1 ENGRO FERTILIZER

INTRODUCTION
Engro stands for energy for growth. From inception, Engro has a legacy of continuous growth, new
challenges and fulfilled promises. From fertilizers to dairy products, business solutions to PVC resin,
power generation to commodity trade, at Engro the ambition is to become the premier Pakistani
enterprise with a global reach.
FROM ESSO TO ENGRO
In 1957, the search for oil by Pak Stanvac, an Esso/Mobil joint venture led to the discovery of the Mari
Gas field near Daharki a small, remote area in Upper Sindh province at the time. Esso proposed the
establishment of a urea plant in that area which led to a fertilizer plant agreement signed in 1964. In
the subsequent year, Esso Pakistan Fertilizer Company Limited was incorporated, with 75% of the
shares owned by Esso and 25% by the general public.
The construction of a urea plant commenced at Daharki in 1966 and production began in 1968. At US
$43 million with an annual production capacity of 173,000 tons, it was the single largest foreign
investment by a multinational corporation in Pakistan at the time.
A full-fledged marketing organization was established which undertook agronomic programs to
educate the farmers of Pakistan. As the nations first fertilizer brand, Engro (then Esso) helped
modernize traditional farming practices to boost farm yields, directly impacting the quality of life not
only for farmers and their families, but for the nation at large. As a result of these efforts,
consumption of fertilizers increased in Pakistan, paving the way for the Companys branded urea
called Engro, an acronym for Energy for Growth.
As part of an international name change program, Esso became Exxon in 1978 and the Company was
renamed Exxon Chemical Pakistan Limited. The Company continued to prosper as it relentlessly
pursued productivity gains and strived to attain professional excellence.
In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees of Exxon
Chemical Pakistan Limited, in partnership with leading international and local financial institutions,
bought out Exxons 75% equity. This was at the time and perhaps still is the most successful employee
buy-out in the corporate history of Pakistan.

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Renamed as Engro Chemical Pakistan Limited, the Company has gone from strength to strength,
reflected in its consistent financial performance, growth of the core fertilizer business, and
diversification into other businesses.
Along the way, a major milestone in plant capacity upgrade coincided with the employee led buy-out;
innovatively optimizing our resources, Engro relocated fertilizer manufacturing plants from the UK
and US to its Daharki plant site an international first.
Engro Chemical Pakistan Limited then started a journey of venturing into other sectors including
foods, energy, industrial control and automation, PVC resin manufacturing and marketing, and
chemical terminal and storage.
In 2009 plans were announced of demerging the fertilizer business into an independent operating
company. The expansion and growth in the company necessitated a change in the way the company
operated and conducted business. Keeping in view the operations of multi category businesses,
expansion strategy and growth vision, the management decided that the various businesses would be
better served if the Company was converted to a holding company. As a result it was decided to
demerge the fertilizer business and establish a holding company structure to manage the affairs of
various businesses.
Engro Fertilizers Limited was incorporated in June 2009 to manage the fertilizer business post
demerger. The demerger required the approval of the High Court of Sindh, which was granted on
December 9, 2009 after obtaining the requisite approvals from the creditors and shareholders of the
Company. The demerger became effective from January 1, 2010. Consequently, all fertilizer business
assets and liabilities have been transferred to Engro Fertilizers Limited against the issue of shares to
the Company.
To reflect the change in the scope of mandate and scale of operations, Engro Chemical Pakistan
Limited has been renamed as Engro Corporation Limited with effect from January 1, 2010. Engro
Corp, as the holding company is responsible for the long term vision of the company, overseeing the
performance of the subsidiaries and affiliates, allocation of capital, management of talent, leadership
development, HR guiding policies, leadership role in public relations and CSR activities, control
structures, legal and IT support.



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Engro Corp will maintain a lean structure with a focused scope, allowing maximum empowerment to
the subsidiaries and affiliates to drive the operations of their respective organizations.
ENGRO CORPORATION
Engro Corporation Limited is one of Pakistans largest conglomerates with businesses ranging from
fertilizers to power generation.
In the interest of better managing and overseeing businesses of subsidiaries and affiliates that are
currently part of Engros capital investments, Engro Chemical Pakistan Limited converted into a
holding company structure. As part of this process, two major changes occurred with effect from
January 1, 2010; Engro Chemical was renamed as Engro Corporation Limited and it demerged and
transferred its fertilizer business into a separate wholly owned subsidiary, Engro Fertilizers Limited.
Currently Engro Corporations portfolio consists of seven businesses which include chemical
fertilizers, PVC resin, a bulk liquid chemical terminal, industrial automation, foods, power generation
and commodity trade.
Besides providing the long term vision for the company and overseeing performance of the
subsidiaries and affiliates, Engro Corporation Limited is also responsible for allocation of capital,
management of talent, leadership development, HR guiding policies, leadership role in public
relations and CSR activities, control structures, legal and IT support.
From its inception as Esso Pakistan Fertilizer Limited in 1965 to Engro Corporation Limited in 2010,
Engro has come a long way and will continue working towards its vision of becoming a premier
Pakistani company with a global reach.
ENGRO FERTILIZERS
Engro Fertilizers Limited, a wholly owned Engro subsidiary, is a premier fertilizer manufacturing and
marketing company with products that focus on balanced crop nutrition and increased yield. The
company markets primary and secondary fertilizers like Engro Urea, Engro DAP, Engro Zorawar, Engro
Zarkhez and Zingro.
Engro Fertilizers has successfully developed a loyal customer base all across Pakistan, not only by
providing farmers with quality fertilizers, but also through extensive market development activities. A
premier brand and nationwide presence of the company ensures sellout production.

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Additionally, the company sells phosphate fertilizers for balanced fertility and improved farm yields.
Engros share of Pakistans phosphates market mirrors or exceeds its urea market share.
In 2010, the company achieved mechanical completion and started trial production of its urea
expansion project at Daharki which is the worlds largest single train urea-ammonia plant. It is the
largest private sector industrial investment in Pakistan.
VISION
Engro Fertilizer Limited is the pioneer of fertilizer in Pakistan. Esso (now Engro) - a fuel exploration
company which decided to build a plant in Pakistan in 1955 after discovering Mari gas field, the intent
was to use the discovered gas in a country whose economy depend on Agriculture sector.
At Engro, the vision is to be the premier Pakistani enterprise with a global reach, passionately
pursuing value creation for all stakeholders. Engro prides itself of being a Pakistani company and
their vision for future also shows their devotion and commitment for achieving higher growths for the
betterment of this country. At Engro, the importance of brand Pakistan is very much evident and has
been an impetus of growth after the employee buy-out in 1991.
MISSION
Their mission is based on the core competence on Engro Engro has a very strong urea business
model and to further complement it they have built the most efficient and largest single train urea
plant in Pakistan with an installed capacity of 1.3 mn tones, an investment of USD 1.05 bn which is by
far the largest private sector investment in Pakistan.
At Engro, the mission is to achieve innovative growth which creates value for stakeholders,
customers and employees. Engro has committed itself to its core values and maintain higher
standards of ethics, safety and environmental responsibility. For Engro, safety and health of their
personnel, neighbors, customers and visitors is the foremost concern in all our operations and
processes. They realize and care about their responsibilities towards environment, health and safety
within their own confines and beyond extending safe practices throughout procurement,
distribution and waste disposal. Other core values include Ethics & Integrity, Leadership, Quality &
Continuous Improvement, Enthusiastic Pursuit of Profit, External & Community Involvement, Candid
& Open communication, Enjoyment & Fun, Innovation, Individual Growth & Development, Teamwork
& Partnership, and Diversity & International Focus.

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Being an agro-based economy, Pakistan has a high demand for fertilizers, which is directly linked to
the growth of agriculture sector. As the off take of fertilizer is contingent upon the agriculture sector
growth, hence its demand drivers are invariably the major factors affecting the agricultural growth.
These include area under cultivation, crop yields, water availability, farm income, farm credits,
fertilizer prices and quality seeds. To achieve this agricultural growth target of 5.5%, and
simultaneously ensure food security, the Government of Pakistan has taken various steps like
enhancing overall credit disbursements (e.g. via Benazir Zarai Card Scheme ), providing crop loan
insurance, improving water availability and distribution (via dams) and ensuring the availability of
major inputs like seeds, pesticides and fertilizer. Introduction of BT cotton and Grow More Wheat
Campaign are examples of a few efforts directed at enhancing the major crops production and
ensuring food security in the country.
CORPORATE STRATEGY
Corporate strategy is based on Engros core competence Engro is the pioneer of fertilizer in
Pakistan, they have a strong Urea business model and to complement it they have built the most
efficient and largest single train urea plant in World Enven, having a capacity of 1.3 mn tonnes and
an investment of USD 1.05 bn, by the far the largest private sector industrial investment in Pakistan.
Other key strengths of the company include efficient management, companys ability to deliver and a
strong profitable group of subsidiaries. As the CFO, Naz Khan while commenting on the current debt
position of the company said Engro Corporation has many subsidiaries, and there is no possibility of
a default on payments whatsoever.
As the company continued its growth in other sectors and in fertilizer sector building the most
efficient and largest single train urea plant in World Enven, catching up the capacity in fertilizer that
is required by the current and future demand in Pakistan, their direction for future growth is outside
Pakistan considering the fact that export of fertilizer is banned in Pakistan. Mr. Ali, Manager Market
Analysis & Planning told us that the new direction for the company is to develop an off-shore plant
based on the companys expertise in fertilizer sector catering to the fertilizer demand in other
countries. He said that currently we are on the feasibility stage of our off-shore plant. Besides that
he said that an agricultural-led growth strategy is a step in the right direction. Even though the
contribution of agriculture sector to the countrys GDP has declined from 65% in 1990s to around
21% at present, it is still a significant contributor to the GDP, employing 44 percent of the
workforce.

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The current market share of Engro Fertilizer is around 20%, with Fauji Fertilizer having the major
share in industry capacity. However if Government provides the promised 100mmcfd of gas , Engros
share will move from 20% to 35%, bringing Fauji Fertilizers market share down to 32%, making Engro
the largest producer of urea in the industry. For its new urea plant, Engro secured 100mmcfd gas for
Rs 101 million near Daharki. The cost benefits arising from this expansion are three fold; cash fixed
costs of new plant are expected to be one third of the existing plant, gas consumption will be around
15% lower than in the old plant, with most of the decrease coming from fuel-stock gas, and feedstock
gas will be provided cheaper to the new plant.


















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EXTERNAL ANALYSIS
DEMAND FOR FERTILIZER IN AN AGRI -BASED ECONOMY
Being an agro-based economy, Pakistan has a high demand for fertilizers, which is directly
linked to the growth of agriculture sector. As the off take of fertilizer is contingent upon the
agriculture sector growth, hence its demand drivers are invariably the major factors affecting
the agricultural growth. These include area under cultivation, crop yields, water availability,
farm income, farm credits, fertilizer prices and quality seeds. To achieve this agricultural
growth target of 5.5%, and simultaneously ensure food security, the Government of Pakistan
has taken various steps like enhancing overall credit disbursements (e.g. via Benazir Zarai
Card Scheme ), providing crop loan insurance, improving water availability and distribution
(via dams) and ensuring the availability of major inputs like seeds, pesticides and fertilizer.
Introduction of BT cotton and Grow More Wheat Campaign are examples of a few efforts
directed at enhancing the major crops production and ensuring food security in the country.

