Efert Vs FFC

PREPARED BY: GROUP
M.Shahzaib Subhani (21775)

Waqar Malik ()
Ehssan Rafeeque ()
Theory and Practices of Financial Management
Comparative Analysis of
Engro Fertilizers Limited
& Fauji Fertilizers
Company Limited
Term Project Report
Submitted to: Sir Suleman Ahmed

4/8/2018
COMPARATIVE ANALYSIS OF ENGRO FERTILIZERS LIMITED & FAUJI FERTILIZERS COMPANY LIMITED
Acknowledgment
Thanks to almighty ALLAH for giving us strength to complete the task on given time.
We, the student of MBA from the course of “Theory and Practices of Financial Management,”
would like to pay our deepest gratitude to our supervisor Sir Suleman Ahmed for giving us
opportunity and insight to carry out this comparative analysis on financial health of “Engro
Fertilizers Limited” versus “Fauji Fertilizers Company Limited.”
We are really obliged for his selfless support, suggestions and valuables comments for improving
our learning and analytical skills, which gave us an experience on how to engage ourselves in
such influential projects.
It was impossible to accomplish the goal related to this finance based project, without his kind
and priceless contribution.
April 8, 2018 2
Contents
ACKNOWLEDGMENT ..........................................................................................................................2
COMPANY PROFILE OF ENGRO FERTILIZERS ........................................................................................6
BACKGROUND: ......................................................................................................................................6
CORE VALUES:.......................................................................................................................................7
PRODUCT PORTFOLIO:.............................................................................................................................7
1. ENGRO UREA: ........................................................................................................................................... 7
2. ENGRO DAP: ............................................................................................................................................ 7
3. ENGRO NP:............................................................................................................................................... 8
4. ENGRO ZARKHEZ ........................................................................................................................................ 8
5. ZINGRO .................................................................................................................................................... 8
6. ENGRO ENVY ............................................................................................................................................. 8
7. ENGRO MOP ............................................................................................................................................ 9
COMPANY PROFILE OF FAUJI FERTILIZERS ...........................................................................................9
BACKGROUND: ......................................................................................................................................9
ABOUT FAUJI FERTILIZERS: ..................................................................................................................... 10
VISION: ............................................................................................................................................. 10
MISSION: ........................................................................................................................................... 10
CORPORATE STRATEGY: ......................................................................................................................... 11
CORE VALUES:..................................................................................................................................... 11
PRODUCT PORTFOLIO:........................................................................................................................... 12
1. SONA UREA ............................................................................................................................................ 12
2. DAP ...................................................................................................................................................... 12
3. FFC SOP ................................................................................................................................................ 12
4. SONA BORON .......................................................................................................................................... 12
MACRO-ECONOMIC IMPACT OF FERTILIZER INDUSTRY...................................................................... 13
SWOT ANALYSIS OF FFC ................................................................................................................... 14
STRENGTHS ..................................................................................................................................... 14
WEAKNESSES .................................................................................................................................. 14
April 8, 2018 3
OPPORTUNITIES .............................................................................................................................. 14
THREATS ......................................................................................................................................... 15
PEST ANALYSIS................................................................................................................................. 15
POLITICAL ...................................................................................................................................... 15
ECONOMICAL .................................................................................................................................. 15
SOCIAL ............................................................................................................................................ 16
TECHNOLOGICAL ............................................................................................................................ 16
SWOT ANALYSIS OF ENGRO CORPORATION ...................................................................................... 16
STRENGTHS ........................................................................................................................................ 16
WEAKNESS ......................................................................................................................................... 17
THREATS ............................................................................................................................................ 17
OPPORTUNITIES ................................................................................................................................... 17
PEST ANALYSIS................................................................................................................................. 17
POLITICAL........................................................................................................................................... 17
ECONOMICAL ...................................................................................................................................... 18
SOCIAL .............................................................................................................................................. 19
TECHNOLOGY ...................................................................................................................................... 19
ENVIRONMENTAL ................................................................................................................................. 20
INCOME STATEMENT ANALYSIS OF EFERT: ........................................................................................ 20
BALANCE SHEET ANALYSIS OF EFERT: ............................................................................................... 21
FINANCIAL RATIOS ANALYSIS ........................................................................................................... 21
LIQUIDITY RATIOS: ............................................................................................................................... 21

CURRENT RATIO: ................................................................................................................................. 22
QUICK RATIO: ..................................................................................................................................... 22
NET WORKING CAPITAL ......................................................................................................................... 23
GROSS PROFIT MARGIN ................................................................................................................... 24
NET PROFIT MARGIN ........................................................................................................................ 25
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RETURN ON EQUITY ......................................................................................................................... 27
INDUSTRY ANALYSIS ........................................................................................................................ 28
STOCK ANALYSIS .............................................................................................................................. 30
CONCLUSION ................................................................................................................................... 32
RECOMMENDATIONS ....................................................................................................................... 32
April 8, 2018 5
Company Profile of Engro Fertilizers
Background:
Engro Fertilizers Limited is a subsidiary of Engro Corporation and a renowned name in

