Fertilizer Sector 2015

Fertilizer Sector
November 18, 2015
Fertilizer Sector
Despite soft global outlook, local industry to remain upbeat!
Weak intl market created downward pressure on fertilizer sector
The current year 2015 has so far remained largely unremarkable from global
investors viewpoints. Most major equity indices have remained in the red, while
declining commodity prices amid slowing global demand has adversely affected
commodity traders in general. The performance of the global fertilizer market was no
exception as lagging demand resulted in 25% decline in international prices during
CY15TD. Despite the negative trend so far, we cannot overrule that fertilizer prices
might have bottomed out and could take an upturn ahead amid growing
consumption in emerging and developing countries, which continue to rely heavily
on the agriculture sector to support their economy.
ENGRO PA
Local industry to perform, despite challenges

The local fertilizer sector is expected to remain in the limelight for our forecasted
horizon (CY15-20), considering that agriculture contributes roughly one-fifth to the
nations GDP. One key area of concern is gas shortage, which could lead to
underutilization and lower profitability. Secondly, pressure on local prices is also a
downside risk to our valuations. At present, the sector is operating at 81% capacity
due mainly to gas curtailment. In order to fill the demand-supply void, the
government has been importing urea. Further, in order to alleviate the pressure of
gas shortage on local fertilizer manufacturers, the government has employed
various options, such as gas supply on a rotational basis and temporary need-based
allocation for the short term, while also announcing a long term gas plan for the
future. Secondly, we expect local manufacturers to maintain their margins going
forward, as seen recently, when excess demand helped manufacturers from passing
on the additional costs of gas tariff hike to the consumer.
Exhibit: Financial Snapshot
EFERT PA
BUY
Target Price
108.7
Current Price
84.0
Upside (% )
29.3
FFC PA
BUY
Target Price
140.7
Current Price
122.5
Upside (% )
14.9
FFBL PA
BUY
Target Price
65.0
Current Price
57.0
Upside (% )
14.0
AHL Universe Performance

AHL Universe
(mn tons)
KSE100
190%
160%
130%
100%
Source: Bloomberg
Analyst:
Tahir Abbas
D:+92 21 3246 2589
(CY16F)
Current Price
Target Price*
Upside (%)
P/E (x)
P/B(x)
DY (%)
ENGRO
293.0
433.5
47.9
8.8
1.7
5.8
EFERT
84.0
108.7
29.3
8.2
2.5
8.3
FFC
122.5
140.7
14.9
8.7
5.3
10.6
FFBL
57.0
65.0
14.0
11.6
3.6
7.0
UAN: +92 21 111 245 111, Ext: 248

F:+92 21 3242 0742
E: tahir.abbas@arifhabibltd.com
www.arifhabibltd.com
Source: Bloomberg, AHL Research, * Jun-2016
Current Prices as of Nov 16th, 2015; FATIMA PA being our group company is not under our coverage.
Nov-15
Sep-15
Jul-15
May-15
70%
Mar-15
FFBL Core business plus new ventures adding to companys profitability!

The company is the sole producer of DAP fertilizer with diverse investment base,
including 1) Financial Services, 2) Alternative energy, 3) Meat business, 4) Coalbased power plant, and 5) Food business. With the announcement of KISAN
package by the government the company is expected to maintain its market share in
DAP. Our SoTP based Jun-16 target price is PKR 65.0/share implying an upside
potential of 14% from current levels.
293.0
47.9
Jan-15
FFC Attractive yields plus gas advantage makes it a safe bet!

Being the market leader in terms of offtake, the safest bet in the fertilizer sector with
11% attractive dividend yield along with diversified investment base into 1) Financial
services, 2) Alternate energy, 3) Food business, and 4) Exploring offshore
investment options. Our SoTP based Jun-16 target price works out at PKR
140.7/share offering 15% upside potential from current levels.
433.5
Current Price
Upside (% )
Nov-14
ENGRO Diversification strategy paying off through deep valuations

ENGRO is the top pick in our universe, with our SoTP based target price of PKR
433.5/share implying an upside potential of 48% from current levels. The growth is
primarily driven from fertilizer business along with food business amid better
volumes and stable margins. Future Thar coal projects amounting to USD 2bn is a
potential upside risk to our valuations.
BUY
Target Price
Fertilizer Sector
November 18, 2015
Commodity Prices - Boom to Gloom

