X 10 0
Sales

Financial Year 2017 2016 2015 2014 2013

Engro
Gross Fertilizers 24.61% 36.73% 36.80% 44.13% 32.20%
Profit Limited
Margin Fauji Fertilizers
(%) Company 24.77% 34.05% 38.92% 46.36% 48.44%
Limited
 Engro Fertilizers Limited Fauji Fertilizers Company Limited
60.00%

50.00% 48.44%
46.36%
44.13%

40.00% 38.92%
36.73% 36.80%
34.05%
32.20%
30.00%
24.77%
24.61%

20.00%

10.00%

0.00%
2017 2016 2015 2014 2013

Interpretation:

The Gross Profit Margin of Engro Fertilizers is lesser than the Gross Profit Margin of
Fauji Fertilizers in past 5 years it is due to lower sales done by Engro Fertilizers in
comparison with Fauji Fertilizers. From 2013 to 2017 Fauji Fertilizer's Gross Profit is
showing a decreasing trend but in comparison with Engro Fertilizers it is still
performing better which means that Fauji Fertilizers is efficient in recovering its
operating expenses and is able to maintain a lower Cost of Goods Sold.

Net Profit Margin

Net profit margin is one of the most important indicators of a business's
financial health. It can give a more accurate view of how profitable a
business is than its cash flow, and by tracking increases and decreases in its
net profit margin, a business can assess whether current practices are
working or not.
Formula:
EAT
Net Profit Margin= X 100
Sales
 Financial Year 2017 2016 2015 2014 2013
Engro
Net Fertilizers 12.98% 17.15% 13.36% 10.97% -9.58%
Profit Limited
Margin Fauji Fertilizers
(%) Company 16.17% 19.76% 22.37% 27.03% 28.04%
Limited

Engro Fertilizers Limited Fauji Fertilizers Company Limited

35.00%
30.00% 27.03% 28.04%
25.00% 22.37%
19.76%
20.00% 17.15%
16.17%
15.00% 12.98% 13.36%
10.97%
10.00%
5.00%
0.00%
2017 2016 2015 2014 2013
-5.00%
-10.00%
-9.58%
-15.00%

Interpretation:

In last 5 years Engro has a lower Net Profit Margin in comparison with Fauji
this is because Engro Fertilizers has lower sales than Fauji Fertilizers as
extracted in Gross Profit Margin, on the other hand Engro Fertilizers has
higher borrowings than Fauji Fertilizers which has overall affected the Net
Profit Margin, due to payment of more interest on the borrowed amount. Fauji
Fertilizers has tried to sustain better Net Profit Margin as it has less debts
and is able to pay interest easily on the borrowed amount.

Financial Gearing: Debt-to-Equity Ratio

Debt-to-Equity ratio is the ratio of total liabilities of a business to its

shareholders' equity. It is a leverage ratio and it measures the degree to
which the assets of the business are financed by the debts and the
shareholders' equity of a business.

Formula:
 Debt
Debt−¿−Equity= '
Shareholder s Equity

Financial Year 2017 2016 2015 2014 2013

Engro Fertilizers
Debt-to- 81.16% 87.27% 127.27% 233.33% 426.32%
Limited
Equity
Ratios Fauji Fertilizers
160.45% 140.68% 61.87% 50.65% 39.95%
Company Limited

Engro Fertilizers Limited Fauji Fertilizers Company Limited

426.31%

233.33%

160.45%
140.68% 127.27%
81.16% 87.27%
61.87% 50.65% 39.95%

2017 2016 2015 2014 2013

Interpretation: Engro fertilizers had a debt 4.26 times (426.31%) more

than the equity in 2013 which has been reduced to 0.81 times (81.16%) then
the equity finance. On the contrary, in 2013, Fauji fertilizers had debts 0.39
times (39.95%) more than the equity finance, which has been raised to 1.60
times (160.45%) than the equity.