Pakistan’s fertilizer industry. It is traded on the stock market under the symbol ‘EFERT. Engro
holds a vast, nationwide production and marketing infrastructure and produces leading fertilizer
brands optimized for local cultivation needs and demand. Engro is also a leading importer and
seller of Phosphate products, which are marketed extensively across Pakistan as phospatic
fertilizers.
Engro Fertilizers Limited was incorporated in June 2009, following a decision to demerge
fertilizer concern from its parent company Engro Chemical Pakistan Limited. The continual
expansions and diversifications in its enterprises necessitated a broad restructuring in Engro
Chemical operations and management. To facilitate better oversight, Engro Chemical Pakistan
was converted into a holding company named Engro Corporation, and its fertilizer business was
subsequently demerged to a newly formed Engro subsidiary –Engro Fertilizers Limited.
Engro’s fertilizer manufacturing facility at Daharki has been experiencing ongoing expansion.
This, coupled with distinct dynamics of highly nuanced fertilizer industry warranted an
independent and dedicated business entity and approach. The demerger of fertilizer concern was
approved by High Court of Sind on December 9th, 2009, making it effective as of January 1st
2010.
Engro Fertilizers is poised to become the leading urea manufacturer in the country following
major upgrading of its manufacturing capabilities. ENVEN 1.3–a tremendous expansion in
Engro’s urea manufacturing facility went into production in November 2010 and looks set to end
Pakistan’s near-term urea imports, leading to benefits of an expanded local urea base and savings
in national exchequer.
April 8, 2018 6
Engro is a dynamic company driven by a vision to improve productivity and lifestyle for
thousands of farmers across Pakistan. Engro Fertilizers Limited has earned itself a distinguished
name by continually striving to uphold its tradition and trust of its loyal consumer base.
Core Values:
At Engro, to support their leadership culture through unique systems and policies which ensure
open communication, foster an environment of employee and partner privacy, and guarantee the
wellbeing and safety of employees.
Engro believe that a successful business creates much bigger economic impact and value in the
community, which dwarfs any philanthropic contribution. Hence, sustainable business
development is to be anchored in commitment to engage with key stakeholders in the community
and society.
Product Portfolio:
For the millions of farmers across Pakistan, Engro is a name synonymous with prosperity and
vision. As Pakistan’s first fertilizer brand, Engro Fertilizers [formerly: Esso Pakistan Fertilizer
Company] has developed an endearing relationship with all stakeholders across Pakistan’s
agricultural landscape, particularly with generations of farmers who have trusted our brands for
more than four decades.
1. Engro Urea:
EFL is the first company to have setup urea

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

DAP (Di-Ammonium Phosphate) in the country
since 1996. Engro Fertilizers is the most trusted
and one of the largest importer of DAP in the
country.
April 8, 2018 7
3. Engro NP:
Engro started producing NP (Nitrogen and

Phosphorus) in 2005 and has been extensively
marketing the product whilst especially enjoying a
high market share in lower Sind.
4. Engro Zarkhez
Plants require three major nutrients (i.e.
Nitrogen, Phosphorus and Potassium) for
quality & higher yield. Zarkhez, introduced
in 2002, is the only branded fertilizer in
Pakistan which contains all three nutrients.
5. Zingro
Zingro brings to the market the trust of Engro and high
quality standard which has made it distinct from all the
competition. It is the market leader in a highly
fragmented industry. Zingro has won the prestigious
“Brand of the Year” award for 2009 in the
micronutrient category. Zingro is imported by Engro
EXIMP and marketed by Engro Fertilizers Limited.
6. Engro Envy
Zingro is imported by Engro EXIMP and marketed by Engro
Engro Envy is a product designed for urban markets. It
Fertilizers Limited.
is ideal for gardens, lawns, flower beds, fruit plants
and ornamental plants. Engro Envy has recently been
launched only in Karachi but soon it is being planned
to expand its distribution to include other urban
markets like Lahore and Islamabad.
April 8, 2018 8
7. Engro MOP
In addition to potash based blended fertilizer NPK,
Potassium can also be applied in form of straight
fertilizer, out of which one widely used kind of
potassium based fertilizer is MOP or Muriate of
Potash. We have launched Engro MOP in 50 kg
SKU targeting all potash loving crops
Company Profile of Fauji Fertilizers
Background:
For Fauji Fertilizer Company Limited, social responsibility means facilitating communities and
empowering its people. Sustainability shall always remain quintessential for the performance of
CSR. Historically, FFC has always been socially a responsible corporate entity. The Company
started its CSR per se as early as in 1982 by introducing Agri-Services thus helping in poverty
alleviation of common farmer and assisting them in sustained empowerment. Gradually FFC
started interventions in most of the defined sectors and has developed a history of about 30 years
of contributions to the society. FFC is also committed to improve quality and quantum of its
interventions by maximizing on the available resources.
Since FFC has become member of covenants like UNGC, the CSR has to be aligned with
international guidelines. It is necessary to standardize the interventions and monitor the quality
of interventions at a central level. We need to stay committed to its principles. Keeping the
vision of responsible corporate entity in mind, FFC has moved in this direction. FFC has made
quality as its core value when it comes to CSR intervention at any level, and in future this will
remain as the prime objective.
April 8, 2018 9
About Fauji Fertilizers:
With a vision to acquire self - sufficiency in fertilizer production in the country, FFC was
incorporated in 1978 as a private limited company. This was a joint venture between Fauji
Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of Denmark.
The initial share capital of the company was 813.9 Million Rupees. The present share capital of
the company stands above Rs. 8.48 Billion. Additionally, FFC has more than Rs. 8.3 Billion as
long term investments which include stakes in the subsidiaries FFBL, FFCEL and associate
FCCL. FFC commenced commercial production of urea in 1982 with annual capacity of 570,000
metric tons.Through De-Bottle Necking (DBN) program, the production capacity of the existing
plant increased to 695,000 metric tons per year.Production capacity was enhanced by
establishing a second plant in 1993 with annual capacity of 635,000 metric tons of urea.
FFC participated as a major shareholder in a new DAP/Urea manufacturing complex with