A boom that lasted for over a decade initiating in the year 2000 known as super cycle
boom was unlike any other and led to swelling commodity prices from sustained
demand growth from emerging markets (mainly China and India). Rising incomes and
population growth led to higher consumption, consequently spiking prices. In 2014 for
instance, China and India accounted for over 12% and 4% of the global oil
consumption, respectively, and used 28% of the global energy, whereas their share of
world agricultural consumption remained stable at 22% and 10%, respectively from the
previous period. Economic activities in both countries intensified by three-fold from 2000
to 2014 to 16% while their contribution to global population stayed steady at 37%.
In 2015, most commodity prices witnessed a downward trajectory, indicating the end of
the super cycle, on the back of supply glut and subdued demand. Energy prices too
tumbled owing to declining oil prices, whereas natural gas prices are projected to fall
below 2014 levels across markets in US, Europe and Asia. Already high levels of
agricultural inventories and abundant supplies are also estimated to adversely affect
agricultural prices, including raw material prices while fertilizer prices (a cost central to
farmers) are projected to decline amid weak demand.
According to the World Bank, a move towards a more services-based growth as
opposed to an industrial growth will slow down Chinas overall growth below 7% by
2017 and past that, with a gradual decline to 0.3% p.a. growth in population over the
next decade. India, on the other hand, will excel with overall growth of greater than 7%
up to 2017 and robust population growth of 1% in the coming decade. Both countries
will average above the developed countries growth (2-3%), however their diminishing
combined growth pace casts a valid expectation of a global shift, with decelerating
metals consumption and mild growth in agricultural demand, putting downward price
pressure on commodities.
Exhibit: GDP Growth projections - China & India
China
(%)
India
11.0
10.0
9.0
8.0
7.0
6.0
5.0
2011
2012
2013
2014
2015
2016F
2017F
Source: World Bank Global Economic Prospectus Jun-2015
Fertilizer Sector
Page 2
Fertilizer Sector
November 18, 2015
Demand & Supply Dynamics of Global Harvests

Wheat- Multi-year new highs of buffer capacity expected
In recent years, global wheat inventory levels have stayed in surplus keeping prices in
check. Output accretion in countries like Australia, China, Morocco, Turkey, Ukraine and
the United States are expected to drive global wheat production expansion in 2015 to
735Mt, (up by 2Mt from 2014). While wheat consumption projections for 2015/16 also
show positive growth of 2% to 727Mt. Future utilization comes mainly from wheat usage
as feedstock led by robust demand from Asia and North America, estimated to increase
to 144Mt (4.2% YoY) in 2015/16. Countries in the EU, the Russian Federation and the
United States are expected to expand their buffer inventory capacities, as a cushion
against unforeseen production bottlenecks, thus leading global wheat inventories to rise
to a 13 year high level of ~206Mt in 2016. Projections of per capita consumption of
wheat in 2015/16, is expected to remain constant from last year at 67(kg/year).
Rice- Bleak Supply Expectations
Rice prices continue to be unattractive, a trend set in motion since September 2014,
discouraging major rice producers to expand production. This coupled with unfavorable
weather conditions amid the prevailing El Nio glitch, adversely effected the 2015 paddy
crops. Meagre global rice projections estimate production to drop in all states to 493Mt
in 2015, barring Latin America, Caribbean and Europe. Forecasts of smaller rice
inventories (down by 3.5%) to 164Mt in 2016 amid production (493Mt) falling short of
consumption (499.9Mt) puts future food security under pressure. Trade of rice however
is projected to pick up in 2016 to 45Mt (after a 3% drop in 2015) subject to demand from
Indonesia, the Democratic Republic of Korea and the Philippines.
Fertilizer Sector
Page 3
Fertilizer Sector
November 18, 2015
Global Agricultural Prices Outlook

Wheat
While initial estimates seemed glum, crop trends continued to surprise pleasantly amid
improving weather conditions with expectations of another bumper crop in the current
year (2015). With buffer supplies secured from the previous seasons already in place,
the adverse pressure on prices continued to dampen international wheat prices, so
much so that the benchmark US wheat (No. 2 Hard Red Winter), FOB. US Gulf
averaged at a 5 year low to USD 218/ton in August/September (down 60% from
September 2014).
Rice
International rice prices have witnessed record lows during recent times despite
consumption exceeding production going forward. This has mainly been an influence of
tumbling prices of other major crops. While import prices remained bearish in Asia
(particularly in India and Pakistan) where demand stayed subdued amid greater
production achieved (not a norm in other regions of the world). Moreover, strong
competition globally, restricted export prices in most key regions. The benchmark Thai
100% B rice, FOB. Bangkok was thus 14.5% below its January 2015 level at USD
367/ton.
Fertilizer Sector
Page 4
Fertilizer Sector
November 18, 2015
Availability of Nutrients Globally

Soil and plants require various nutrients aided by fertilization which results in maximum
yield per hectare of land. These generally include nitrogen (N), phosphorus (P) and
potassium (K) as well as sulphur, calcium and magnesium. Relative presence of each
nutrient in soil has a key impact on output. However, soil in less developed countries
suffers from nutrients deficit while developed countries have nutrients in surplus for
cultivation leading to disparity in the nutrients balance.
On average, 60% of the mineral fertilizer is now produced in developing countries, with
major production in Eastern Asia (particularly in China which is the largest producer
globally), followed by North America and India while countries like Russia, the Middle
East and Caribbean produce substantial amounts on the back of significant natural gas
and oil reserves. Although consumption of fertilizer is mostly in Southeast Asia, South
Asia, Europe and North America. Nitrogen forms 74% of the fertilizer used in the world
today and its consumption continues to grow as regimes in Asia and Africa make
constant efforts to rely less on imports and expand their internal agricultural capacities.
Globally a relentless argument has been raised over the years to weigh in the pros and
cons of mineral fertilizer use.
CY15 - Testing Times for Global Fertilizer Demand and Prices