Low yields demanding balanced fertilizer use
The cereal crops are the main demand drivers of fertilizers. With a total cropped area of
22.51 million hectares, 16.412 million hectares area is occupied by five major crops of
Pakistan namely wheat, cotton, rice, sugar cane and maize which occupy 53%, 19%, 15%, 7%
and 6% of the area under cultivation, respectively. As wheat has the highest area under
cultivation it also has a major share of 54%, in total fertilizer consumption in Pakistan,
followed by cotton, rice and sugarcane.
On the flip side, the yields of the major crops in Pakistan are low vis--vis the rest of the
world. For instance, the per hectare yield of wheat crop in Pakistan is 2.37 tons while that of
India and China is 2.71 and 4.25 tons respectively. In addition to Pakistan lagging in the field
of agricultural research, it is primarily due to lack of agriculture knowledge, which translates
into inability to apply important farm practices, thereby resulting in an unbalanced fertilizer
use. To counter this low productivity, the government emphasized on a balanced use of
fertilizers as evident by a DAP subsidy of 2200/50 kg bag in 2008 only.


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There are two types of fertilizers that are primarily used in Pakistan; Urea, necessary to meet
nitrogen deficiency, and Di-Ammonia Phosphate (DAP), essential to meet phosphate
deficiency. Currently, Urea occupies the lions share in fertilizer market, followed by DAP, NP
(a mixture of Nitrogen, and Phosphate) and other fertilizers.

Overall Demand/Supply Scenario
The Current Demand for fertilizer is 8 million tons, while the current production capacity
stands at 5.8 million tons. The excess demand is met through imported fertilizer. In the first
half of 2012 (1H-CY12), fertilizer plants faced collective losses to the tune of Rs5.5 billion in
lost revenues. (Express Tribune). The losses can be directly attributed to the reduction in
the basic raw material of fertilizer which is methane gas. The Sui network is currently facing
around 35 per cent shortage of gas, resulting the plant to operate only at 80% of its
production capacity.

UREA: Currently, there is a gap between urea demand and supply too. However with Engros
new urea plant coming online by 2010 it is expected that supply will exceed demand in 2011
making urea available for export.

DAP: There is only one local DAP producer which is FFBL; the rest is imported. Unlike Urea,
DAP prices are not regulated and follow the international market trend. International DAP
prices had surged due to increased demand for Bio fuels (requiring a lot of DAP application),
and Food from developing and emerging economies. The higher prices of DAP (from Rs 850
to Rs 3000 per 40 kg) discouraged the farmers to use more phosphates fertilizer who
switched to urea, thus affecting yield of the crops.

To promote balanced fertilization the Government subsidizes DAP to reduce the differential
in prices between Urea and DAP. During July 2007 and June 2008, the subsidy on a bag of 50
kg was Rs 470 this was increased to Rs 2200 from June 2008, valid till 31, December 2008.
The major raw material for fertilizer industry is natural gas, which is used as both fuel-stock
and feedstock.


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Since almost 80% of the gas consumed by fertilizer plant is feed, it has been subsidized by the
Government of Pakistan. According to Fertilizer Policy 2001, any new plant will be provided
feedstock at $0.7/mmbtu for ten years following the date of commissioning. For the existing
plants, it is provided at a discount of 68% to fuel-stock gas. This is done to provide low cost to
the fertilizer producers. The fertilizer producers in turn provide urea at a discount of about 67
% to international prices.

The fertilizer sector pays Rs 126 billion out of the total Rs 153 billion, subsidy given to farmers
however it is not the fertilizer industry the Government aims to subsidize, but the farmers.
This fact gives the fertilizer companies enormous power to pass on any increase in cost to the
farmers. This in turn protects Engro from any fluctuations and hike in costs.


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P.E.S.T.E.L (Political, Economic, Social, Technological
Environmental, Legal) Analysis
The PESTEL analysis deals with the external pro and cons of the Industry in which Engro
Fertilizer is working in. The section critically analyzes the current Industry situation of various
aspects such as Political, Economic, Social and Technological.
Political and Legal
GOVERNMENT POLICIES
The industry is strongly influenced by the political landscape of the country due to its source
of raw materials coming from the institutions such as Sui Northern Gas Pipelines (SNGPL), Sui
Southern Gas Company (SSGC) and Mari Gas, which are controlled by the government. All
fertilizer companies are entitled to abide by the latest Fertilizer Policy promulgated by the
National Fertilizer Development Centre (NFDC) in year 2001:
To fulfill local demand of fertilizers at affordable prices, Government is providing subsidy
on production and import of fertilizers.
Government is providing concessionary feed stock gas to the fertilizer plants for
production of urea.
Custom duty on import of rock phosphate and phosphorous by the manufacturers for
production of fertilizer is waived under the Fertilizer Policy (2001).
Various tax remissions / relaxations have been offered under the new Fertilizer Policy by
the Government.
Gas price has been fixed for ten (10) years for new investments.






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POLITICAL ISSUES
Keeping in view the incentives given under the Fertilizer Policy (2001), M/s Engro Fertilizers
decided to establish a new single-train urea plant worth of $1.1 billion (Signalfire). Supply of
natural gas (methane), the basic raw material for production of Urea fertilizer, is facing
severe shortage in the country and its availability for industries is further reduced due to the
political decision by the Government in wake of the forthcoming general elections to cut
down the gas supply to industries in order to satisfy the domestic consumers. Since its
completion in year 2010, Engros new plant has never received the gas supplies as per its
quota in line with the countrys new fertilizer policy. In a legal recourse on the issue, the
Sindh High Court on 18th October 2011 ordered to provide the gas to the Engro plant as per
its authorized quota but the Government has not responded to the decision so far in a
positive manner (The Daily Express Tribune). Subsidy on gas, therefore, has turned out to be
of no use for the production line at the Engro plant in the prevailing situation where gas
supply has become virtually unavailable.
Due to unavailability of gas, Engro were forced to raise its prices by Rs. 400 per bag resulting
in escalation of the prices to the level of Rs. 1980 per bag. The situation got further
accentuated as the provincial Excise Department raided the Daharki urea plant seizing the
whole shipment of urea bags on the night of 31st. October (The Daily Nation). Resultantly,
Engro had to roll back its urea prices. These events have evidently made it difficult for Engro
to survive in such heavily influenced political environment as the situation has rendered the
plant unable to produce at the plants installed production capacity to make a break-even for
the production costs.

Much praised Ex- CEO of Engro Corp Asad Umar had also been rumored to be a direct target
of the current political administration of Pakistan People Party (PPP), since he was an admirer
of the Pakistan Tehreek-e-Insaf. With the board governed by the Dawoods (supporters of
PPP) it became more difficult to execute the strategies as planned. This also became a reason
for the lack of government support to Engro Fertilizer in terms of subsidies and fulfilling
promises as per public announcements. Eventually due to direct political pressures, perhaps
the greatest human asset of Engro Corp had to resign.

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Economic
Further to the political trend analysis given above, the following underscore economic
indicators of the production regimen at Engros urea plant at Daharki (Sindh):
The custom duty free import of rock phosphate and phosphorous as the essential
ingredients for production of fertilizer provides a major financial incentive to
manufacturers.
Waiver on tax has offered an additional incentive to the manufacturers especially to
attract new entrants in the industry.
Export benefits available to the manufacturers under the Fertilizer Policy (2001) as
suppliers of capital goods for new and modernization projects entail a distinct economic
incentive for the fertilizer industry. Besides, the self-reliance gained through reduced
dependence on imported fertilizers through enhanced local production capacity under
the given incentives provides exclusive relief improving the overall macro-economic
indicators for the country.
Extension of a special subsidy of Rs. 37 billion by the Government on production and
import of urea fertilizers in 2011 (The Pak Tribune).
Ban on export of fertilizer is also imposed so that economic stability would be gained.
Agriculture is one of the dominant sectors contributing to the countrys economy as it caters
for 22 percent of the overall GDP and accounts for livelihood of 65 percent of the Pakistani
population besides engaging over 45 percent of the countrys labour force (Economic Survey
2010-11). Sustainability and growth of the agriculture sector is largely dependent on
production capability of the existing fertilizer industry. This calls for Governments obligatory
support for the fertilizer industry in the country. Looking at the great potential in expansion
of production, Engro made investments but could not get the promised subsidy on the
natural (methane) gas. This has resulted in price hike leading to food inflation with the
subsequent effects on the entire economy (The Daily Pakistan Today).




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Social and Environmental
Fertilizer Industry of the country has long faced issues with respect to environment
sustainability and social hazards due to waste and pollution generated by million dollar
fertilizer plants. Due to improper handling of the waste the industry is causing the
environmental degradation with the associated health hazards and adverse social impacts.
The general ailments due to the aforementioned include asthma, kidney diseases and
hepatitis etc. Still, the usage of the fertilizers cannot be stopped because of its established
dividends of enhanced productivity and savings on time and effort. Application of bio-
fertilizers as a substitute to the prevalent use of chemical fertilizers is considered sub-optimal
in terms of the associated financial and economic benefits and the farmers these days usually
do not prefer use of the bio-fertilizers. Fertilizers can be a source of pollution when used in
excess. Of the three macro (NPK) fertilizers used at present, only potassium fertilizer is not
still considered a source of environmental pollution. The other substances like nitrogen (urea
or calcium ammonium nitrate) and phosphorus (MAP or DAP) fertilizer, if used improperly,
can cause environmental pollution, mainly by the increase of nitrates in agricultural products,
drinking water. Another risk associated with excessive use of nitrogenous fertilizers is the loss
of nitrogen gas into the atmosphere. High doses of carbon dioxide and ammonia escaping
into the atmosphere both from fertilizer manufacturing plants and soils affect human health.
In addition nitrogen oxides have been reported to damage the ozone layer.
However, at the core of Engros values is to become a highly Socially Responsible
Organization. It could be said that they have been able to achieve their social goals with
honor and dignity. The Engro Fertilizers Limited has won the National Forum for
Environmental and Health Excellence award for the six times in a row (2003-2009), on
account of excellent environmental performance and successful implementation of
environmental & quality management systems.





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Technological
To meet the demand of fertilizers in the country through indigenous production, self-reliance
in design engineering and execution of fertilizer projects is very crucial. This requires a strong
technology base in national planning, development of technological know-how, detailed
engineering and expertise in project management and project implementation. Operators of
fertilizer plants have now fully absorbed and assimilated the latest technological
developments, the integration of environment friendly process technologies, and are in a
position to operate and maintain plants to their optimal levels and standards international in
terms of capacity utilization, the specific energy consumption and pollution standards. The
average performance of gas-based plants in the country is now among the best in the world.
The fertilizer industry is also carrying out de-bottlenecking and economics of energy savings
in their existing plants and to improve capacity and reduce specific energy consumption per
tonne of product. Companies are also planning to convert to liquefied natural gas (LNG).
Introduction of new distribution channels of advertising made much easier and profitable. In
addition, Engro has now fully absorbed and assimilated the latest technological
developments, integrating process technologies environmentally friendly in its urea plant
new single-train.












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PORTER FIVE FORCES MODEL
Porters Five Forces model gives a birds eye view of the industrys competition and its related
aspects such ability of new entrants to capitalize on a market share. Moreover, it scrutinizes
the substitutes available to the farmers and their adequacy along with major players
competing in the market.