participation of major international/national institutions. The new company Fauji Fertilizer Bin
Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited) commenced commercial
production with effect from January 01, 2000. The facility is designed with an annual capacity of
551,000 metric tons of urea and 445,500 metric tons of DAP, revamped to 670,000 metric tons
of DAP.
In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated at
Mirpur Mathelo, District Ghotki from National Fertilizer Corporation (NFC) through
privatisation process of the Government of Pakistan. It has annual production capacity of
574,000 metric tons urea which has been revamped to 718,000 metric tons urea in 2009.
This acquisition at Rs. 8,151 million represented the largest industrial sector transactions in
Pakistan at that time.
Vision:
To be a leading national enterprise with global aspirations, effectively pursuing multiple growth
opportunities, maximizing returns to the stakeholders, remaining socially and ethically
responsible.
Mission:
To provide our customers with premium quality products in a safe, reliable, efficient and
environmentally sound manner, deliver exceptional services and customer support, maximizing
returns to the shareholders through core business and diversification, providing a dynamic and
challenging environment for our employees.
April 8, 2018 10
Corporate Strategy:
Maintaining our competitive position in the core business, we employ our brand name, unique
organizational culture, professional excellence and financial strength diversifying in local and
multinational environments through acquisitions and new projects thus achieving synergy
towards value creation for our stakeholders.
Core Values:
At FFC we seek uncompromising integrity through each individual’s effort towards quality
product for our customers, maximizing returns to the shareholders and sizable contribution to the
national exchequer.
Our business success is dependent on trusting relationships. Our reputation is founded on the
integrity of the Company’s personnel and our commitment to the principles of:
 Honesty in communicating within the Company and with our business partners, suppliers
and customers, while at the same time protecting the Company’s confidential information
and trade secrets.
 Excellence in high-quality products and services to our customers.
 Consistency in our word and deed.
 Compassion in our relationships with our employees and the communities affected by our
business.
 Fairness to our fellow employees, stakeholders, business partners, customers and
suppliers through adherence to all applicable laws, regulations and policies and a high
standard of moral behavior.
April 8, 2018 11
Product Portfolio:
1. Sona Urea
Sona Urea is the most concentrated solid, straight

nitrogenous and most widely used fertilizer in the
country.
2. DAP
Sona DAP is the most concentrated phosphatic

fertilizer containing 46% P2O5 and 18%
Nitrogen.It is the widely used phosphatic fertilizer
in the world as well as Pakistan
3. FFC SOP
SOP is well suited fertilizer for all types of crops

and soil. Use of potassic fertilizer in Pakistan is
minimal, which needs to be promoted for
qualitative as well as quantitative crop production.
4. Sona Boron
Keeping in view increasing boron deficiency in

Pakistani soils FFC is providing superior quality
Sona Boron containing 11.3% Boron (Borax). It is
easily soluble in water and readily available to
plants. It can be used as mixture with other
fertilizers.
April 8, 2018 12
Macro-Economic Impact of fertilizer Industry
During the early stage in the 1950s, the purpose was introducing and encouraging the use of
fertilizers in farms by subsidizing fertilizer prices. Research on fertilizer use in Pakistan started
in 1909, with the establishment of the Punjab Agriculture College and Research Institute at
Faisalabad (then Lyallpur), followed by the establishment of various research stations in the
country. The response of various crops to nitrogen containing fertilizers was published in 1934.
Phosphorus shortage reported for the first time in 1952. A Soil Fertility Research and Fertilizer
Popularizing Organization established under FAO support in 1958, with the order to conduct
applied fertilizer research and promote fertilizer use. In Pakistan a variety of fertilizers, are in
use, and some of them are locally manufactured and others are imported. In our country, most of
the fertilizers are in use on irrigated wheat, cotton, sugarcane and rice crops. Any shortage of
fertilizers in these crops and the consequent fall in their yield would lower agricultural growth.
According to (Khaskheli) on these crops, nitrogen application rate is close to 75-80 percent of
the recommendations, compared with about 20-40 percent, depending on the crop, in the case of
phosphate. Hardly 1-2 percent of farmers apply potash; that usually applied to fruit, vegetable,
and sugarcane crops only. Micronutrient deficiencies are common but less than five percent of
the farmers apply micronutrient fertilizers. This shows us that urea is found in Pakistan but other
as (DAP) and (MAP) are imported. Pakistan is self-sufficient in urea. The price of DAP which is
the second largest fertilizer product used after urea, is very expensive and is dependent on
international trends. Price disparities lead to high use of urea, and thus to imbalanced fertilizer
use at farm level, ultimately results in low production of crops if the prices are high. In recent
few years, a sharp increase comes in the price of imported fertilizer and a gap between demand
and supply of locally made urea. Both affected the food grain as well as productivity of other
crops.
April 8, 2018 13
SWOT Analysis of FFC

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

 Lengthy organizational hierarchy
 Sales force faced a tough time when being moved to distant areas in other provinces to
ensure they were spread equally. This also contributed to high transportation costs for the
company.
Opportunities
 Urea demand is expected to remain buoyant on the back of improved farmer economics
and seed varieties.
 Increased support prices of crops like wheat sugar etc. Domestic fertilizer demand is
going to be strong in the coming cropping season due to higher farm income from
recently harvested crops. ( Economic survey of Pakistan, 2012-2016)
 Having a strong financial position company can start production of the new product line.
April 8, 2018 14
 The government is going focus on the agriculture sector due to its major contribution
towards GDP, and important issues like soil conservation, farm mechanization, land
reclamation and plant protection. (Pakistan assistance strategy report, 2015)
Threats
 The manufacturing costs pertaining to the fertilizer industry were impacted by