According to the World Bank, global consumption in CY15 is anticipated to fall amid
weak demand in US, Europe and Asia as well as currency depreciation. This is in line
with the 4% decline in fertilizer prices in the first quarter of the year owed to lower crop
prices and restricted purchases from buyers who expected further price cuts. Urea
prices were down 6% while phosphate prices dipped 3-5%, however potassium prices
jumped a tad bit.
Downbeat Global Fertilizer Demand Perspective

Short term - FY16
Future fertilizer demand can be seen driven by greater need for feed use in developed
and emerging economies and growth in food consumption in less developed countries
due to their burgeoning population. However, fertilizer demand seems modest for FY16
following relatively bleak crop prices, projected to grow by a meager 1% YoY to 186.5
Mt. Sufficient growth will be witnessed in phosphorous demand of 1.1% to 41.8 Mt,
followed by 1% growth in nitrogen demand of 112.9 Mt and 0.8% rise in demand of
potassium to 31.8 Mt with leading changes awaited from South Asia, East Asia and
North America.
Exhibit: Global Urea Capacities, Demand & Utilization Rate
Exhibit: Global DAP Capacities, Demand & Utilization Rate
90%
260
85%
240
80%
75%
85%
80%
200
75%
180
70%
160
120
60%
2017E
60%
2016E
65%
2015E
140
2014E
65%
2012
2017E
2016E
2015E
2014E
2013
2012
2011
70%
90%
220
2011
300
280
260
240
220
200
180
160
140
120
Capacity
Demand
Utilization rate (RHS)
(Mn tons)
2013
Capacity
Demand
Utilization rate (RHS)
(Mn tons)
Source: IHS, IFA, IFDC, AHL Research
Fertilizer Sector
Page 5
Fertilizer Sector
November 18, 2015
Exhibit: Short term Forecasts for World Fertilizer Demand
N
P2O5
K2O
Total
2012-13
2013-14
2014-15E
Change
(Mt nutrients)
108.1
110.4
111.8
1.30%
41.6
40.3
41.3
2.50%
29.1
30.2
31.5
4.20%
178.8
180.9
184.6
2.00%
2015-16F
Change
112.9
1.00%
41.8
1.10%
31.8
0.80%
186.5
1.00%
Source: IFA, AHL Research
Long term - FY15-20

Although it may take a few years to reach more satisfactory levels of inventories-toconsumption (given no major policy changes and reasonable weather conditions), but in
the medium term it seems as though global commodity prices and stock levels would
remain range-bound. Cumulative fertilizer demand is anticipated to grow to 200 Mt by
FY20 (at an annual rate of 1.7% p.a) with highest growth projections in countries of
Africa (4.4% p.a), Sub-Saharan Africa (6.3% p.a) and Latin America (3% p.a),
encouraged by promising policy and economic climate and wider arable area. Improved
efficiency from nitrogen use will restrict growth rates to 1.3% p.a to 119.2 Mt whereas
phosphorous demand would reach 45.7 Mt (up 1.8% p.a) and potassium demand will
clock in at 35.3% (2.6% p.a growth) in FY20.
Exhibit: Medium-Term Forecasts for World Fertilizer Demand
(Mt nutrients)
P2O5
K2O
Total
Avg. 2012-13 to 2014-15E
110.1
41.1
30.3
181.4
2019/20 (F)
119.2
45.7
35.3
200.2
Avg. Annual Change
1.30%
1.80%
2.60%
1.70%
Source: IFA, AHL Research
Fertilizer Sector
Page 6
Fertilizer Sector
November 18, 2015
Steady progression of the global fertilizer supply

In FY14, the global fertilizer supply thrived in order to meet the colossal world demand
and restock existing distribution channels while fertilizer manufacturers operated on an
80% average installed capacity. Future projections for individual nutrients are as
follows:
Nitrogen
In FY19 the global nitrogen supply is expected to reach 174 Mt (mounting 19% since
FY14) to meet demand of 157 Mt steered mostly by the increased fertilizer consumption
in Africa, that is, it would be sufficient to meet the probable demand and arrange for an
annual surplus of 18 Mt. Probable urea supply in FY19 will be 211 Mt (FY14: 179 Mt,
CAGR: 4%), to meet demand of 198 Mt (up 32 Mt since FY14). Some 60 new units (20
units in China alone) are expected to commence operations between 2014 and 2019 to
meet the robust demand of urea in industrial uses from South Asia, East Asia (China)
and Europe, while Africa and North America would contribute 18% and 15%,
respectively to the capacity growth.
Phosphate
Supply of global phosphate rock is expected to grow by 16% (35 Mt) to 255 Mt from
FY14 to FY19 whereby 80% of this will be contributed by Saudi Arabia, Jordan,
Morocco and China. Growth in total global phosphoric acid capacity (62.9 Mt in FY19,
up 7.8 Mt over FY14) will enable supply to reach 51.1 Mt in FY19 (increasing 2.5% p.a
since FY14) compared to forecasted consumption of 48.3 Mt (annual growth rate of
2.4% since FY14). Around 30 new units are expected to add to the global capacity to
mainly support DAP growth.
Potash
Amid the 25 ongoing expansion plans and 4 other key greenfield projects to come on
stream in Canada, Russia and Belarus, capacity of potassium is expected to widen by
16% to 60.8 Mt in FY19 (FY14: 52.2 Mt). 70% of the world production of potash (51.8 Mt
in FY19, 9 Mt addition over FY14) will come from North America (Canada), Eastern
Europe/Central Asia (Russia & Belarus) and East Asia (China). This will be ample to
meet global demand of 39.5 Mt (annual growth rate of 2.5% since FY14), providing bulk
of 12 Mt in FY19.
Fertilizer Sector
Page 7
Fertilizer Sector
November 18, 2015
Outlook for Fertilizer Prices