Threat of New Entrants
There are many barriers to entry, such that capital requirements, government policies,
corporate reputation and existing ecological surveys. Huge capital requirement is one of the
biggest barriers to entry.
Government policies and regulations are also act as barriers, because natural gas is the main
raw material industry, and price and supply of it is completely dependent on government. As
before the government was responsible for gas supply and low fuel gas at a higher rate. But
now they are charged the same rate. The government does not easily give permission for the
manufacturing plant because of the shortage of natural gas and harmful effects on the
environment, it also act as a barrier.
Another major barrier to entry is the massive ecological surveys that must be done before
companies can begin production. Therefore, brand reputation of existing businesses is also
one of the hurdles because customers are not easy to prepare to take.

Threat of Substitutes
There are two alternatives available:
Imported fertilizer
Bio-fertilizers
Adequacy of alternatives: imported fertilizer is as suitable as the products of industry are.
Bio-fertilizer is then more appropriate to use the products of industry; ASIT has no adverse
effects on the environment, cheap to produce and also to improve soil fertility.

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While our product reduces natural fertility, but its production is almost complete. Therefore
the industry has not a threat of substitutes.
Bargaining Power of Buyers
Although buyers are large in number and buys a large quantity as well, but buyers have no
bargaining power. There are limited to no opportunities for the protection of buyers and with
minimal education they dont even fight for their right. Government has a strong influence
over the industry, and with policies developed by them the buyers are left with no options
but to abide by them.
There are two substitutes available, imported fertilizers and bio-fertilizers. Production of bio-
fertilizers is almost complete and imported fertilizers are available at the same price as a
result of dumping and government regulations for fertilizer prices for particular seasons are
set. Implementation cost
is low, but has no significant effect due to fixed prices.

Bargaining Power of Suppliers
The industry is marked by the supplier with a strong bargaining power, as most of them are
foreign groups. Concentration is low, and groups act as separate groups competing for the
same project. There are certainly very high switching costs, because it is difficult to contract
with other groups and deal with them. No threat of forward integration.

Competition and Rivalry
Since there are only few limited suppliers of Fertilizers the industry is fiercely competed in. All
the organizations present in the sector are privately owned. Though Engro has invested more
than $1bn to enhance its capacity at 1.3million tons, still the combined capacity of Fauji
Fertilizer Company (FFC) and Fauji Fertilizer Bin Qasim Ltd gives them a leading market share.
Some basic information about Engros highly competitive rivals is as follows.



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FAUJI FERTILIZER COMPANY (FFC) /FAUJI FERTILIZER BIN QASIM LTD.
Engros major competition however is Fauji Fertilizers (combined) with a leading market
share of 35%. The company has an overall capacity of 1.9million tons which exceeds the
capacity of Engro Fertilizer by 600,000 tones. FFBL is the only DAP producer in the country
and also manufactures superior quality granular urea. The manufacturing complex was built
at a cost of $ 468 million. The company currently has annual urea and DAP capacities of
551,000 tons and 445,000 tons respectively.
DAWOOD HERCULES CHEMICALS LIMITED (DHCL)

The company was incorporated in 1968 as a joint venture between the Dawood Group and
Hercules Inc. USA. The plant had an initial capacity of 345,000 tons which was enhanced to
445,500 tons as a result of the revamp of its activities

FATIMA FERTILIZER COMPANY LTD (FFCL)

Fatima Fertilizer Company Ltd (FFCL) is the newest player in the sector, about to enter the
urea, CAN and NP markets during 2010 and 2011. The company will have a 500,000 thousand
tons urea capacity while it is expected to become the market leader in CAN, NP and NPK
production.
Some of the other major players in the industry are Pak-Arab Fertilizers and Pak American
Fertilizers.








18 ENGRO FERTILIZER
S.W.O.T ANALYSIS

Strengths:

The players operating in this sector are financially strong and they can start production of new
product line. Adding some new unit can enhance the production capacity of the plants.

All the fertilizer plants are producing at more than 100 per cent installed capacity of utilization.

Demand is heavy because, being an agriculture country and due to increasing awareness about the
balanced use of fertilizer, demand for the fertilizer will increase.

Industry has well distribution centers.

Fertilizer industry peruses an innovative education oriented advertising policy utilizing electronic/
print media and road side advertisement.

All companies in the industry have developed a well planned network field warehouses to ensure
that fertilizers are available to the farmers uninterrupted.

Weakness:
Due to the existence of black market and heavy demand, farmers have to pay above then the stated
price.

Demand is more and capacity of plants to produce fertilizers is less.

Fertilizer sector is backward in technology and also lack in resources.

Low advertising campaigns as growers and farmers are not educated and lives in villages, so they
dont exactly know the balanced use of fertilizer.







19 ENGRO FERTILIZER
Opportunities:
If the quality is good customer will buy your product. By improving the quality of products, industry
can attract more customers and can retain customers by satisfying their needs.

There is no quota restriction by WTO since 2005, so there are more chances of export.

Availability of gas from Iran can increase the production of plants and industry can fulfill the demands.

Government is giving support to fertilizer sector

As demand is high comparing to supply, fertilizer sector has an opportunity to expand the capacity to
fulfill the local demand.

As Pakistan is an agricultural country and farmers are getting awareness about the balanced use of
fertilizer, demand of fertilizer has increased.

Thr eat s:
As natural gas is the main raw material, load shedding of natural gas is big threat.

Imported fertilizer is available at cheap prices than local fertilizer.

Unstable political condition in the country is also a big threat to fertilizer industry.

Prices of fuel and gas have increased enormously.

Global prices of fertilizer products are also increasing which is causing increase in fertilizer prices in the
country.

Bio fertilizer is the main threat to the industry because it is cheap and also environment friendly.

Government policies are not consistent regarding fertilizer industry.






20 ENGRO FERTILIZER
S.W.O.T I-MATRIX
Strengths

S1: The players operating in this sector are financially strong.

S2: Government of Pakistan supports in the form of subsidy.

S3: Cheap labor.

S4: Heavy demand.

S5: An agro based economy.

Weaknesses:

W1: Low capacity as compared to demand (demand supply Gap).

W2: Due to existence of black market and heavy demand Farmers had to pay above the stated price.

W3: Technological backwardness: Lack of local resources.

Opportunities:

O1: As the demand is high compared to supply, fertilizer sector has an opportunity to expand capacity to fulfill
the local demand.

O2: Export.

O3: Introduction of BT crops.

Threats:

T1: Scarce water resources.

T2: Load-shedding of gas.

T3: Hike in fuel prices.

T4: Taxes.

T5: Removal of subsidy.

T6: Rising global prices of fertilizer products.

T7: Government intervenes to stabilize the prices.



21 ENGRO FERTILIZER





Opportunities Threats

Strengths

S1 O1

Players financially strong
demand is high = expand capacity


S2 T5

Subsidy by GOP -removal of subsidy,

S4 T7

Heavy demand - GOP stabilizes the prices,

S5 T1

Agro based economy scarce water
resource


Weaknesses


W1 O1

Demand/supply gap - demand is high =
expand capacity.


W1 T2

Demand/supply gap - load shedding of
gas

W1 T3

Demand/supply gap - hike in fuel prices

W2 T6

Black market high prices to farmers - rise in
global prices of fertilizer

W2 T5

Black market high prices to farmers - Removal
of subsidy

W2 T7

Black market high prices to farmers-government
fixed the fertilizer prices


22 ENGRO FERTILIZER
DIAMOND MODEL

Factor Conditions
Starting off with the raw materials, the entire Fertilizer Industry of Pakistan uses local raw material in
the production of fertilizer. However, those firms (Fauji Fertilizer) which manufacture DAPs import
raw material from foreign markets. Talking specifically about Engro Fertilizer Limited, they discovered
Mari Gas Field when the companys name was ESSO, and since then, this gas field been fulfilling the
Engros need for its basic raw material that is natural gas. But, ever since, Engro has setup its new and
most expensive Fertilizer plant, Enven, which cost them $ 1.1 billion, they have been facing huge gas
crises. There are many reasons for this including political interference. Other than that, plants such as
Fatimah Fertilizer are using gas from SSGPL where as Engro has been acquiring gas from SNGPL so the
difference in gas suppliers is also one of the reasons for this crises. It was only recently that Engro
Fertilizers announced its first ever LOSS making half in 2012 as they received gas for only 45 days
during the first 6 months.
Moving on towards Human Resources, Engro Fertilizer Limited has a lot of focus on training. Though
their simple labor does not require any specific or repeated training, but they have built their own
training program known as TNA (Training Needs Analysis) for their skilled labors and engineers where
the training needs of the engineers are assessed, specific training courses are designed and the
engineers are trained accordingly.
Lastly, as far as the Infrastructure and capital resources of Engro Fertilizer are concerned, they have
the most modern work processes and production line and their plant has been built by Italian
Engineers which represents their commitment towards making use of latest technology. For this
purpose, training is usually carried out on bi-lateral basis where engineers from both countries travel
across the oceans to train the workers and engineers of Engro.
Demand Conditions
Total Capacity of Fertilizer Industry in Pakistan is 7 million tonnes per annum. This capacity also
includes the Engros Enven plant which is worlds largest single terrain fertilizer plant. Current annual
demand for fertilizers in Pakistan is around 6 million tonnes. Before the Enven plant started its
operation, the total capacity was much below the local demand.

23 ENGRO FERTILIZER
However, even today, the production is only 4.8 million tonnes per annum which is much below the
demand and the capacity level. This is due to many reason, especially and most importantly shortage
of gas for the industrial sector. The rest of the local demand is met with imports that are directly
controlled by the Government. Government imports fertilizer at the rate of Rs. 2850 per bag and sells
it for Rs. 1600 per bag so it can compete with the local players who also sell their products around this
amount.
As far as innovation is concerned, Engro recently launched NPK (N for Nitrogen, P for Phosphorus and
K for Potassium). The product developed under NPK is called ZARKHEZ. It is a crop specific product
which exactly matches the crops requirements as it is customized for every type of crop. It has three
grades:
1. Green grade = For major crops such as rice,
2. Blue grade = For fruits and orchids,
3. Brown grade = For lower grade crops such as tobacco.
Related and Supporting Industries
There are a lot of industries that are important for the growth and existence of the Fertilizer Sector of
Pakistan. Most importantly, it is the Agriculture Industry that forms the basis and purpose for the
existence of Fertilizer Industry. Since Pakistan is developing nation with 40 percent of the work force
directly or indirectly employed in the agricultural sector, demand for fertilizer is very high all around
the year. Also because the awareness regarding healthy food is rapidly increasing, farmers tend to use
more fertilizer than before. Therefore, it can be said that if there is no importance of Agriculture in
Pakistan, Fertilizer Industry will not be of any use. This can be proven by giving the example of recent
catastrophe faced by Pakistan when almost all the major crop growing areas of Pakistan were flooded
with rivers in 2009. The damage done to agricultural sector also affected the Fertilizer industry. The
demand of fertilizer was very badly affected due to soil erosion and loss of land. The demand of the
urea in Pakistan stood 4. 2MT compared to 4. 6MT last year showing a decrease of 10%, while the
demand of DAP stood 0. 7MT compared to 1. 2MT signifying a decrease of 40% compared to the same
period last year.