Return on Equity
Return on equity measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have
invested.
Formula:
EAT
Return On Equity= '
X 100
Shareholde r s Equity
 Financial Year 2017 2016 2015 2014 2013
Engro
-
Return Fertilizers 21.86% 35.34% 23.81% 21.93%
18.58%
On Limited
Equity Fauji Fertilizers
(%) Company 41.76% 61.39% 70.79% 80.05% 79.86%
Limited

Engro Fertilizers Limited Fauji Fertilizers Company Limited

80.05% 79.86%
70.79%
61.39%

41.76%
35.34%
21.86% 23.81% 21.93%

2017 2016 2015 2014 2013

-18.58%

Interpretation:

In comparison to Fauji Fertilizers, Engro Fertilizers has lower Return on Equity

from the past 5 years, which shows that Fauji Fertilizers is a more risk taking
organization than Engro Fertilizers and even after that it is giving higher
return to its equity shareholders. While Engro is a less risk taking
organization and even after that it is not giving much returns to its equity
holders. Fauji Fertilizers is using its equity in a more efficient manner and is
sustaining higher profits after interest and tax, which shows that it is a good
organization for investors.

Industry Analysis
Ratios Fertilizers’ Engro Fauji
Industry Fertilizers Fertilizers
 Company
Averages Limited
Limited
Gross Margin 32.59 24.61 24.77

Net Profit Margin 5.85 12.98 16.17

Operating Margin 4.8 23.75 30.07

Receivable Turnover 2.39 14.03 24.33

Inventory Turnover 1.26 7.6 12.16

Asset Turnover 0.19 0.67 0.8

Return On Assets 2.01 8.7 12.94

Return On Equity 5.43 21.5 41.76

Explanation:

 In comparison with Gross profit margin the industry average is 32.59%

while both the companies, EFERT and FFC have almost same gross
profit margin that is 24.61% and 24.77% respectively. Both the
companies still have a chance to boost their gross profit margin and
which can be done by increasing their sales on low cost of goods sold.
 In comparison with Net profit margin the industry average is 5.85%
while both the companies are performing better than the industry
average that is 12.98% (EFERT) and 16.17% (FFC) that means that
both the companies generate enough profit that they can easily pay
their debts and generate high profits even after paying interest and
taxes. FFC is overall performing better than Engro as it sales are higher
and is generating more profits out of it.
 In comparison with Operating Profit Margin the industry average is
4.8% while both the companies are performing better than the industry
average that is 23.75 % (Engro) and 30.07 % (Fauji) which indicates
that FFC is able to maintain its expenses and is generating more profit
than EFERT, EFERT is producing less goods as well as they are facing
high expenses in selling and distributing the goods which is reducing
its overall profits.
 Stock Analysis

 EFERT P/E ratio is 9.82

 FFC’s P/E ratio is 10.91
(As of FY 2016)
 Stock Price
Engro Fertilizers Limited Fauji Fertilizers Company Limited

117.6
103.0
117.1
112.0 117.1
68.6 82.0
28.3
0.0 0.0
2017 2016 2015 2014 2013
 Conclusion
 Profitability Ground: Overall Fauji Fertilizers is performing better on
profitability ground as its Net Profit Margin is higher than Engro
Fertilizers. FFC is also utilizing its assets way better than EFERT due to
which it has higher sales than EFERT on low cost and expenses. On
investors’ point of view also FFC is better choice to invest in because
even it is a high risking company it is also providing high returns to its
shareholders which attracts the investors
 towards it.

 Liquidity Ground: In current ratio’s EFERT seems to be better than

FFC, it is because Engro fertilizer piled their inventory at higher level
causing the higher holding cost for their inventory. The inventory
turnover of EFERT is also less i.e. they move their inventory lesser time
per year as compare to the FFC.

Recommendations

 It is suggested to EFERT to reduce more its stock in trade likewise FFC so that it incur
lower holding cost on its stocks and eventually it will improve its liquidity position. Also
EFERT should make alliance with more suppliers to alleviate the risk of stock outs.

 It is also advisable for EFERT to decrease its total assets as it is not fully utilizing them to
make products or higher turnover and this is only increasing its costs or it should lower
its prices to increase its demand which will eventually lead to higher turnover and higher
production from those assets.

 EFERT should consider decreasing more its long term borrowings to cut down its interest
expense likewise FFC which will eventually improve its profitability position. For this
purpose EFERT should strategically make such policies that could attract investors for
financing and in this way it will be less reliant on long term borrowings.

 It is also recommended to EFERT to be less reliant on government gas supplies and

should create an alternative if the government fails to provide it otherwise it will bear
losses like it did in 2012 as the depleting natural gas reserves is being a biggest threat for
the fertilizers industry.