Urea
Outlook for Urea prices continues to appear gloomy on the back of surplus supply,
diminishing production costs (Chinese manufacturers achieving optimal production at
negligible cost levels amid decelerating coal prices and weaker yuan) and an
unappealing demand situation caused by USD appreciating against most currencies
along with feeble crop prices. India however can become a key player regulating prices
in the upcoming months with news regarding its growing import appetite. In the long-run
though Indias reliance on import may decline in the future amid their governments
decision to provide subsidized gas at USD3.82/mmbtu as opposed to the previous
USD4.66/mmbtu.
Exhibit: Global Urea Capacity & Demand
(Mn tons)
2011
2012
2013
2014E
2015E
2016E
2017E
Region
North America
9.1
9.0
9.1
9.1
9.8
11.0
11.6
Latin America
7.9
7.9
8.0
9.7
10.6
11.5
11.5
Western Europe
5.7
5.7
5.7
5.7
5.7
5.7
5.7
Central Europe
Eurasia
Africa
Asia
Oceania
4.8
4.6
4.6
5.0
5.0
5.0
5.0
15.4
16.2
16.3
16.3
18.3
19.8
19.8
7.7
7.7
12.7
12.9
15.5
15.5
15.5
143.3
153.4
157.0
186.2
202.5
204.7
204.7
0.5
0.5
0.5
0.5
0.5
0.5
0.5
Global Capacity
194.3
205.0
213.9
245.3
267.8
273.7
274.3
Consumption
North America
15.8
17.9
18.2
17.8
17.0
17.7
18.4
Latin America
9.5
9.6
11.5
11.8
11.5
11.8
12.2
Western Europe
7.8
8.1
8.4
8.5
8.1
8.1
8.2
Central Europe
2.8
3.2
3.5
3.5
3.5
3.6
3.7
Eurasia
8.3
8.6
9.5
9.5
9.6
9.9
10.1
Africa
4.0
4.8
5.1
5.3
5.5
5.7
5.9
103.7
106.8
122.5
123.9
125.5
127.0
128.6
2.6
2.5
2.9
2.9
3.0
3.1
3.1
154.4
161.4
181.5
183.3
183.7
186.9
190.2
Asia
Oceania
Global Demand
Source: IHS, IFA, IFDC, AHL Research
Fertilizer Sector
Page 8
Fertilizer Sector
November 18, 2015
Phosphate
On a comparative basis Phosphate prices dipped by a mere 3% (FOB, USA) till the
beginning of October this year although counties like India and Brazil continue being
stressed and suffer from depreciating currencies, adverse weather conditions, low
credit/liquidity and surplus stocks. Uncertainty in global markets will also keep demand
in check. On the flipside the VAT imposition in China (to discourage phosphate exports)
raised prices a little but it may not have a long term impact as global consumption for
phosphate appears depressed. Varying DAP rates circled the markets with USD455/t
for Chinese exports to Pakistan and USD355/t cfr to Brazil while Chinese demand in the
West is yet to be asserted.
Exhibit: Global DAP Capacities & Demand
(Mn tons)
2011
2012
2013
2014E
2015E
2016E
2017E
2018E
Region
North America
5.9
5.4
5.3
5.1
5.0
4.9
4.7
4.5
Latin America
0.5
0.8
0.7
0.7
0.7
0.7
0.8
0.9
Western Europe
0.1
0.1
0.1
0.4
0.4
0.4
0.4
0.4
Eastern Europe
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
FSU
2.8
2.5
2.4
2.2
2.8
3.0
3.1
3.1
Middle East
0.8
1.3
1.3
1.7
2.0
2.3
2.7
2.8
Africa
2.1
2.3
2.3
2.4
2.6
2.8
2.9
3.1
South West Asia
2.0
1.9
2.0
2.1
2.3
2.3
2.4
2.4
12.4
12.4
12.7
12.4
12.3
12.2
12.0
12.0
South East Asia
0.2
0.1
0.1
0.2
0.2
0.2
0.3
0.3
Japan
0.0
0.0
0.1
0.1
0.1
0.1
0.1
0.1
China
Australia
0.5
0.5
0.5
0.5
0.5
0.4
0.4
0.4
27.5
27.6
27.7
27.9
29.0
29.5
29.8
30.1
North America
4.2
3.9
3.8
3.8
3.8
3.8
3.8
3.8
Latin America
3.1
3.4
3.8
3.9
4.0
4.2
4.3
4.4
Western Europe
0.7
0.8
1.2
0.9
1.1
1.0
1.0
1.0
Eastern Europe
0.4
0.4
0.5
0.4
0.4
0.4
0.4
0.4
FSU
0.6
0.6
0.8
0.7
0.7
0.7
0.7
0.7
Middle East
0.4
0.6
0.6
0.6
0.6
0.6
0.6
0.6
Africa
0.9
1.0
0.9
0.8
0.8
0.9
0.9
0.9
Total Global Production