24 ENGRO FERTILIZER
Another important sector in relation to Fertilizer Industry is the Gas sector. Natural Gas comprises of
40% of the raw materials for the Fertilizer Sector of Pakistan which shows that this sector is greatly
dependent on its availability and supply.
Furthermore, other important industries in relation to the Fertilizer Sector include Packaging (for
packaging for products) and Transportation Industry (to transport raw materials and finished products
from one place to another).
Firms strategy, structure and rivalry
The Fertilizer industry in Pakistan is of an oligopolistic nature, with the four major players in the
market - Engro, Fauji Fertilizer, Pak Arab Fertilizer and Fatimah Fertilizers.
Current market share in the Fertilizer Industry is as follow:
Fauji Fertilizer = 60 %
Engro Fertilizer = 25 %
The rest of the 15 % is shared between Fatimah Fertilizer, Pak Arab Fertilizer and Dawood Hercules
Fertilizers. Following graphs show the capacity of each and every manufacturer before and after the
expansion of Engro in its Enven plant.




25 ENGRO FERTILIZER
There is intense rivalry between all the major players in the Fertilizer Industry of Pakistan. Major
reason being for this is very high demand in the local market and lower production due to factors
such as shortage of raw material (natural gas). This has resulted in very high barriers to entry for this
industry. These barriers are in the form of huge infrastructure and setup cost, fluctuating government
policies and most importantly, lack of availability of the most important raw material i.e. natural gas.
Government
Government seems to be not at all cooperative with the Fertilizer sector and it seems as if all the
major players are very upset and de-motivated with Governments lack of interest and seriousness
towards the growth of this sector.
Government of Pakistan basically affects the operations of Fertilizer sector in 2 main ways.
Firstly, through restricting the supply of Natural Gas. Not only Engro, but other players including
Fatimah Fertilizer, Pak Arab Fertilizer and Dawood Fertilizer also face inconsistent supplies of Gas
which affects their production schedules.
Secondly, Government also influences supply in one way or the other. For instance, when it wishes to
increase the supply, it increases the imports as imports are directly regulated by the Government.
And when it wants to decrease the supply, it does that by providing fewer amounts of basic raw
materials to the producers by limiting the gas supply.
Furthermore, exports of Fertilizer are also banned in Pakistan by the Government. Incentive for
exports is large as world price of fertilizer is almost double of what it is in Pakistan.









26 ENGRO FERTILIZER
INTERNAL ANALYSIS
INTRODUCTION TO ENGRO
Engro Corporation Limited (formerly Engro Chemical) is one of Pakistans largest
conglomerates, with subsidiaries ranging from power generation to fertilizers. The
organization has had a track record of tapping and developing potential markets in Pakistan.
This made Engro see immense potential in the food sector and formulated into the idea of
establishing Engro foods.
Engro Food Limited (EFL), launched in 2004, is a fully owned subsidiary of Engro Corporation.
EFL is further divided into three basic operations:
1. Dairy and Ice cream
2. Grain (rice)
3. Dairy farm business.
It used dairy as a stepping stone to enter into a food industry and currently has processing
units and an ice cream production unit at Sukhur and Sahiwal.
Currently Engro famous products are Olpers (full cream milk), Olpers cream, Olwell (low fat,
high calcium milk), Tarang (tea whitener), Omore (ice cream) and Owsum (flavoured milk).To
improve these brands and their standards of quality, Engro Foods has invested heavily in milk
processing and milk collection infrastructure throughout Sindh and Punjab provinces.


27 ENGRO FERTILIZER
ENGROS VALUES
Engro cites its workplace environment and organizational structure as the cornerstone of its
creativity. Officially, the organizations values are as follows

These values no doubt provide solid groundwork for a flexible and interactive organization,
conducive to ideas and organic growth.
HUMAN RESOURCING
Employees are recruited at Engro through a very stringent process. Though there is no formal
MT training program in place but employees are taken through referral and a number of
trainings and workshops conducted to ensure high performance.
It was for this reason that health, safety and environment are greatly stressed and a number
of trainings conducted in respect to this. Since it is a chemical company, the health of
employees greatly matters.

Safety, Health and the Environment
Ethics and Integrity
Leadership
Quality and Continuous Improvement
Enthusiastic Pursuit of Profit
External and Community Involvement
Candid and Open Communications
Enjoyment and Fun
Innovation
Individual Growth and Development
Teamwork and Partnership
Diversity and International Focus

28 ENGRO FERTILIZER
Furthermore, an integral part of the companys policy is hiring and not firing anyone. Only in
matters of ethical concern is an employee fired. Employees are rotated throughout different
divisions and subsidiaries, throughout the tenure of their employment.
The Board HR & Remuneration Committee meets at least once every quarter to review and
recommend all elements of the compensation, organization and development policies
relating to the senior executives remuneration and to approve all matters related to the
remuneration of executive directors and members of the management committee. The
President attends Board HR & Remuneration Committee meetings by invitation. The
mandate of the Board HR & Remuneration Committee is as follows:
To ensure human resource policies effectively deliver robust talent management process
across various Engro companies
To take decisions on the performance evaluation, development and succession of company
CEOs and Corporate Center Executives
To establish specific standards/policies for basic alignment in fundamental beliefs across
companies

INFORMATION RESOURCING
In accordance with the information provided above, it is obvious that a credible idea is not
led to waste under any circumstances. The creative employees, having established their
credibility can walk in around any time into their colleagues or managers office and present
the idea along informal lines. Monthly addresses to the employees by the Board of Directors
also encourage employees to present their ideas in front of an audience.
Since Engro aspires to be an MNC in the long run, it does attribute its ways and workings to
that of PnG and Unilever as well as its specialist teams. Different ventures are looked into
depending on their feasibility and technical capabilities so that the most profitable one is
shortlisted. This is done with the help of a number of individuals.


29 ENGRO FERTILIZER
To make this process extremely unbureacratic, the product movement and investment
manager is also consulted before the final decision is taken. In case of lack of resources, the
idea is shelved and revisited until further innovations can lead to its practicality.
Engro has also deemed an entire consumer research department to deal with continuous
developments in this area. Together with an outsourced team, the consumer research
department assesses the market and its changing needs, evaluates the competition in the
market and works towards up gradation and improvement of their current products as well
as findings in new areas.
Considering the free working environment, it is no surprise that each employee is treated
with respect and his contribution valued. The Engro rupiah is an example of how feedback
was taken right from the call centre employees as well. The belief that they have a greater
understanding of customer problems due to direct contact with them was handled and
practiced in this regard.
BALANCED SCORECARD
It is a strategic management system based upon measuring key performance indicators
across all aspects and areas of an enterprise: financial; customer; operations; and
organization.

FINANCIAL PERSPECTIVE
It includes analyzing the financial performance of the company i.e. the profit margin, EVA,
cost of capital, growth and financial ratios (especially liquidity ratios). Engro Fertilizer does
not enjoy a very strong financial position due to huge debts that it still hasnt repaid. The
lacks of adequate supply of gas and unsupportive policies of the government have led to it
reporting a loss in the third quarter of 2012. The burden of heavy credit payments has made
it a difficult journey for Engro Fertilizer to strengthen its financial position, despite enjoying a
good margin on its products.




30 ENGRO FERTILIZER
CUSTOMERS PERSPECTIVE
It examines whether the company is providing superior customer value in terms of product
differentiation, low cost or quick response. Evidence suggests that sustainable financial
performance is dependent on providing high customer value from customers perspective.
Engro Fertilizers has successfully developed a loyal customer base all across Pakistan, not
only by providing farmers with quality fertilizers, but also through extensive market
development activities. A premier brand and nationwide presence of the company ensures
sellout production. Additionally, the company sells phosphate fertilizers for balanced fertility
and improved farm yields. Engross share of Pakistans phosphates market mirrors or exceeds
its urea market share.

OPERATIONS PERSPECTIVE
It deals with the efficiency and effectiveness the core processes are carried out.
From an expansionary strategy, Engro Fertilizers has now moved to a consolidation strategy
where it plans to merge the areas of importance now. The expansionary strategy was part of
the company policy for 5-6 years and has moved on to consolidation now.
Under consolidation, the current portfolio is assessed and current products are evaluated
with regard to their contribution margins.
The expansion strategy follows expanding into other provinces. It started off with Sindh and
part of Punjab but now fertilizers are amongst all provinces which include Sindh, Punjab,
Khyber Pakhtunkhwan and Baluchistan.

ORGANISATIONAL PERSPECTIVE
It deals with the ability to adapt to changes in its environment.
Since inception, Engro has recognized that a positive relationship with key stakeholders
guarantees long-term success for any enterprise. We base our relationships on trust and
equity, capturing the essence of what sustainability means to Engro and its partners.




31 ENGRO FERTILIZER
Today Engro is renowned as a successful and conscientious company which gives due regards
to high ethical standards and community empowerment. We continually work to soften our
environmental impact, create viable opportunities for our workforce, evolve more efficient
and effective work processes and engage in socially responsible initiatives. At Engro, we
believe in sharing the fruits of our successes with our partners, stakeholders and human
resource equitably.

Engro has long believed in its commitments to society and national fabric. Our endeavors
towards diversification and enterprising new business ventures are firmly rooted in our
corporate citizenship goals and realization of social responsibilities. As community
development emerges into a mainstream management consideration, Engro finds itself at an
advantage owing to its rich history of shaping positive changes in its surrounding
environment.

In its effort to better realize their social responsibilities as a corporate entity and icon,
corporate philanthropy is but one element of a broader and more cohort effort. They
highlight their citizenship performance and sustainability initiatives with objective
performance data data points, metrics, actions and progress made.











32 ENGRO FERTILIZER
Strategy formulation
In formulating a strategy, the strategic decision makers of Engro Fertilizers must analyze
conditions internal to the organization. An internal analysis leads to a realistic company
profile, which is the determination of a firm's strategic competencies and weaknesses. The
development of a
Company profile in four-step process:
Managers audit and examine key aspects of the business's operation, seeking to
target key areas for further assessment.
Managers evaluating the firm's status on these factors by comparing their current
condition with past abilities of the firm.
Managers seek some comparative basis - linked to key industry or product/market
conditions - against which to more accurately determine whether the company's
condition on a particular factor represents a potential strength or weakness.
In internal analysis is to provide the results, or company profile, as input into the
strategic management process.

An internal organizational analysis evaluates all relevant factors in an organization in order to
determine its strengths and weaknesses. Some of the areas that Engro Fertilizers should
analyze include the following:


1. Financial position. The financial position of a business plays a crucial role in determining
what it can or cannot do in the future.


2. Research and development capability. Engro Fertilizers pays continuous importance to
research as it ventures into new and upgraded products continuously.
A culture of continuous innovation is stressed on and engagement surveys carried out to find
out further input from the employees.
There are a couple of government institutions like NFDC, who carry out research. Outsourcing
through research agencies is also quite common and field resources, such as getting
information from the farmers is also given importance to.

33 ENGRO FERTILIZER

3. Organizational structure. Organizational structure can either help or hinder an
organization in achieving its objectives. In case of Engro Fertilizers, the organizational
structure is a mixture of horizontal and vertical importance. The informal communication
helps information to flow in a strong way. Other practices like whistle blowing and feedback
emails like the Speak Out continuously decides what actions should be taken by the
Committee and the areas where it should improve.
No major restructuring has taken place since the time of its inception and Engro Fertilizers
continues to evolve as a matrix organization that enjoys the benefits of formal and informal
organizational practices.