inflationary factors, combined with escalations in the prices of feed and fuel gas.
 Shortages of natural gas in the country can limit the opportunities for the company in
future (The Financial Daily, 2015)
 New competitors in the industry like Fatima Fertilizer Company can reduce the market
share of FFCL (The Nation, 2009)
PEST Analysis
Pestle analysis categorically involves the factors which are directly concerned to the macro environment
and they are Political, economic, social and technological
Political
 To fulfill local demand for fertilizers at affordable prices, the Government is providing
subsidy on the production and import of fertilizers. (Shayan Hassan Jafry IGI, 2007)
Investors will be allowed to relocate second hand plant and machinery, with the same
concession/exemption as applicable to new plants.
 Import by manufacturers of Rock Phosphate and Phosphorous of fertilizer free of
customs duty.
 Tax relaxation has also been offered by the Government, giving export benefit to
suppliers of capital goods for new/modernization projects involving fertilizer. (Federal
Board of Revenue, 2009)
Economical
 Tax relaxation has been offered in order to attract new entrants and to reduce the
dependence on imported fertilizers by enhancing the local production capacity.
 The Government is providing a subsidy on the production and import of fertilizers. A
massive subsidy of Rs.27billion in the supply of urea and DAP in FY09. (Zee News,
2010)
 Ban on the export of fertilizer is also imposed for the economic stability.
April 8, 2018 15
Social
 Although the adverse effects of this industry is very high because of the improper
handling of the waste. Due to this, many diseases like asthma, kidney diseases, hepatitis
etc. are caused. Still, the usage of the fertilizers cannot be stopped because it gives
farmers so much ease in terms of saving time and actually using it.
Technological
 In order to meet the expectation of fertilizers in the country, a strong technological base is
required in the planning and development of specific engineering and expertise in project
management and execution.
 The fertilizer industry is also carrying out several schemes, including energy saving and
de-bottlenecking in their current plants to improve the capacity and reduce the energy
consumption per ton of product.
SWOT Analysis of ENGRO Corporation
Strengths
The company has established itself as a leading corporate in Pakistan. Its brand name “Engro” is
perceived as a symbol of quality, transparency and sustainability. It has world-class systems and
processes in place which uphold its core values of commitment to ethics &integrity; health,
safety, & environment; innovation & risk taking; creating an enabling environment for its
people; and building value for community & society. The company and its subsidiaries are in
compliance with various international and local safety and quality certifications such as British
Safety Council (BSC), ISO 9001 and 14001, WWF Green Office Certifications amongst others.
Engro has successfully demonstrated its lead in introducing innovations in the consumer and
financial markets. The company successfully launched two issues of Engro Rupiya Certificate to
raise funds. Engro Foods launched Dairy Among which is an economical alternative to packaged
milk. Engro’s Management is recognized as amongst the best in the country. Through its
successful execution of projects - like the world’s largest single train urea plant; relocation of an
EDC and VCM plant from Baton Rouge, USA to Port Qasim Pakistan; setting up of a220MW
power plant which was completed in a record 29 months, the shortest time to COD taken by IPPs
of comparable size in Pakistan and the construction of two food processing plants over the
course of our first five years of operation, the Company has developed its in-house capability of
project execution and a strong working relationship with leading international technology
partners, constructions partners and financial partners.
April 8, 2018 16
Weakness
Although Engro’s businesses are well established in Pakistan, its presence in international
markets is limited. It is becoming more and more important for companies around the world to
diversify globally as the world opens up and new opportunities are created in emerging
economies. Engro is, therefore, investing substantially in building its in-house capability to tap
into global opportunities and to address global challenges. Its investment in Al-Safa was driven
by the need to acquire value added food processing know-how and to understand the North
American consumer market.
Threats
Perhaps the biggest threat facing the company, and Pakistan, is the growing energy shortage
which impacts our different businesses through direct gas curtailment, power shortage, circular
debt or rising variable costs. The company has taken various steps to mitigate this threat most
notable one being securing short and long term gas supply solution with Government for EnVen.
Opportunities
Favorable demographic changes like growing population, increasing urbanization and rising
income levels present good growth opportunities in Pakistan. Engro’s diversified business model
and its presence in multiple stages of the Agribusiness supply chain including fertilizer,
commodities and foods provides it an opportunity to create value throughout the chain and create
competitive advantage. Also, there is growing energy demand supply gap in the country. Engro
is actively engaged with the Government to develop the Thar coal mining project and to possibly
establish a new power plant based on Thar coal. Given the abundance of Tharcoal reserves, the
company believes that this project could lead the way towards solving Pakistan’s energy crisis.
PEST Analysis
Pestle analysis categorically involves the factors which are directly concerned to the macro
environment and they are Political, economic, social and technological
Political
Pakistan is currently suffering from political turmoil. On one hand where it is struggling against
the issue of terrorism which involves the international community and international politics on
the other hand it's facing internal political instability. Because of the continuous military
interference into government and politics the Political forces, in the past, have not had enough
chance to practice fundamental democratic values. In result both political forces and the people
of Pakistan have not yet been able to achieve the political maturity which can be seen in the
western, American and other democracy dominant societies. The overall situation is further
resulting into the empowerment of unreliable and corrupt executives who are usually responsible
of making economic and social policies. That is why Pakistan is not achieving required
economic and social goals yet. The policy makers usually involve in taking kickbacks and
April 8, 2018 17
turning policies into their personal interest, after 9/11 the war against terror has put a great
impact on Pakistan and is actually resulting into the destruction of peace of the country.
International communities and investors are hesitating to invest in Pakistan. Even though the tax
policy, employment laws, environmental regulations, trade restrictions and tariff regulations
have been formulated but implementation on these policies is not being conducted in mannered
way. Also there is a need of bringing new economic and agriculture reforms. Especially the
agriculture tax reforms where the per unit land tax price has been a big issue over the times.
Employment laws have been formulated according to the international standards but child labor
issue needs to be addressed on war grounds. Being a member of WTO Pakistan supports the free
market and free trade ideology but in fact no such ''free market'' is in practice in the modern
world. Every country has some trade barriers to protect local industry, so does Pakistan. An anti-
dumping duty ordinance is in place to protect local industry that also encourages local
industrialists to invest further. The tariff rates and policies are being reviewed over the time.
Having all these positive indications Pakistan still needs to modernize the trade and industrial
sectors by developing transparent policies. In the current time the civil society of Pakistan seems
to be awakening to break the political and feudal status quo that will help Pakistan, in future, to
develop a civilized political culture.
When we analyze the Engro Corporation having the above environment in backgrounds and
beyond we need to give considerable attention to the Engro's internal strengths and weaknesses.
Here i would talk about Engros's internal strengths in comparison of that particular environment.
On one hand Engro has tried to keep away from being politically attached to that atmosphere and