Consumption
South West Asia
5.9
5.1
4.9
5.0
5.5
5.9
6.1
6.2
10.1
9.2
9.7
10.2
10.2
10.2
10.6
10.8
South East Asia
0.6
0.8
0.9
0.9
0.9
0.9
1.0
1.0
Japan
0.2
0.3
0.3
0.3
0.3
0.3
0.3
0.3
China
Australia
Total Global Consumption
0.6
0.6
0.7
0.7
0.7
0.7
0.7
0.7
27.7
26.6
27.9
28.2
29.0
29.5
30.2
30.8
Source: IFDC, IHS, IFA, Bloomberg, ANDA, FAJ, AHL Research
Key Risks to Fertilizer Outlook

The global fertilizer outlook is dependent on a number of reservations and peripheral
factors among: (i) rebound in oil prices; (ii) prices of other commodities; (iii) exchange
rate fluctuations; (iv) regional geopolitical environment; (v) major policy changes; (vi)
subsidy schemes; (vii) organic nutrients used as a substitute; (viii) greater efficiency in
nutrient consumption; and (ix) retreat in energy prices.
Fertilizer Sector
Page 9
Fertilizer Sector
November 18, 2015
Pakistan Agriculture Sector

The Agriculture sector alone is of significant importance to Pakistans economy
contributing ~21% to countrys GDP while at the same time ensuring food security and
providing employment to 45% of Pakistani population. Pakistan is an agrarian country
as its prime exports consist of textiles (an output of agricultural activities).
Pakistan Fertilizer sector
Fertilizer is one of the few sectors that provides maximum value addition by converting
raw gas into urea granules and benefits the country in terms of food availability, balance
of payment, poverty reduction, economic growth and the drive towards industrialization.
Even though this sector is extremely crucial for sustainable agricultural growth, it
remains competitive, faces severe gas curtailment issues and excess demand.
The fertilizer sector has a total market capitalization of PKR 656bn (USD 6.2bn) and the
market capitalization of our sample companies (FFC, FFBL, ENGRO and EFERT)
stands at PKR 472bn (USD 4.5bn). The index weight of the total fertilizer sector is
~15.0% in KSE100 index while our sample companies (FFC, FFBL, ENGRO and
EFERT) comprise ~11.1% of the KSE100 index weight.
Pakistan fertilizer sector is comprised of seven companies (see table below). The prime
product of the sector is urea followed by DAP. The major players of the sectors include
Fauji Fertilizer Company Limited (FFC) and Engro Fertilizer Limited (EFERT) having
installed capacities of 2.05mn tons and 2.3mn tons per annum respectively, contributing
67% to countrys total capacity. Fauji Fertilizer Bin Qasim Limited (FFBL) is the
countrys sole producer of DAP having capacity of 0.65mn tons per annum. In addition
to this FFBL urea capacity stands at 0.5mn tons per annum. The snapshot of Pakistans
fertilizer sector is summarized below in the table:
Exhibit: Pakistan's Fertilizer Sector Snapshot
Urea
Capacity
CY15E Urea
Production
Utilization
(%)
Gas
Supplier
Current Status
Primary
Products
Goth Macchi, Punjab and Ghotki, Sindh
2.05
2.42
118.2
Mari Gas
Operational
Urea
ENGRO
Ghotki, Sindh
2.28
1.96
86.0
Mari Gas
Operational
Urea
FFBL
Bin Qasim, Sindh
0.50
0.27
53.6
SSGC
Operational
DAP
FATIMA
Rahimyar khan, Punjab
0.50
0.42
83.0
Mari Gas
Operational
NP,CAN
PAK Arab
Multan, Punjab
0.09
SNGP/LNG
Rotational Basis
NP,CAN
Agritech
Mianwali, Punjab and Haripur, KPK
0.47
0.07
14.5
SNGP
Rotational Basis
Urea
Dawood Hercules
Sheikupura, Punjab
0.45
0.03
7.6
SNGP
Rotational Basis
Urea
(Mn Tons)
Location
FFC
Total Urea Capacity
6.34
Operational Urea Capacity
5.17
Total Capacity Utilization
82%
Source: AHL Research
Fertilizer Sector
Page 10
Fertilizer Sector
November 18, 2015
Local Fertilizer Industry