4. Human resources. All the activities of an organization are significantly influenced by the
quality and quantity of its human resources. As discussed above, the Human Resources at
Engro, just like all of its subsidiaries are greatly valued and much effort put to improve it.

5. Condition of facilities and equipment. The condition of an organization's facilities and
equipment can either enhance or hinder its competitiveness.
Internal analysis is difficult and challenging. The checklists provided above can be helpful in
determining specific strengths and weaknesses in the functional areas of business.













34 ENGRO FERTILIZER
BUSINESS LEVEL STRATEGY

Two of Engro Fertilizers Limited core products have been recognized for extraordinary
performance in the respective sectors of macronutrients (Engro Urea) and micronutrients
(Zingro). Engro Fertilizers Limited is a subsidiary of Engro Corporation Limited (formerly Engro
Chemical Pakistan Limited).
Engro Urea, the oldest and most trusted brand of high-grade nitrogenous fertilizer in
Pakistan, is Engro Fertilizers premier macro nutrient product. Zingro, introduced in 2004, has
been developed as a high-grade zinc fertilizer targeting zinc deficiencies in crops such as rice,
resulting in greater yield and an improved end-product.
This recognition for Engro Urea and Zingro is a testimony to the strength of Engro Fertilizers
brands, as well as the strength of the brand teams resolve and hard work put into making
Engro a premier brand owner in the fertilizer industry.
With this Award, Engro Fertilizers Limited has joined the ranks of several of Pakistans
premier brand owners, including the likes of previous winners such as Toyota, TCS, P&G,
Standard Chartered, Pizza Hut, Marriot, K&Ns, Berger Robbialac, Castrol, Bonanza, Dadex,
Dunkin Donuts, Head & Shoulders, Ideas, Intel, Inbox, and RoohAfza, among others.
The Brands of the Year Award is the first-of-its-kind hallmark for Brand Recognition in
Pakistan, and aim to highlight and encourage the best brands in the Country. It is an annual
endeavor, resulting from the joint efforts of The Exhibitor Group, Pakistan Standards and
Quality Control Authority (PSQCA) and the Intellectual Property Organization (IPO-Pakistan).
The awards have garnered significant international acclaim, and are conducted and duly
endorsed by Brands Bureau International Limited London UK & Brands University.





35 ENGRO FERTILIZER
PRODUCT PORTFOLIO
For the millions of farmers across Pakistan, Engro is a name synonymous with prosperity and
vision. As Pakistans first fertilizer brand, Engro Fertilizers [formerly: Esso Pakistan Fertilizer
Company] has developed an endearing relationship with all stakeholders across Pakistans
agricultural landscape, particularly with generations of farmers who have trusted our brands
for more than four decades.
Engro listens to its consumers, introducing novel lines of products addressing local soil and
crop needs. For farmers, Engro has been a friend and helping hand who cares for farmer
education, better yields and sustainability. Our product lines catapult on these relationships
and are known for uniformity, high quality and excellence in research.
Engro DAP
For a healthy growth the plant requires three major nutrients namely Nitrogen, Phosphorus
and Potassium. Di-Ammonium Phosphate (DAP), which contains 46% Phosphorus, is the most
widely used source of Phosphorus for the plant. DAP strengthens the roots of the plant and
improves nutrient uptake. DAP was imported in Pakistan by the fertilizer import department
until 1994 and since then the private sector has been responsible for all imports.
Engro Fertilizers has been importing and marketing DAP in the country since 1996. Engro
Fertilizers is the most trusted and one of the largest importer of DAP in the country. Engro
DAP is a product that maintains a high quality standard and is monitored through stringent
quality checks. Engro DAP has high water solubility and characteristic pH which ensures
optimal soil distribution. Engro DAP is marketed in 50kg bags. It is imported by Engro EXIMP
and marketed by Engro Fertilizers Limited.
Engro NP
NP formulations that contain Nitrogen and Phosphorus in almost equal quantity have been
especially important to Pakistani farmers, given the peculiar deficiency of both components
in most of the Pakistani soils. This category serves the needs of a particular niche of farming
community in the country; where application of nitrogen and phosphorus is required in

36 ENGRO FERTILIZER
almost equal proportions. Due to higher N content a few farmers also use E-NP for top
dressing. Engro started producing NP in 2005 and has been extensively marketing the
product whilst especially enjoying a high market share in lower Sind.
Engro NP is available in 50Kg bags.
Engro Urea
Engro 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. Engro Fertilizers Limited started annual production of 173,000 tons in 1968.
Through various debottlenecking and expansion steps, the capacity has been increased to
975,000 tons per year. Recently, the company has setup another urea plant of 1,300,000 ton
capacity, increasing Engross production share from 19% to over 30% in Pakistan.
Engro Prill Urea is available in 50Kg bags and is produced at very high quality benchmarks
leading to guaranteed 46% nitrogen content. The brand has established its presence in rural
farming areas across the country. Its logo of teen patti is widely recognized by masses as a
sign of trust and quality.
Engro Zarkhez
This was one of the important products that shelved out of the innovation strategy. It was
made to cater to the crop specific needs of the field, like nitrogen, potassium and
phosphorous. Accordingly, Zarkhez came into being and was made for three grades
Green grade (major crops like rice and sugarcane needed it)
Blue grade (orchids)
Brown grade (for tobacco)



37 ENGRO FERTILIZER
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. Presence of all the macro nutrients results in synergistic plant
nutrient uptake. The resultant yield is of high quality; sucrose content of sugar cane
increases, quality and size of potato improves, fruit and vegetables appear and taste better.
Zarkhez is a high quality fertilizer containing correct proportions of the three nutrients in
each of its granule. This helps ensure uniform and balanced nutrient application across the
crop field.
Zarkhez is currently available in three different grades of 50Kg bags with nutrient proportions
suitable for sugar cane, fruit orchards, vegetables, potato and tobacco. The grades are
popular among progressive farmers due to its convenience, low moisture content, high crush
strength, appropriate granule size and free flowing nature.
Zarkhez is available in entire agricultural regions of Pakistan from Hyderabad to Mardan.
Engro Fertilizers limited continuously engages in agricultural research and development in
collaboration with different agencies. Farmer educational activities are carried out
throughout the country in pursuit of championing the cause of balanced fertilization in
Pakistan.
Zingro
Zinc is a micronutrient, it is a nutrient which the crop requires in small dosages and it
compliments functions of major nutrients. Over the years zinc deficiency has been well
established on a variety of crops and in rice specifically. 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 acts as a tonic and gives quick
response and a better yield. Zingro contains 33% Granular Zinc Sulphate Monohydrate and is
99.99% water soluble. Zingro has evolved to become the leading brand in the micronutrient
category and is accredited to converting the image of the category to a highly acceptable
one. Zingro has won the prestigious Brand of the Year award for 2009 in the micronutrient
category.


38 ENGRO FERTILIZER
Zingro is imported by Engro EXIMP and marketed by Engro Fertilizers Limited.
Zorawar
For a healthy growth the plant requires three major nutrients namely Nitrogen, Phosphorus
and Potassium. Engro Zorawar is a specialist product which provides the plant with
Phosphorus content for its growth. Zorawar was introduced in 2003 and is the highest
Phosphate content product available in the market. It has 52% Phosphorus content which is
higher than DAP (which has 46%). Zorawar is marketed in 45.5 kg bags but still has higher
Phosphorus than DAP. Its pH is low and thus quite popular with farmers who are pH
conscious. . Zorawar strengthens the roots of the plant and improves nutrient uptake. Its a
well established brand in the Engro portfolio and has developed into the persona of sheer
strength based on its content and performance. Zorawar is the market leader in the MAP
category of fertilizers.
Business Orientation

According to our analysis the most significant change that occurred was the change of the
CEO from Asad Umer to Aliuddin Ansari. This is significant enough for Engro Fertilizers which
has a debt to equity ratio of 5:1 currently. Asad Umer focused a lot on the marketing and PR
side of Engro Fertilizers while Aliuddin Ansari has a stronger vision in terms of finance. It is
very relevant that financially, Engro needed such a leader and being the ex CEO of AKD
Securities, he is adamant on improving the financial position of Engro Fertilizers.











39 ENGRO FERTILIZER
HIRING AND MOTIVATING EMPLOYEES

Another aspect key to robust idea generation is that of a complementary workforce. Ideas
develop and flow from employees; it follows those employees with certain core
competencies should be hired and continuously motivated to keep the creative juices
flowing. With regards to the first, the organization unequivocally states that it has a leaning
towards those candidates who are a notch aside from the rest. The organization itself refuses
to use phrases such as thinking outside the box or bringing something new to the table as
they have become clich and, in effect, show exactly what it doesnt want. However, it is
clear that its criteria for hiring employees lays a lot of stress on creativity and intrinsic
motivation. So from the outset, they sift through the candidature and choose those who can
provide a fresh perspective to the organization.
Once hired, the question arises of how to keep them motivated. Nobody can perform at their
optimal level all the time, and therefore there exists a need for motivation. The effect of de-
motivated employees on idea generation is especially pernicious. For this, Engro is
diametrically opposed to cash rewards and explicitly extrinsic benefits. According to the
management, the provision of such incentives cheapens the entire process. The crux of
motivation lies intrinsically within its employees. The organization employs candidates who
are self-motivated and take the job to cater to their self actualization needs. Self-proclaimed
workaholics, employees strive to do their best as they feel a sense of entitlement towards
their work. This allows for a freer flow of ideas, as nothing is enforced. As long as the
employees deliver as required, they are given as much autonomy as they want. From the
aspect of dressing in jeans to working for however many hours they want to running errands
on the job, Engro employees are given carte blanche by the organization to accomplish their
goals. Engro believes a bureaucratic structure is extremely hazardous to the motivation and
free will of creative employees. This devolved approach provides them the time to work on
whatever side projects they wish. Unlike 3Ms 15 minute scheme, whereby all employees are
expected to spend 15 minutes of their day doing a personal project, Engro employees can
avail 15 minutes at any time in the day.


40 ENGRO FERTILIZER
This accounts for the autonomy and authority delegated to employees so that they believe in
themselves. As Maslow said money in itself is not a motivator, the workforce at Engro
would rather work on their esteemed projects here rather than slave away at a multinational,
not giving much credibility to the salary offered.
Job rotation is practiced quite frequently at Engro. Rather than hiring employees from
external sources, the management believes in giving a chance to its present employees once
a vacancy is observed in any of the departments. The employees are then given the option to
choose the department based on their preferences. New employees are especially
encouraged in this regard, so that they have a thorough brief through of the works of
different departments. This exercise helps them realize their own potential and evaluate
which department they would fit best in, to later choose their area of specialization.

STRUCTURE AND GOVERNANCE

We do our bit, but there is always room for improvement. Engro provides Energy for
Growth through building capacity of employees by making changes and meeting challenges
Engro Corp. formerly known as Engro Chemicals Pakistan Limited embarks upon the largest
expansion witnessed in the history of fertilizer business, both in the country and
organizations history. 2009 has been a year of changes, challenges and opportunities for
Engro both in context of employee development and talent management. Building its
strength from talent management initiatives and the resultant growth in scope of Engross
operations, several diversity management as well as employee retention and development
initiatives were driven to maintain our competitive edge of a learning and productive
workforce. Engross strategic human resource management provides the systems, policies and
practices to achieve this objective by engaging, developing and rewarding its human capital.
Numerous facilities were introduced and redesigned to ensure continued support to
employees. Some of the major initiatives this year included expanding entitlement to
Housing Subsidy for new employees joining the company, increasing the life insurance limit
for non-management staff and revised Medical Assistance Plan and Engross Car Earn Out
policy were availed by many.