has concentrated properly on its business which has helped it to become not polluted professional
organization. On the other hand Engro has been complying with the country's law and cultural
values. Because of the strong internal culture and commercialism company has strengthen itself
to compete with various kinds of political circumstances.
Economical
Pakistan's economic growth rate is currently 5.5% which was 8% once in 2005 but huge shortage
of electricity and political instability has affected the growth rate. Economic growth of Pakistan
can be seen through gross domestic purchasing power parity, which was estimated to be $454.2
billion in 2008. Official exchange rate was approximately $160.9 billion, while real growth rate
in 2008 GDP of Pakistan, as per statistical data was found to be 4.7 percent. GDP per capita
income was $2,600 in 2008. Interest rates are slightly high in Pakistan because of IMF
conditional bailout programme and were rose by 15% in 2009.purcasing power of Pakistanis has
been shaken up by 13% of inflation rate. Wage rates, minimum wages and 60 hours per week
working time in manufacturing sector and 48 hours in service sectors are very suitable for large
and international businesses. High percentage of unemployment is resulting to be suitable for
cheap labor provision but it increases the inflation rate that affects business directly on the other
hand. Country's cost of living is lower comparing to developed countries. Engro Corporation is
directly affected by these factors. Engro has tried to take benefit from availability of cheap labor
April 8, 2018 18
but interest rates are putting a negative effect on engro's internal economy because it has
financing relations with most banks in Pakistan also with some international banks like
HSBC,Barclays etc . Inflation rate is also affecting engro especially engro foods which involves
direct relation with public purchasing power on broad levels. On the other side the global
economy is facing a downturn in recent times. The economic recession has rolled largest
economies in the world. Engro needs to have a deep look on this factor in order to develop
strategies for international perspective.
Social
Pakistan is an agricultural country, 70% population living in rural areas, 98% population is
Muslim. 42% population under 15 years of age only 4% over 64 years of age .2% per year
population growth rate, 65% literacy rate. The geographic area of country is known to be one of
oldest civilizations in the world. But because of poor economic condition the awareness about
health consciousness, safety and global warming has not been very significant but now the
awareness ratio on these issues is rising rapidly in the society. Increasing literacy rate especially
in IT and engineering sectors have changed the career attitudes in the country. A strong business
and industry culture is developing itself influencing by different factors. Engro Corporation is
directly serving to 96%of the country's population. A large portion is covered by engro fertilizer.
Engro foods is taking health consciousness into the consideration for its product development.
Engro is building Pakistan's first green power house to tackle the global warming issue.
International health and safety standards have been achieved by Engro within all its industries
especially in chemical industry. Providing employment on large scale Engro has shared the
change in career attitudes.
Technology
In the modern age technology is advancing and improving every day. These advances are not
only influencing corporate businesses but equally influencing the societies as a whole by
bringing the change into social behaviors. On the corporate level as the organizations adopting
the horizontal and vertical integrating method, Getting as more as possible technological strength
is a powerful weapon to achieve the corporative integrity. Pakistan as a developing country
needs technological advancement in every sector of economy ranging from electricity
generation, road construction, port and airport developments, data base structuring, information
technology railway, food industry, oil and gas sector, logistics and many more. Government is
privatizing and out sourcing mega projects and multi industry sectors to save costs and to gain
financial balance. Especially in oil and energy sectors Pakistan needs huge investments. These
requirements and circumstances are actually a massive potential market for the organizations
which have well-built technological resources. Engro takes advantage from this availability and
has offered in sourcing to the government in multi sectors like currently working on a power
April 8, 2018 19
house project with the collaboration of government. The project is called ''Thar coal power
project'' which is spouse to produce 1200MW electricity for the country using coal reserves.
Environmental
Being a developing country Pakistan is considered to be one of those countries where the
ecological and environmental aspect needs special concentration. Pakistan has six metropolitan
cities which have heavy industry manufacturing textile, leather products, fertilizers, steel goods
etc. Most of the country's vehicles run on diesel and petrol. Small level industry like brick
making and small steel melting units leave a big amount of carbondyoxide in the air. Clean
drinking water is also a big issue in the country. Handling and recycling wastage from
manufacturing sector is most critical aspect of the ecological concerns in Pakistan. On the other
hand diseases due to dirty water and improper food are also a challenge for the country. All
above issues are influencing Pakistan both economically and socially. But on the same time there
is a huge potential for investments from ecofriendly organizations to compete against these
challenges. Implementation on environmental regulations is on high demand from the global
society as well. Engro being part in this environment is playing its role by internally
implementing the related laws and standards like, process safety, workforce safety, workplace
health, food safety, risk assessment, and environmental performance. In the field engro is
building Pakistan's first green power house in Sindh province and looks ahead for many other
projects.
Income Statement Analysis of EFERT:
 If we compare 2017 with 2016 then there is a variance of -21% in net sales due to
shortage of Gas and government’s new policies. EFERT’s price was increased in 2016
due to gas issue. Government announced subsidy on fertilizer in 2016, therefore farmers
stopped buying Urea and DAP in first and second quarter.
 In the third quarter, EFERT signed a contract with MARI Petroleum Company for the
supply of Gas, hence they increased their production and overall stock of different
products. Due to decrease in demand, they had to reduce their price in 2016. Their
volumes and prices both were reduced in 2016 and this is why their net sales had
decreased with 21%.
 EFERT inaugurated their new power plant in 2016 that has a capacity to produce 2273
KT urea annually while FFC can produce 2048 KT per year. As per the agreement with
Government of Pakistan, EFERT has to pay 70% price per MMBTU through Sui Gas.
 MARI Petroleum is providing gas to EFERT’s old plant, whereas Sui Gas is providing
gas to the new plant as per their contract. Government has decreased the price of gas on
their new plant, however, fuel prices will remain same.
 Finance cost was high in 2015 due to acquisition of new plant.
April 8, 2018 20
 Other income is increasing in 2016 because they record the subsidy amount under this
section and no payment has been made by the Government. We can also see the impact
of this receivable account in the Balance sheet.
Balance Sheet Analysis of EFERT:
 Intangible assets have a positive variance of 4,079% because EFERT has acquired some
patents from Engro Corporation that has increased its assets side.
 As discussed in Income statement analysis, Government has to pay subsidy amount to
EFERT which is recorded under receivables section. Government has to pay PKR 4B to
EFFERT against subsidy that they have announced in 2016.
 Short term investment and Cash have a negative variance of 98% because they had
cleared all their dues against GIDC (Gas Infrastructure Development Cess) which were
outstanding since 2015, for which they had to release their cash as well as short term
securities.
 In 2015, EFERT had converted IFC loan into equity. International Finance Corporation
had exercised its option to convert part of its convertible loan amount of $3M into shares
of Engro Fertilizers.
 EFERT started issuing dividends in 2016. Before that, they were trying to pay all their
dues and loan amount that they borrowed for their new plant.
Financial Ratios Analysis