Fertilizer use in Pakistan was initiated in early 1950s and 1960s by imports of Nitrogen,
phosphorous and potassium based fertilizers. Soon the government increased focus on
tactical investments to build the local fertilizer industry with help from foreign companies
to develop native fertilizer plants. Pakistans generous gas supply in the late 1960s
equipped local producers to multiply fertilizer production of gas based fertilizers
(nitrogen and phosphate) so that the country relied on fewer imports. DAP and
potassium had to be imported nonetheless amid their reliance on non-gas production
support.
In CY14A about 71% of the total fertilizer production (7.8mn tons) comprised of urea
while 21% was DAP and Potash based production. In CY14 and CY15E, the industry
operated at utilization levels of 76% and 81% respectively. It is pertinent to note that
100% utilization of urea capacity would have been adequate to meet domestic demand
in the said years. In CY14 about 87% of total fertilizer consumed in Pakistan was locally
produced, comprising of 71% of Urea, 21% of DAP and 8% others for domestic
consumption.
Exhibit: Industry Capacities
(000 tons)
Urea
Fauji Fertilizer Company
Fauji Fertilizer Bin Qasim
Engro Fertilizer
Dawood Hercules
Agritech Limited
Pak Arab Fertilizer
Fatima Fertilizer
Total
DAP
Fauji Fertilizer Bin Qasim
Total
NP
Pak Arab Fertilizer
Fatima Fertilizer
Total
CAN
Pak Arab Fertilizer
Fatima Fertilizer
Total
TOTAL Fertilizer
CY08
CY09
CY10
CY11
CY12
CY13
CY14
CY15
2,048
551
975
445
346
92
-
2,048
551
975
445
346
92
-
2,048
551
975
445
467
92
397
2,048
551
2,275
445
467
92
500
2,048
551
2,275
445
467
92
500
2,048
551
2,275
445
467
92
500
2,048
551
2,275
445
467
92
500
2,048
551
2,275
445
467
92
500
4,458
4,457
4,976
6,378
6,378
6,378
6,378
6,378
446
446
600
600
650
650
650
650
650
650
650
650
650
650
650
650
305
305
305
305
305
305
305
244
548
305
360
665
305
360
665
305
360
665
305
360
665
450
450
5,658
450
450
5,812
450
297
747
6,677
450
420
870
8,447
450
420
870
8,563
450
420
870
8,563
450
420
870
8,563
450
420
870
8,563
Source: NFDC, AHL Research
Fertilizer Sector
Page 11
Fertilizer Sector
November 18, 2015
Fertilizer policy 2001 overview

The fertilizer policy of 2001 was envisioned to enable new fertilizer manufacturers to
compete with imports from the Middle East by getting subsidized gas to meet local
demand of fertilizer. Subsidy for fertilizer manufacturers comes in the form of natural
gas at lower rates, which is a substantial amount as the fertilizer industry uses 17% of
the gas reserves in Pakistan. Fuel stock gas on the other hand allocated to fertilizer
manufacturers is based on a standardized market price.
Fertilizer policy was announced taking effect from 1st July 2001. The policy was initially
operational for ten years and aimed for an estimated investment of USD 1.2bn during its
tenure. The basic objective of this policy was 1) to attract investment in the sector, 2)
support farmers through provision of fertilizer products at an affordable price and 3) to
ensure best optimal price and supply of gas to keep the plants utilization at max. The
policy brought fruitful results in the form of USD 2.0bn investment through green field
projects and BMR activities however, the rationalization of gas subsidy as envisioned in
the Policy has not yet been materialized.
Investment via policy 2001
EFERTs expansion took place with the capacity addition of 1.3mn tons of urea plants
whereas 0.5mn urea, 0.4mn NP and 0.4k CAN were set up by Fatima Fertilizer
Company (FATIMA). In line with the fertilizer policy the GoP approved subsidized feed
stock for both of the companies at USD 0.7/mmbtu for the tenure of 10 years.
Conversely, the govt failed to honor its sovereign guarantee resulting in substantial gas
curtailment for EFERT and manufacturers operating on the SNGPL network. However,
to date the problem has not been catered for as the Economic Coordination Committee
(ECC) of the Cabinet has decided to revert 60mn cubic feet per day (mmcfd) previously
diverted, back from Guddu Power Plant to EFERT after which the company has been
able to operate at 80-85% utilization of its installed capacity. It is interesting to note that
the Guddu gas is a temporary arrangement for EFERT and set to expire in Dec-15 while
other manufacturers on SNGPL are to operating on rotational basis.
Fertilizer Sector
Page 12
Fertilizer Sector
November 18, 2015
Demand drivers
Pakistan is an agricultural country thus need of fertilizers for agricultural growth and its
contribution to the GDP is significant. There are several factors affecting demand of
fertilizer products in Pakistan. The major demand drivers include 1) greater cultivatable
area and guaranteed offtake (last 5 year average urea demand: 5.5mn tons), 2)
commodity support prices, 3) water availability, 4) fertilizer prices, and 5) growing
population.
Exhibit: Production Index of Important Crops

2005-06 Base
Crops
FY-12 FY-13 FY-14
Wheat
110
114
119
Maize
140
136
146
Rice
Sugarcane
Cotton
Exhibit: Fertilizer usage vs Production of important Crops

60.0%
111
131
104
100
143
100
123
149
98
Source: PBS, AHL Research
Wheat
Fertilizer usage %age of total
50.0%
40.0%
Cotton*
30.0%
20.0%
10.0%
Sugarcane
Rice
Maize
0.0%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
(Production 000 tons)
*Production is in thousand bales of 375 lbs. each