41 ENGRO FERTILIZER
With the intent to retain and nurture our talent and encourage diversity, Engro has taken a
number of diversity and talent management initiatives this year to ensure a conducive and
flexible workplace. Focus groups, surveys, best practices study and diversity audits were
conducted by task force consisting of representatives from across the Engro companies, to
assess the companys diversity climate as well as identify areas of concern and desired
outcomes. The first phase of these initiatives included launch of policies on part time work,
off-track work, and non-discrimination and anti harassment. These policies aim to
institutionalizing the desired cultural norms within the company and aligned with best
international models and practices on gender diversity and diversity management. The
second phase of diversity initiatives included special measures to promote diversity
management. This was achieved by formation of Engro Women Network, branded as
WEAVE, which is serving as a social networking and support group for Engro women across
all Engro companies. In addition, a dedicated Day Care Center has been planned for Engro
employees that will house up to 20 children. It will include all amenities for childrens care,
health, mental and social development, and the facility is expected to be operational in 2010.
An informal learning forum called Engro Baithak has been launched in the last quarter of
2009 to promote self development and learning for all employees. Three sessions have been
held thus far where guest speakers of international repute were invited to interact with
employees.
Engro also showed its commitment to its workforce despite the financial crisis in 2009.
In 2009 200+ contractual staff was converted to permanent employees.
Engro believes in diversity and consciously approached inclusion in its hiring practice giving
equal opportunity to all across the organization.

All the top management was replaced by the new owners of the company; the owners have
decided to employ qualified professional managers on all posts to improve the performance
of the organization. According to the new ownership all the top management has vast
experience of the corporate sector and has served in top organizations of the country.


42 ENGRO FERTILIZER
The CEO has served in one of the largest global capital firms for more than 26 years, similarly
all the divisional heads have served in central positions in the largest corporations of the
company.

ORGANIZATIONAL STRUCTURE

Engro has experimented with its organizational structure to establish the type most
conducive to ideas and continuous innovation. When concerning ideas of great proportions
(such as the creation of Engro Foods Limited), the job was taken on by New Venture Teams.
These teams comprised of employees from all major facets of the organization and were
tasked with tapping potential avenues for growth. The cross-functionality aspect to these
teams allowed a variety of perspectives to come into the picture. Marketing managers, for
instance would analyze any potential growth-area from the perspective of the consumer and
how to best satisfy them; production managers would concentrate on the supply chain, and
whether it would be viable to delve into the potential area; finance specialists would use
forecasting to predict macroeconomic trends and work in LIBOR and KIBOR to gauge the
approximate cost to the business. This strengthened the entire prefeasibility part of the idea
and allowed for greater cohesion amongst the employees. Once the prefeasibility study was
completed and approved by the top management, the existing structure would enable an
easier and more efficacious feasibility study. With the rapport already in place between the
respective heads of department, new departments such as Research and Development and
Human Resource would have an easier time meshing with the rest of the feasibility study
group. This increases productivity and helps strengthen the process of verifying the idea.
Recently though, this team-structure for gigantic ideas was scrapped. Partly due to the
exponential growth Engro was facing, the management decided to initiate a completely new
department for the sole purpose of analyzing new prospects. The New Venture Department
which they call the Business Development Team became part of the organization a year ago
and has come to symbolize the emphasis placed upon ideas and growth throughout the
organization.


43 ENGRO FERTILIZER
This department is entrusted solely with idea generation and evaluating the viability of these
ideas. The department is staffed by the more experienced employees at Engro; the junior-
most member of the department has spent over 5 years within the organization. The
rationale behind this is two-fold. Firstly, experience counts for a lot when evaluating the
feasibility of an idea in its nascent stages and seeing first-hand the success and failure of
similar ideas is key to making important decisions with respect to idea generation. Secondly,
the New Venture Department is relatively new itself and therefore needs to be run by
individuals who are senior in their job description and their experience with the firm. Over
time, they do plan to bring younger employees in. To that end, Engro is actively considering
initiating a Management Traineeship within this department next year. The addition of new
faces and fresh perspectives will no doubt be a welcome addition within the department.
As narrated by Mr. Ali Rashid, each team is headed by its own head sales manager, regional
sales manager and area territory sales manager. Therefore, other than idea generation, they
do follow a semi rigid hierarchy, with proper lines of authority. FMCG companies have the
product teams leading. Here, each product has its own team, example Omore or Olpers has
an entire team behind it. The coordinators direct the strategies and develop the necessary
liaisons between the other departments. These steps are necessary to reduce any sort of
inter or intra departmental conflict when generating any idea. Sometimes, a departmental
setup is also followed where the brand teams will be assisting the departments in the
execution of their tasks. The reporting is done to the departments but each individual
working within his/her unit. This concept is called a brand group and each member working
within it, a brand team member. As these teams unite into a cohesive structure, they work
the strategies effectively, where the underlined task of each bran member is to support an
idea or to come up with one.
Engro believes in outsourcing, as they want specialized work where the nitty gritty details are
dealt with perfection. They proudly boast of their media buying house as we know what we
want but others can do a better job at it, Mr. Ali Rashid. This leads us to believe Engro does
not compromise on quality when it comes to the technicalities of its products.


44 ENGRO FERTILIZER
THE COMPENSATION, ORGANIZATION & EMPLOYEE DEVELOPMENT (COED) COMMITTEE:

Develops and institutes mechanisms to attract quality personnel at competitive
remuneration, train them and implement human capital management systems to motivate
and retain employees.


























45 ENGRO FERTILIZER
Codes & Policies
Engross policies link financial performance to extended responsibility as a corporate citizen.
The Company places particular emphasis on Core Values, Code of Business Ethics and
Sustainability Programs and Procedures.
Risk Management
Engross approach to risk management comprises prudent analysis with social sensitivity
towards the financial and plant-related risks. Management Committee works with the Board
to implement a comprehensive risk management system that allows for a critical assessment
of diverse interventions, ranging from business strategy to social investments.

Health Safety and Environment
While improving KESC's business culture from a safety perspective, KESC is also here to help
each and every employee work responsibly and safely, and most importantly, to go home to
their families without injury. Protecting employees, business partners, customers and the
public from ill-health or injury and promoting employee wellbeing, as well as safeguarding
assets from loss, damage, and business disruption, is fundamental to business philosophy. A
risk that can and should be prevented, by taking a common sense approach which is
developed By HSE
Department that includes:
1. Employee Training
2. Awareness
3. Inspections
4. Planned Maintenance
KESC has started various training and motivational sessions to aware employees. First time in
the history of KESC, not only management has provided the Personal Protection Equipments
(PPEs) but also trained employees for the proper usage of PPEs. PPEs, is checked and
replaced after certain period of time.





46 ENGRO FERTILIZER
Engro Fertilizers Limited gives the highest importance to safe operations, safe work
practices, and protection of the environment and the health of its employees in the
conduct of its business.
In an endeavor to keep it abreast with the World Class Safety Standards, Engro
Fertilizers Limited has aligned safety management systems with Dupont

They are committed to conduct our business in a manner that protects the health and safety
of our employees and the communities in which we operate. HSE performance and programs
at Engro are annually reviewed at the board level.
They also recognize the importance of protecting the environment while conducting our
business and believe that caring for the environment is not only an ethical and legal
obligation but also a mechanism for success. Engro abides by all local environmental laws and
regulations including National Environmental Quality Standards (NEQS). We continually strive
to align our HSE management systems and processes to international best practices including
Occupational Safety and Health Administration (OSHA) and Dupont Workplace Safety
Standards.
Our HSE systems and processes are regularly assessed and audited internally as well as
independently by third parties.

Environment
Core objectives of environmental management policy at Engro include complying with
regulatory requirements and reducing our environmental burden and footprint. The
Company has shown strong commitment by establishing and upholding high environmental
standards while at the same time pursuing capabilities and expertise towards softening
impact of our industrial activities on communities and natural environment.
Engro has been rigorously pursuing environmental management by efficiently monitoring,
controlling and reducing wastes at all times, while also conforming to relevant environmental
standards. Broadly, Engro has displayed consistent progress in all its key environmental
performance indicators: effluents; greenhouse emitting gases; ozone-depleting gases;
hazardous and non-hazardous wastes; and natural resource management with respect to
waste reduction, energy conservation, and compliance.

47 ENGRO FERTILIZER
Engro has ensured 100% compliance to self reporting to the Environment Protection Agency
on effluents and emissions. After discontinuation of Ozone depleting Chlorofluorocarbons
(CFCs) in air conditioners, replacement of Hydro CFCs is underway in a phased manner with
normal replacement cycle of air conditioners. In 2009, use of chlorine from Cooling Water
System was eliminated at Utilities-2 plant and Sodium Hypochlorite was introduced as the
alternative. Similarly project is in place to eliminate use of chlorine from Utilitities-1 Cooling
water system.
The company has taken one step forward towards achieving excellence in Environmental
Management Systems by engaging British Safety Council for 5-star Environmental Audit of
the Environmental Management Program at Engro. The Company scored 3-star in the first
environmental audit conducted by British Safety Council in February 2009 which as per BSC
rating is good. Engro has also won a number of consecutive National Forum of Environment
& Health annual Environment Excellence Awards.







48 ENGRO FERTILIZER
Emergencies
Scenarios
Fire
Explosion
Chlorine
Leakage
Ammonia
Leakage













Public goodwill
Since its Privatization company has also started to treat public goodwill as a competitive edge
and a strategic asset. For the first time company started a coordinated marketing effort to
improve the image of the company, some of the initiatives taken by the company include:

Effective PR:
The corporation needed a strong PR effort to effectively handle issues of public interest such
as employee firings and load shedding. Company was effectively able to present its point of
view in the media.

CSR Initiatives:
One other way to increase the public goodwill for the company was the CSR initiatives that
company carried out, these initiatives have been elaborated later in the report.






49 ENGRO FERTILIZER
Operational Level Strategy

Introduction:
Quite often it is necessary for an organization to revise and re-examine its decisions, goals,
targets etc., in order to improve the performance in many ways and this activity of
reengineering is called as Core Process Re-engineering which is also known as Business
Process Re-design or Business Process Improvement.

Core Process Reengineering (CPR):
Core Process Reengineering began as a private sector technique to help organizations
fundamentally rethink how they do their work in order to dramatically improve customer
service, cut operational costs, and become world-class competitors. A key stimulus for
reengineering has been the continuing development and deployment of sophisticated
information systems and networks. Core Process Reengineering involves changes in
structures and in processes within the business environment. The entire technological,
human, and organizational dimensions may be changed in CPR. Information Technology plays
a major role in Core Process Reengineering as it provides office automation; it allows the
business to be conducted in different locations, provides flexibility in manufacturing, permits
quicker delivery to customers and supports rapid and paperless transactions. In general it
allows an efficient and effective change in the manner in which work is performed.

TRAININGS AND PROMOTIONS
Training of employees for all possible emergencies :
Skill certification system;
Weekly & Quarterly simulated exercises;
Involvement of ES, employees & contract employees and community;
Skill certification of ES;
Emergency Shutdown procedure.