Liquidity Ratios:
Liquidity ratios are used to determine a company’s ability to meet its short-term debt obligations.
Liquidity ratios are a good measure of whether a company will be able to comfortably continue
as a going concern. This ratios measure a company’s ability to pay off its short-term debt using
those assets which can be easily liquidated.
On Liquidity ground, following ratios will be calculated:
1. Current Ratio
2. Quick Ratio
3. Net Working Capital
April 8, 2018 21
Current Ratio:
This ratio measures a firm's ability to pay off its short-term liabilities with its current assets. The
current ratio measures whether or not a company has enough resources to pay its debts over the
next 12 months (year).
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒓𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Financial Year 2017 2016 2015 2014 2013

Engro Fertilizers
Current 1.1 0.92 1.02 1.34 0.55
Limited
Ratio
(Times) Fauji Fertilizers
0.91 0.84 0.67 0.77 1.15
Company Limited
Explanation: When we analyze the current ratio of Engro Fertilizers it was 0.55 times in 2013,
then there is an increasing trend in the ratio from 2013 to 2017 up to 1.1 times. The elevated
current ratio in 2017 is due to high inventory levels due to better gas supply which put significant
financial burden on manufacturers in 2017.
However, Fauji Fertilizers had a good current ratio in 2013 that is 1.15 times which decreases in
the following years with fluctuation. The ratio tells us that current assets are less than their
current liabilities during these years. The ratio declines in 2013 and 2014 due to increase in trade
creditors. On an average, the current ratios of EFERT of said 5 years are better than FFC.
Quick Ratio:
The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a
company’s ability to meet its short-term obligations (current liabilities) when they come due with
only quick assets (with its most liquid assets). Quick assets are current assets that can be
converted to cash within 90 days or in the short-term.
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 − 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
𝑸𝒖𝒊𝒄𝒌 𝒓𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Financial Year 2017 2016 2015 2014 2013

Engro Fertilizers
Quick 0.6 0.5 0.9 1.1 0.3
Limited
Ratio
(Times) Fauji Fertilizers
0.72 0.58 0.59 0.66 1.01
Company Limited
April 8, 2018 22
Explanation: Trend shows quick ratio of Engro Fertilizers increased in 2014 (from 0.3 times in
2013 to 1.1 times in 2014) because sales revenue for 2014 was higher by 64% as compared to the
corresponding period 2013, also the gross profit increased in 2014. The ratio then decreased from
2015 to 2017 up to 0.6 times because of decreased sales.
While the Fauji Fertilizers in 2013 shows the higher quick ratio which gradually decreases from
2014 to 2016 up to 0.58 times because of trade creditors but again the ratio elevates in 2017 up to
0.72 times because of higher credit sales.
On quick ratio ground FFC showed better mean results as EFERT during these 5 years.
Net Working Capital

Net working capital is the aggregate amount of all current assets and current liabilities. It is used
to measure the short-term liquidity of a business, and can also be used to obtain a general
impression of the ability of company management to utilize assets in an efficient manner. It
measures both company's efficiency and its short-term financial health.
𝑵𝒆𝒕 𝑾𝒐𝒓𝒌𝒊𝒏𝒈 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 − 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Financial Year 2017 2016 2015 2014 2013
Net Engro Fertilizers