Cultivatable area
Cultivatable area is a major aspect in determining fertilizer demand. Higher area would
lead to growth in the fertilizer offtake and eventually result in higher crop production.
Despite the damage caused by the major floods back in CY10 coupled with less
destructive minor floods in subsequent years, cultivable area was able to grow by a
modest 10 year CAGR of 0.5%. Likewise, urea offtake increased by 10-year CAGR of
2% for the same period. Resultantly, cumulative wheat and cotton production jumped by
a CAGR of 2.9% and 2.4% respectively in the last 10 years.
Exhibit: Area of Important Crops
Exhibit: Production of Important Crops
('000 hectares)
FY-12
FY-13
FY-14
CAGR
Wheat
8,650
8,660
9,199
3.1%
Maize
1,087
1,060
1,169
Rice
2,571
2,309
2,789
Sugarcane
1,058
1,129
Cotton
2,835
2,879
Exhibit: Total Cultivated Area

(mn hectares)
FY-10
FY-14
Punjab
12.45
12.52
Sindh
4.90
5.18
KPK
1.84
1.88
Balochistan
2.06
2.49
Total
21.25
22.07
(000 tones)
FY-12
FY-13
FY-14
CAGR
Wheat
23,473
24,211
25,979
5.2%
3.7%
Maize
4,338
4,220
4,944
6.8%
4.2%
Rice
6,160
5,536
6,798
5.0%
1,173
5.3%
Sugarcane
58,397
63,750
67,460
7.5%
2,806
-0.5%
Cotton*
13,595
13,031
12,769
-3.1%

*Production is in thousand bales of 375 lbs. each
Fertilizer offtake and total cropped area reached its peak in CY09 at 6.2mn tons and
23.8mn hectares, respectively. Given that the country has faced less severe floodrelated catastrophes in recent years, the total cultivatable area and fertilizer offtake is
expected to grow going forward.
Fertilizer Sector
Page 13
Fertilizer Sector
November 18, 2015
Exhibit: Crop-wise usage of Fertilizers & Production Growth
(000 nutrient ton)
FY12
FY13
FY14
%age of total
Production CAGR
over FY12 to FY14
Wheat
1,930
1,811
2,045
50.0
5.2%
Cotton
965
905
1,022
25.0
-3.1%
Sugarcane
309
290
327
8.0
7.5%
Rice
232
217
245
6.0
5.0%
Maize
58
54
61
1.5
6.8%
9.5
Others
Total
367
344
388
3,861
3,622
4,089
Definite offtake
Urea demand in Pakistan during the last 5-years averaged at 5.5mn tons with the
installed urea capacity of 6.4mn tons (operational capacity of 5.1mn tons excl. Pakarab,
DH fertilizer and Agritech). This trend shows guaranteed offtake as the local
manufacturers managed to offload all of their inventories during CY14. Furthermore the
wide demand supply gap is catered through urea import of ~1mn ton by the government
to ensure any shortfall of the commodity in the market.
Exhibit: Province-wise Consumption of Fertilizers
(000 nutrient ton)
FY12
FY13
FY14
CAGR
Nitrogen
Punjab
2,181
1,988
2,164
-0.4%
Sindh
657
523
731
5.5%
KPK
Balochistan
222
146
213
130
177
112
-10.7%
-12.4%
Total
3,207
2,854
3,185
-0.3%
Phosphate
Punjab
451
537
623
17.5%
Sindh
126
123
187
22.1%
KPK
35
51
48
16.7%
Balochistan
Total
21
36
23
4.9%
633
747
881
18.0%
Crop Support prices to play a vital role

Traditionally, support prices for commodities have played a vital role in boosting fertilizer
offtake. As an agrarian country, the government always tends to support farmers
through every possible mode including higher support prices. The govt is offering
support prices for various crops including Wheat, Cotton and Sugarcane. Support prices
are directly proportional to the fertilizer offtake. We have witnessed an upward trend in
wheat support price since FY11. At present, wheat support price stands at PKR
1,300/40kg, depicting a 5-year CAGR of 8.2%, while Sugarcane support prices grew at
a 5-year CAGR of 9.6%. Additionally, cotton support prices now have of PKR
3,000/40kg in FY15.
Exhibit: Support/Procurement Prices of Agricultural Commodities
(PKR/40kg)
FY-11
FY-12
FY-13
FY-14
FY-15
CAGR
Wheat
950
1,050
1,200
1,200
1,300
8.2%
Sugarcane*
125
151
171
171
181
9.6%
3,000
nm
Cotton Seed (Phutti)**
Source: PBS, AHL Research, *Average **B-557, 149-F, NIAB-78
Fertilizer Sector
Page 14
Fertilizer Sector
November 18, 2015
Supply constraints depleting gas reserves