50 ENGRO FERTILIZER
EFFECTIVE PUBLIC RELATIONS
Frequent articles in Express Tribune and coverage in newspapers endure that Engro is the
talk of the town at all times. It has been a buzz word to be associated with Engro since Engro
Foods and the uphill marketing strategy effect trickled down to other subsidiaries as well.
Since then it has been an honor for anyone remotely associated with Engro. Millions of young
individuals crave for an internship here every year and wish to have a job at the Corporation.

CSR INITIATIVES
EnVison is a platform launched in 2009 for employees to volunteer their time for important
social and public welfare causes. The initiative is managed by a team of Engro employee
volunteers through EnVison Council, responsible for implementing and promoting
volunteering opportunities among employees across Engro companies.

Corporate Responsibility Efforts
Community & Society
We are sensitive to the needs of our stakeholders especially those of our host communities,
and most of our social investments directly address these needs. Engro Foundation plays a
leading role in making meaningful investments towards addressing the social and economic
needs of these communities.
Engro Foundation serves as a single platform for community engagement activities and social
investments of Engro affiliates. By pooling their financial and managerial resources under the
Foundation, Engro seeks to create large scale social impact.

USP
Bather Indigo Engro Se
This is indeed what Engro Fertilizer has strived for, producing high yield products and
increasing the standard of living by these high quality yields.



51 ENGRO FERTILIZER
B2B Business
A very important difference between Engro Fertilizer and that of other subsidiaries is the
operational marketing strategy. Engro Fertilizer has a very small advertising budget compared
to that of Engro Foods. Approximately the budget being equal to that of Engro Foods one
campaign
Furthermore, the focus on BTL is more for a B2B business like Engro Fertilizer which has to
train and convert farmers to use its products. This is obviously quite in opposition to the B2C
business of other subsidiaries.
























52 ENGRO FERTILIZER
Fertilizer Supply Chain
It is important to assess how fertilizer distribution channels operate in
order to fully grasp the impact on end-consumers with respect to fertilizer
supplies and pricing. The following chart and table shows this clearly:

Figure 13: Distribution Channels



Private Sector
TCP


IMPORTERS LOCAL
PRODUCERS




Regional Strategic Warehouses
FFC
ECPL
FFBL
DHCL
FFCL
PFL
AZGARD
Al - Hamd


NFML

PUBLIC
SECTOR


LOCAL DEPOTS
DEALERS &
DISTRIBUTOR

PRIVATE
SECTOR
FFC
ECPL
DCL
Jaffar Brothers
Pan Pacific
Khalid Javid &
Brothers
etc.



FARMERS


Source: NFC Fertilizer related statistics 2007

NFML represents the public sector in the supply chain. The company is a
subsidiary of NFC and used to handle the entire NFC production. With
NFC phased out as a result of privatization, NFMLs role is now
restricted to handling only the distribution of urea imported through the
Trading Corporation of Pakistan (TCP).

The private sector comprises of major producers as well as smaller
private players. FFC has the widest distribution penetration with
nationwide coverage. FFC handles its entire production as well as that of
FFBL, thereby making it the largest marketing company. On the other
hand, ECPL has distribution penetration in Sind, Balochistan and Punjab
while its NPK is better marketed in NWFP.



53 ENGRO FERTILIZER
As such, the companies provide their product, especially u r e a , from
their strategic warehouses at standard uniform rates. The
distribution cost associated with such provision is absorbed and
reflected in the prices charged by these companies. Once the product is
sold to licensed distributors (ultimate consumers for manufacturers), the
retail prices are then influenced by how swiftly these products are sold
to the true consumer (farmer). Historically, the differential between
retail and company prices tends to fluctuate, which should incorporate
transportation and handling charges borne by the distributors
alongside their own margins. Figure 14 correctly points out this
tendency. It is worthy of note that distributors margins surged
enormously during the peak season demand of 2008, which was partly
attributable to a shortage of suppl y and unti mel y availability of
i mports. Whatever t he r eas on, the situation was solely capitalized by
distributors in the chain. Meanwhile, instances of hoarding or
smuggling to neighboring Afghanistan have also been quoted time and
again either through media or industry sources. The distribution margin
eventually rationalized once urea fertilizer import was finally carried
out by TCP and marketed through NFML (direct government intervention
into supply).






54 ENGRO FERTILIZER
International Level Strategy
Engro has realized the need of going international, as local market opportunities are getting
saturated and limited. According to policies regulated by government of Pakistan, fertilizer industry
cannot export fertilizer to foreign players. As we can see that international process of fertilizer are
around $ 528/ ton which translates into Rs 2500/ bag while in domestic market cost of fertilizer bag
is Rs 1300/ bag, which gives huge incentive to the industry to export its product. But government
has effectively clipped wings of the industry because gas supplies are provided at subsidized rates
to the plants, so that the low cost benefit can be forwarded to farmers by providing cheaper
fertilizer. And if fertilizer industry starts exporting, then it will create domestic shortage which will
lead to increase in domestic prices.
In the view of above situation, Engro finds local industry limiting the scope of its company.
Therefore it is planning to built an off shore fertilizer plant which will be exempted from such
restrictions. Engro can use its expertise and experience, to build a plant in some other country and
benefit from the higher international prices. This proposal is currently in planning stages and
detailed feasibility study is being conducted to identify the potential location for investment.
Pakistans fastest growing dairy and food processing company, Engro Foods, has entered into the
international arena by acquiring Al-Safa, the leading halal meat brand of North America. Giving
presentation to select group of journalists, Engro Foods General Manager Marketing Ahsan Afzal
Ahmad pointed out that Engro was the first Pakistani consumer goods company that acquired an
international halal meat brand within this high potential market, recognized as the worlds fastest
growing segment at an estimated global value of $632 billion. He said that leveraging Al-Safas
established global footprint, Engro Foods aimed to strengthen its presences in North America and
Canadian markets by expanding its product portfolio and drawing upon its local expertise in the
food business to emerge as major contender and a key player within the international market. With
the vision of Elevating Consumer Delight Worldwide, Companys significant focus will be towards
the global operations in the years to come.
After its successful experience of joint ventures in Pakistan, the Company recently announced its
intention to venture overseas. The country it has selected for its first investment is Oman. In this
regard the Company recently signed a MoU to set up an 850,000 tons p.a. Ammonia-Urea complex
in the Sultanate.


55 ENGRO FERTILIZER
The project is premised on utilizing Oman's gas reserves and Engro's experience to build and
operate fertilizer plants. Engro's partner in this venture is Oman Oil Company, a premier 100%
government owned company which operates on commercial lines.
The partners are targeting to complete the feasibility by middle of 2003. Engro is confident that the
project has good fundamentals and prospects.
Engro looks to the future with optimism and confidence. It has set itself a vision "to be the premier
Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders".





















56 ENGRO FERTILIZER
FINANCIAL ANALYSIS

Financial Statement Analysis:
Financial analysis can provide basic understanding into corporation history, current position and
future prospects and these results provide important insights into credit decisions, valuing
securities, analyzing competitors, and appraising managerial performance. At Engro fertilizer,
financial standing has taken an important dimension due to various reasons. First of them is that
their new plant Enven, which has been set up at cost of $1.1bn, was mostly financed through debt.
This debt was secured through various channels which include public bonds, and mix of foreign and
local banks. According to their new CEO Aliuddin Ansari, that Engro has taken loan from almost
every bank in Pakistan and in case, Engro defaults on its payments, then the whole banking sector
will be jeopardized. This situation explains the seriousness of financial position, which prompted
Chairman Engro Corp, Hussain Dawood to approach Aliuddin Ansari, a financial wizard, to take
helm of the company and drive it out of its recent crisis.
Engro Fertilizers has approached banks to re-profile its debt and extend the loan repayment
dates by about two and a half years, as the company is trying to reach an agreement with the
government to shift its $1.1 billion Enven fertilizer plant from the Sui Northern Gas Pipelines
Limited (SNGPL) network to non-network gas fields.
Engro Fertilizers part of Pakistans largest private-sector conglomerate Engro Corporation has to
make principal repayments of Rs10 billion and interest payments of Rs8 billion in 2012, Engro
Corporation Chief Financial Officer (CFO) Naz Khan. Engro is running behind its debt repayment
schedule and there are market speculations that it might default on its current year payments.
They are facing serious cash flow crisis, as the original debt repayment was scheduled on basis of
regular gas supplies of 100mmbtu from SNGPL. It has received gas for 44 days in 2012, of which
production could take place for 33 days only, as the firing up and shutting down the plant takes
considerable time.
Engro Fertilizers has made principal repayments and interest payments amounting to Rs26.5 billion
in the last 18 months since Enven became operational. Due to non-availability of required cash,
Engro has approached banks to reschedule repayments for interim periods which will be two and a
half year. Engro has to make hefty payments of its upcoming debt repayment schedule according to
which about five payments totaling Rs28 billion are due every six months.


57 ENGRO FERTILIZER
Along with this due to debt restructuring, term finance certificates (TFCs) payments will be also
affected. But on other hand it has been ensured that Engro Fertilizer will not default as it has other
subsidiaries, which are very profitable and will take the burden.
Profitability and Share prices:
The local conglomerate posted a net loss of Rs1.4 billion against a net profit of Rs1.4 billion during
January to March 2012. Engros new urea plant Enven after starting operations in July operated at
only 40% of effective capacity amid severe gas curtailment, however, the old plant was immune to
the curtailment. Resultantly, the industry decided to increase urea prices in the local market by
over 100% to allow the business to meet its significant debt obligations. Alone in the fourth
quarter, the company posted earnings per share of Rs1, 19% lower than the earnings of Rs1.23 in
the preceding third quarter. The major reason behind decline in earnings is 21% fall in volumetric
sales.
Moreover, increase in financial charges to Rs2.7 billion from Rs0.5 billion also dragged profitability
as new plant came online in later part of last year.
Due to grave gas supplies curtailment, there has been a huge hike in fertilizer prices in local
markets, of Rs549/bag that was attributable to offset production losses due to 198 days of gas
related shutdowns. Although the management is continuously looking for alternate gas supply
solution to their Enven plant, there has not been any concrete development on the issue. As the
likelihood of the resumption of gas supply on continuous basis to SNGPL based plants seems dim,
the urea prices may not come down and exorbitant margins enjoyed by other urea plants like FFC
and FFBL will continue.

Engro Rupiya:
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available for you to invest in a reliable, hassle-free environment. With Engro Rupiya certificate,
investors can become a part of the Engro family and share its growth with an attractive profit rate
of 14.5% from the day you invest.
Product Features:
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Minimum investment of Rs. 25,000 with increments of Rs. 5,000
Profit earned from the first day of investment
Profit deposited directly into your bank account for added convenience
Rated AA which denotes very high credit quality
Free pickup of application form right from your doorstep

58 ENGRO FERTILIZER
No minimum holding period so investments can be encashed anytime subject to service charges
of 2% on the investment balance for encashment before completion of 3 years
Available for purchase till August 31, 2011. Multiple applications are allowed.