3,080,747 (2408489) 738313 7692411 (11865763)
Working Limited
Capital Fauji Fertilizers
(Times) (3745878) (5110808) (17934875) (7991742) 4137006
Co. Limited
Explanation: EFERT had Working Capital Deficit in 2013 but then the ratio became high
towards positive side from 2014 to 2015 which showed that company was able to generate
enough from operations to pay for its current obligations with current assets. The ratio elevated
because of the increase sales during these years. In 2016 the ratio again became negative because
the company invested and had addition of phosphate business.
While the Fauji Fertilizers’ Networking Capital Ratio in 2013 was positive that became negative
in rest of the years in till 2017 due to decrease asset turnover ratio and credit turnover days.
On Networking Capital ground, EFERT showed better results comparative to FFC.
April 8, 2018 23
Gross Profit Margin
Gross Profit Margin measures company's financial health by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold (COGS).
Formula:
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 𝑴𝒂𝒓𝒈𝒊𝒏 = 𝑿 𝟏𝟎𝟎
𝑺𝒂𝒍𝒆𝒔
Financial Year 2017 2016 2015 2014 2013
Gross Engro Fertilizers

24.61% 36.73% 36.80% 44.13% 32.20%
Profit Limited
Margin Fauji Fertilizers
(%) 24.77% 34.05% 38.92% 46.36% 48.44%
Company Limited
Engro Fertilizers Limited Fauji Fertilizers Company Limited
60.00%
50.00% 48.44%
46.36%
44.13%
38.92%
40.00% 36.73% 36.80%
34.05%
32.20%
30.00%
24.61%24.77%
20.00%
10.00%
0.00%
2017 2016 2015 2014 2013
Interpretation:
April 8, 2018 24
The Gross Profit Margin of Engro Fertilizers is lesser than the Gross Profit Margin of Fauji Fertilizers in
past 5 years it is due to lower sales done by Engro Fertilizers in comparison with Fauji Fertilizers. From
2013 to 2017 Fauji Fertilizer's Gross Profit is showing a decreasing trend but in comparison with Engro
Fertilizers it is still performing better which means that Fauji Fertilizers is efficient in recovering its
operating expenses and is able to maintain a lower Cost of Goods Sold.
Net Profit Margin

Net profit margin is one of the most important indicators of a business's financial health. It can
give a more accurate view of how profitable a business is than its cash flow, and by tracking
increases and decreases in its net profit margin, a business can assess whether current practices
are working or not.
Formula:
𝑬𝑨𝑻
𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝑴𝒂𝒓𝒈𝒊𝒏 = 𝑿 𝟏𝟎𝟎
𝑺𝒂𝒍𝒆𝒔
Financial Year 2017 2016 2015 2014 2013
Net Engro Fertilizers

12.98% 17.15% 13.36% 10.97% -9.58%
Profit Limited
Margin Fauji Fertilizers
(%) 16.17% 19.76% 22.37% 27.03% 28.04%
Company Limited
30.00% 27.03% 28.04%
25.00% 22.37%
19.76%
20.00% 16.17% 17.15%
15.00% 12.98% 13.36%
10.97%
10.00%
5.00%
0.00%
2017 2016 2015 2014 2013
-5.00%
-10.00%
-9.58%
-15.00%
April 8, 2018 25
Interpretation:
In last 5 years Engro has a lower Net Profit Margin in comparison with Fauji this is because
Engro Fertilizers has lower sales than Fauji Fertilizers as extracted in Gross Profit Margin, on the
other hand Engro Fertilizers has higher borrowings than Fauji Fertilizers which has overall
affected the Net Profit Margin, due to payment of more interest on the borrowed amount. Fauji
Fertilizers has tried to sustain better Net Profit Margin as it has less debts and is able to pay
interest easily on the borrowed amount.
Financial Gearing: Debt-to-Equity Ratio
Debt-to-Equity ratio is the ratio of total liabilities of a business to its shareholders' equity. It is a
leverage ratio and it measures the degree to which the assets of the business are financed by the
debts and the shareholders' equity of a business.
Formula:
𝑫𝒆𝒃𝒕
𝑫𝒆𝒃𝒕 − 𝒕𝒐 − 𝑬𝒒𝒖𝒊𝒕𝒚 =
𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔′ 𝑬𝒒𝒖𝒊𝒕𝒚
Financial Year 2017 2016 2015 2014 2013

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

426.31%
233.33%
160.45%
140.68% 127.27%
81.16% 87.27%
61.87% 50.65% 39.95%
2017 2016 2015 2014 2013
Interpretation: Engro fertilizers had a debt 4.26 times (426.31%) more than the equity in 2013
which has been reduced to 0.81 times (81.16%) then the equity finance. On the contrary, in 2013,
April 8, 2018 26
Fauji fertilizers had debts 0.39 times (39.95%) more than the equity finance, which has been
raised to 1.60 times (160.45%) than the equity.
Return on Equity
Return on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested.
Formula:
𝑬𝑨𝑻
𝑹𝒆𝒕𝒖𝒓𝒏 𝑶𝒏 𝑬𝒒𝒖𝒊𝒕𝒚 = 𝑿 𝟏𝟎𝟎
𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔 𝑬𝒒𝒖𝒊𝒕𝒚
Financial Year 2017 2016 2015 2014 2013
Return Engro Fertilizers