59 ENGRO FERTILIZER
Profit Margins:
In 2011
Net Margin= Net Income/Net Sales = 31 billion/4 billion = 7.75%
In 2012
Net Margin= Net Income/Net Sales = 19 billion/ 3.7 billion = 5.1%
There is a clear indication that net margin of the company has increased, because of hike in prices
of the urea, as the gas to old plants is uninterrupted, therefore higher profit margins are enjoyed by
those plants.
Solvency Ratios:
Solvency ratios generate an insight into a companys ability to meet it s long term liabilities
schedule. These ratios are designed to give an insight into operating cash flow and assets values
provide protection to creditors should a company incur losses. Most important o this analysis is
time interest earned ratio, which gives an idea on companys availability of cash to pay interest.
Times Interest Earned
Operating profit/ Long term debt interest = 14.9 billion/ 8.2 billion = 1.8 times
This coverage shows ratio calculated on pretax basis, since bond payments are tax deductible. This
shows a very alarming situation; as Engro TIE ratio is far low then the existing industrial ratio. This
mainly due to drastic increase in debt expenses from Rs. 1.8bn to Rs. 8.2 bn.

Debt to Equity Ratio:
Total Assets/ Total Liabilities = Rs. 83.7 billion/ Rs. 17.4 billion = 4.8
This shows that every single rupee in equity is on other hand complimented by four rupee of debt.
This is almost 80:20, debt to equity ratio. As we know that debt is much cheaper source of capital
then equity, but debt increases the riskiness of the company. As we can see huge debt financing of
Engro fertilizer Enven plant, which makes it very risky. But as this is supported by other more
profitable subsidiaries, therefore chances of default payments are slim.




60 ENGRO FERTILIZER
Engro claims damages from SNGPL:
Engro Corporation has claimed damages from Sui Northern Gas Pipeline Limited (SNGPL) due to
what it says are a breach of sovereign contract by the latter. Engros $1.1 billion Enven plant.
Engro was chosen by the Government of Pakistan through an international bidding process to set
up a fertilizer plant to meet the countrys urea needs and to save precious foreign exchange spent
on importing urea. Sources said that if the production capacity of Enven was to be maintained at
1.3 million tons and price remained at 2010 levels, Pakistan can save Rs22 billion in the form of
subsidies and Rs43 billion in the form of foreign exchange outflows every year.
Engro mobilized local and foreign lenders and raised $770 million from local and international
financial institutions. Engro Enven plant, if run at optimum capacity can add 2,194 tons per day of
ammonia and 3,835 tons per day of urea to Engro Fertilizers production capacity. It is also the
most energy efficient plant of its size and capacity, with the lowest gas consumption per ton of urea
in Pakistan.

















61 ENGRO FERTILIZER
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APPENDIX
Sector Studies

9.2 Fertilizer
Ensuring the timely availability of urea (domestic or imported) should remain the governments
overarching policy objective in light of the sectors importance as an essential input for the entire
agriculture sector. And the issue at the heart of the countrys urea shortage and associated
spillovers on the economy is the national natural gas shortage. Unless, the government creates
and communicates a credible gas allocation policy and does not resort to ad-hoc measures
there will always be the sort of speculation, shortages and hoarding in the urea market that
characterized the latter half of FY11.

I nconsistent gas allocation policies
Although the fertilizer industry is given
priority after domestic consumers in the
National Gas Allocation and Management
Policy 2005, recent policy decisions have
not reflected the precedence laid out in the
policy. Whether it makes sense
economically to divert gas to the fertilizer
sector (the industrys estimates clash with
the numbers of a report authored by a
USAID-sponsored consultancy) is another
debate, but these back-and-forth decisions
serve to reinforce the perception that
government allocation policies are
Figure 9.4: MoM Growth in Urea Prices
20

15

10

5

0

-5

















Source: NFDC
inconsistent, and hence discouraging for future investment decisions.
9
Fertilizer manufacturers
do have contracts guaranteeing gas supply for nine months of the year and at least one of them
has previously gone to court to force the government to supply gas to its plant. It remains to be
seen if such a course of action will be considered once again by the fertilizer manufacturers.

However, as things stand now, fertilizer manufacturers will be subject to a gas load management
schedule that will constrict production. Our estimates indicate that urea production for the rabi
season in FY12 if this schedule is adhered to will be 2.1 million tons, leading to a deficit of
1.2 million tons, according to our own assessment of a demand for 3.3 million tons in the rabi
season. However, manufacturers will likely not raise their prices beyond Rs1600 per bag unless
there is additional curtailment. Since plants on the SNGPL network are expected to be the worst
affected under this gas load management schedule, the informal price of urea will probably be
higher in the northern part of the country.

Encouraging hoarding
Inconsistent policies will always provide incentives for significant hoarding of urea and further
unofficial price increases. Since the government is still reliant on imports of urea to fulfill
domestic demand, there will always be a question mark regarding the timely availability of urea
in the market. If the government fails to time its import of the commodity precisely, and ensure
that stocks are distributed systematically throughout the country, dealers will want to hold on to
their stocks in anticipation of future price increases; and apprehensions of future availability.
Buffer stocks will dwindle and the market will create self-fulfilling expectations of a shortage.
In fact, the mere announcement of the current gas management framework and the expected rise
in natural gas tariffs for the fertilizer industry raised unofficial market prices and incentivized
hoarding as traders foresaw a rise in urea prices.

9
Our own calculations indicate that the fertilizer-power allocation problem for natural gas is too close to call on the
basis of dollar value per unit of gas alone


62 ENGRO FERTILIZER










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State Bank of Pakistan Annual Report 2010-2011

Falling consumption
The shortage of urea and the resultant price hikes and the floods meant that urea consumption
remained suppressed in FY11.
Consequently, urea off-take fell by 11.9
percent in FY11 compared to the preceding
year (Figure 9.6).
10
The decrease in urea off-
take was disproportionately more during the
kharif months as compared to the rabi season.
Thus, the effect on yield for the years wheat
crop was marginal.

The decrease in urea off-take in the last two
months of the fiscal year, despite the rise in
farmer incomes due to a bumper wheat crop,
indicates that the issue at hand was the
unavailability of urea in the market. Gas
shortages to plants on the SNGPL network
led to a substantial under-utilization of
domestic capacity. With no plan for urea
imports in sight at the start of the kharif
season, and the expected rise in urea prices as
producers sought to conserve profits
following gas shortages, incentives to hoard
the commodity materialized and further
squeezed out urea from the market.

Shortages to persist in the short-run
With demand expected to peak in December,
we believe that another urea shortage is
around the corner with urea imports likely to
be too little, too late for the wheat crop.
11
Anecdotal evidence reveals that urea
shortages seemed to be more severe in the
northern parts of the country. Since the
plants that have borne the brunt of gas
Figure 9.5: Urea Availability and Consumption

Opening Inventory Imported Supplies
Domestic Production Offtake
1,400
1,200
1,000
800
600
400
200
0



Source: NFDC


Figure 9.6: YoY Urea Offtake Growth

80

60

40

20

0

-20

-40

-60



Source: NFDC
outages are on the SNGPL network, and transport costs make it lucrative for manufacturers to
supply urea to areas closest to their production facilities first, the southern parts of the country
may be better off in terms of urea availability than the north.

Required: A consistent gas allocation policy
It was also unfortunate that the ECCs decision taken on May 7 to divert gas to fertilizer
plants at the expense of IPPs was not implemented. Fertilizer manufacturers were supposed to
bear two-thirds of the incremental cost of running the power plants on diesel as opposed to
natural gas. We believe that the decision was a viable framework in the short-run since fertilizer
manufacturers were both willing and able to pay the cost of gas shortages. The price of urea
would probably have increased since the manufacturers would have passed on this extra cost, but


10
The spike in urea consumption in Nov-10 was due to flood-relief activities and the distribution of free fertilizer by
the government.
11
For a urea import requirement of 1.2 million metric tons, the time to offload vessels carrying 50,000 MT tons each is
around 24 weeks or more than 5 months assuming one vessel takes only a week to offload.


63 ENGRO FERTILIZER
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Sector Studies

domestic production would also have met demand and a price war could have ensued. Moreover,
the price of urea has increased anyway in the wake of natural gas curtailment to plants. The
framework would have also eliminated the import of, and the resultant subsidy on urea.
Ultimately, expensive urea is better than no urea for agricultural productivity.

Therefore, the need for a definite and
consistent natural gas allocation policy is the
need of the hour for the fertilizer sector to
address the uncertainty surrounding domestic
production. A consistent policy whether it
is based around imported urea or
domestically produced urea can also
manage market expectations and reduce price
volatility. If the country does decide to move
towards importing its fertilizer requirements,
then we believe the role of the government
needs to be minimized to let the market
ensure the availability of fertilizer. If,
however, fertilizer is to be produced using
domestic capacity, then the government

Figure 9.7: Monthly Urea Production
Engro Fatima group Fauji Fertiliser
Fauji Bin Qasim Others Capacity
600

500

400

300

200

100

0



Source: NFDC, firms' financial statements and websites.
needs to rationalize gas allocation and tariffs while ensuring that the sectors domestic gas
requirements are met. The policy needs to be set in stone to anchor market expectations and set a
roadmap for ensuring the supply of fertilizer to the agriculture sector.

The question of imports
Since the natural gas shortfall will not be
resolved in the short-term, it is safe to assume
that the government will have to import urea
in the new fiscal year. The government will
also have to subsidize imported urea because
the international price of the commodity is
higher than the current domestic price. If the
load management schedule highlighted earlier
is followed, then we believe urea import
requirements for the rabi season will be 1.2
million metric tons, which will cost the
country around $620-640 million in foreign
exchange and cost the government Rs 42
billion in subsidies (Box 9.1 for a detailed
discussion on subsidies).

In summary, it is important to reiterate that the
Box 9.1. A Flawed Subsidy Transmission
Mechanism
The amount of subsidy granted by the government per
bag is more than the international-domestic price
differential per bag. This is a consequence of the
subsidy transmission mechanism. Urea is imported by
the Trading Corporation of Pakistan (TCP) at (or
slightly above) the international market price and sold
to the National Fertilizer Corporation (NFC) at Rs528
per bag. This price has been set by the Economic
Coordination Committee of the Cabinet. NFC then
distributes the fertilizer through its marketing arm,
National Fertilizer Marketing Limited (NFML), across
the country. Unfortunately, this creates ample
opportunity for various creative methods of corruption.
The subsidy is, therefore, untargeted. Press reports
regarding an FIA investigation into a urea scam at
NFC/NFML are strong indications that the mechanism
for the distribution of imports is defective.
problems in the fertilizer sector are solely a consequence of the ad-hoc policies deployed to
manage the natural gas shortage. Apart from reassessing the role of NFC and NFML in
importing and distributing urea, the government needs to set out and stick to a clear gas
allocation framework to manage market expectations and halt speculative activity.








64 ENGRO FERTILIZER
REFERENCES

Mr. Ali Hamza Kamal, Manager Market Analysis & Planning
Mr. Riaz Nazim, Manager 6sigma & Business Process Improvement
Engro Fertilizer Limited Annual Report 2011
Emergency Response and Disaster Control, by Asghar Naveed (Engro Fertilizer, Daharki)
Enabling Growth, Engro Chemicals Pakistan (by Amina Sarfaraz)
Engro Corporation Limited, Case on Strategic Management
Ideation at Engro, Organizational Behavior Analysis
State Bank of Pakistan Annual Report (2010-2011)
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65 ENGRO FERTILIZER
http://engrofertilizers.com/investor-relations/financial-highlights/
http://engrofertilizers.com/products/
http://engrofertilizers.com/sustainability/
http://www.pakissan.com/english/agri.overview/national.day.shtml