21.86% 35.34% 23.81% 21.93% -18.58%
On Limited
Equity Fauji Fertilizers
(%) 41.76% 61.39% 70.79% 80.05% 79.86%
Company Limited
80.05% 79.86%
70.79%
61.39%
41.76%
35.34%
21.86% 23.81% 21.93%
2017 2016 2015 2014 2013
-18.58%
Interpretation:
In comparison to Fauji Fertilizers, Engro Fertilizers has lower Return on Equity from the past 5
years, which shows that Fauji Fertilizers is a more risk taking organization than Engro Fertilizers
April 8, 2018 27
and even after that it is giving higher return to its equity shareholders. While Engro is a less risk
taking organization and even after that it is not giving much returns to its equity holders. Fauji
Fertilizers is using its equity in a more efficient manner and is sustaining higher profits after
interest and tax, which shows that it is a good organization for investors.
Industry Analysis
Fauji
Fertilizers’ Engro
Ratios Fertilizers
Industry Fertilizers
Company
Averages Limited
Limited
Gross Margin 32.59 24.61 24.77
Net Profit Margin 5.85 12.98 16.17
Operating Margin 4.8 23.75 30.07
Receivable Turnover 2.39 14.03 24.33
Inventory Turnover 1.26 7.6 12.16
Asset Turnover 0.19 0.67 0.8
Return On Assets 2.01 8.7 12.94
Return On Equity 5.43 21.5 41.76
Explanation:
 In comparison with Gross profit margin the industry average is 32.59% while both the
companies, EFERT and FFC have almost same gross profit margin that is 24.61% and
24.77% respectively. Both the companies still have a chance to boost their gross profit
margin and which can be done by increasing their sales on low cost of goods sold.
 In comparison with Net profit margin the industry average is 5.85% while both the
companies are performing better than the industry average that is 12.98% (EFERT) and
16.17% (FFC) that means that both the companies generate enough profit that they can
easily pay their debts and generate high profits even after paying interest and taxes. FFC
is overall performing better than Engro as it sales are higher and is generating more
profits out of it.
April 8, 2018 28
 In comparison with Operating Profit Margin the industry average is 4.8% while both the
companies are performing better than the industry average that is 23.75 % (Engro) and
30.07 % (Fauji) which indicates that FFC is able to maintain its expenses and is
generating more profit than EFERT, EFERT is producing less goods as well as they are
facing high expenses in selling and distributing the goods which is reducing its overall
profits.
April 8, 2018 29
Stock Analysis
 EFERT P/E ratio is 9.82

 FFC’s P/E ratio is 10.91
(As of FY 2016)
Stock Price
117.6
103
117.1
112.0 117.1
68.6 82.0
28.3
0.0 0.0
2017 2016 2015 2014 2013
April 8, 2018 30
April 8, 2018 31
Conclusion
 Profitability Ground: Overall Fauji Fertilizers is performing better on profitability
ground as its Net Profit Margin is higher than Engro Fertilizers. FFC is also utilizing its
assets way better than EFERT due to which it has higher sales than EFERT on low cost
and expenses. On investors’ point of view also FFC is better choice to invest in because
even it is a high risking company it is also providing high returns to its shareholders
which attracts the investors towards it.
 Liquidity Ground: In current ratio’s EFERT seems to be better than FFC, it is because
Engro fertilizer piled their inventory at higher level causing the higher holding cost for
their inventory. The inventory turnover of EFERT is also less i.e. they move their
inventory lesser time per year as compare to the FFC.
Recommendations
 It is suggested to EFERT to reduce more its stock in trade likewise FFC so that it incur
lower holding cost on its stocks and eventually it will improve its liquidity position. Also
EFERT should make alliance with more suppliers to alleviate the risk of stock outs.
 It is also advisable for EFERT to decrease its total assets as it is not fully utilizing them to
make products or higher turnover and this is only increasing its costs or it should lower
its prices to increase its demand which will eventually lead to higher turnover and higher
production from those assets.
 EFERT should consider decreasing more its long term borrowings to cut down its interest
expense likewise FFC which will eventually improve its profitability position. For this
purpose EFERT should strategically make such policies that could attract investors for
financing and in this way it will be less reliant on long term borrowings.
 It is also recommended to EFERT to be less reliant on government gas supplies and
should create an alternative if the government fails to provide it otherwise it will bear
losses like it did in 2012 as the depleting natural gas reserves is being a biggest threat for
the fertilizers industry.
April 8, 2018 32

Efert Vs FFC

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Efert Vs FFC

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PREPARED BY: GROUP

M.Shahzaib Subhani (21775)

Theory and Practices of Financial Management

Submitted to: Sir Suleman Ahmed

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

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

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

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

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

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

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

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

LIQUIDITY RATIOS: ............................................................................................................................... 21

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

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

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

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

STOCK ANALYSIS .............................................................................................................................. 30

Company Profile of Engro Fertilizers

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

EFL is the first company to have setup urea

Engro Fertilizers has been importing and marketing

Engro started producing NP (Nitrogen and

Company Profile of Fauji Fertilizers

About Fauji Fertilizers:

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

Sona Urea is the most concentrated solid, straight

Sona DAP is the most concentrated phosphatic

SOP is well suited fertilizer for all types of crops

Keeping in view increasing boron deficiency in

Macro-Economic Impact of fertilizer Industry

SWOT Analysis of FFC

 The large size of the company produces administrative problems.

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

SWOT Analysis of ENGRO Corporation

Income Statement Analysis of EFERT:

Balance Sheet Analysis of EFERT:

Financial Ratios Analysis

On Liquidity ground, following ratios will be calculated:

Financial Year 2017 2016 2015 2014 2013

Financial Year 2017 2016 2015 2014 2013

Net Working Capital

Financial Year 2017 2016 2015 2014 2013

Net Engro Fertilizers

On Networking Capital ground, EFERT showed better results comparative to FFC.

Gross Profit Margin

Financial Year 2017 2016 2015 2014 2013

Gross Engro Fertilizers

Engro Fertilizers Limited Fauji Fertilizers Company Limited

Net Profit Margin

Financial Year 2017 2016 2015 2014 2013

Net Engro Fertilizers

Engro Fertilizers Limited Fauji Fertilizers Company Limited

30.00% 27.03% 28.04%

Financial Gearing: Debt-to-Equity Ratio

Financial Year 2017 2016 2015 2014 2013

Engro Fertilizers Limited Fauji Fertilizers Company Limited

2017 2016 2015 2014 2013

Financial Year 2017 2016 2015 2014 2013

Return Engro Fertilizers

Engro Fertilizers Limited Fauji Fertilizers Company Limited

2017 2016 2015 2014 2013