Pakistan was endowed with rich natural gas reserves but the increasing demand and
insufficient exploration activities in the past have resulted in a restriction on the
availability. Currently, the country is facing seasonal outages typically during the winter
season with annual gas shortfall of ~2,000mmcfd. The situation may aggravate in the
future as the countrys energy requirements and industrial growth potential will require a
much higher utilization of gas resources. In this case, the fertilizer sector, which already
consumes 17% of total gas, has limited potential to induce further investors.
Declining gas supply trend
Severe gas curtailment has been observed since CY10TD and the gas consumption of
fertilizer sector from SSGC and SNGP network has declined by 38% and 63%
respectively whereas MARI gas field consumption delivered 5 year average growth of
24%. Cumulatively however, gas consumption by the fertilizer sector dropped 2% YoY
on average since CY10.
Exhibit: Gas Supply for Fertilizer Sector
Mari Gas Field
Exhibit: Gas Consumption by Sectors
SSGCL
SNGPL
Transport
(CNG)
7%
(MMCFt)
250,000
200,000
150,000
Fertilizer
(Feedstock)
13%
100,000
Commercial
3%
Domestic
22%
Power
29%
Gen.Industries
21%
50,000
FY-14
FY-13
FY-12
FY-11
FY-10
FY-09
FY-08
FY-07
Fertilizer
(Fuelstock)
4%
Cement
0.04%
Pakistan
Steel Mills
1%
Source: Energy Year Book, AHL Research
Fertilizer Sector
Page 15
Fertilizer Sector
November 18, 2015
Gas prices Upward trajectory continues

Feed-stock gas is the basic raw material for making fertilizer particularly urea. Initially
with the low consumption of gas in the fertilizer sector amid lower installed capacity, gas
prices were lower compared with other sectors, industries and international gas prices.
However, with the imposition of Gas Infrastructure Development Cess (GIDC) and
incremental capacities coupled with depleting reserve of gas, the feed and fuel stock
prices surged at a 5-year CAGR of 49% and 15%, respectively. Fertilizer manufacturers
easily managed to pass on this gas prices impact as urea prices increased at a 5-year
CAGR of 22%. This showed the ability of the manufactures to easily pass on the impact
of gas price increase to end consumers. However, with the current scenario of soft intl
commodity prices along with the imported urea available at only 2% premium, the
companies are struggling to maintain their margins.
Exhibit: Historical Urea and DAP Prices
Feed stock
PKR/mmbtu
Fuel stock
760
660
560
460
360
260
160
60
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
GIDC
(PKR/bag)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
Urea
DAP
CY-00
CY-01
CY-02
CY-03
CY-04
CY-05
CY-06
CY-07
CY-08
CY-09
CY-10
CY-11
CY-12
CY-13
CY-14
CY-15TD
Exhibit: Gas and Fertilizer Prices
Fertilizer Sector
Page 16
Fertilizer Sector
November 18, 2015
Imported urea a major threat?

The country is facing the problem of imported urea which ultimately affects the import
bill and consequently the government incurs a high cost. However with the downward
trajectory of intl prices of urea which dropped 25% YoY during CY15TD to USD
250/ton, the cost of intl imports has relatively decreased. The problem of imported urea
is posing a minor challenge to the domestic market because the discount to the intl
prices has shrunk to 2%. Manufacturers stance on this is quite clear that any cost push
inflation would lead them to increase end consumer prices. To make matters worse,
there are plants which use gas inefficiently leading to shortages and, hence, an
increase in fertilizer prices in peak seasons results in reduced product offtake.
Exhibit: Local and International DAP Comparison
International
(PKR/bag)
Local
Avg. Premium (RHS)
5,000
40%
4,500
4,000
3,500
3,000
2,500
2,000
1,500
20%
0%
-20%
-40%
-60%
CY-15TD
CY-14
CY-13
CY-12
CY-11
CY-10
CY-09
-80%
CY-08
80%
70%
60%
50%
40%
30%
20%
10%
0%
CY-15TD
CY-14
CY-13
CY-12
CY-11
CY-10
CY-09
CY-08
Exhibit: Local and International Urea Comparison

International
(PKR/bag)
Local
Avg. Discount (RHS)
3,500
3,000
2,500
2,000
1,500
1,000
500
-
Source: Bloomberg, NFDC, AHL Research
Fertilizer Sector
Page 17
Fertilizer Sector
November 18, 2015
Outlook of fertilizer sector

Macro outlook
For the Pakistani economy to flourish, it is vital for agricultural yields to go up which is
only possible through the consumption of fertilizers in the right quantity at the right time.
Given the current situation, the importance of fertilizers cannot be overlooked since it
has a direct impact on the growth, output and economic activity of the agriculture sector.
Hence, the govt is making continuous efforts to tackle gas shortage issues through new
exploration projects. At this point in time, gas shortage and import threat continue to
pose a major challenge to the entire sector.
Sector forecasts
We expect the sectors urea offtake to grow by 2% YoY in CY15. Our assumption with
respect to growth in urea offtake stems from: 1) increase in Wheat Support Price to
PKR 1300/40kg, 2) low interest rates enabling farmers to secure cheap agri-loans, and
3) better demand due to increased cultivatable area with improving yields amid
favorable weather conditions compared to the last year. Furthermore, the clarity with
respect to local urea prices would help the companies to offload their piled up
inventories in the current year.
Exhibit: DAP Production and Offtake
140%
5.5
5.0
120%
1.0
110%
0.8
2009A
2015E
2014A
2013A
0.2
2012A
80%
2011A
0.4
4.0
2010A
0.6
90%
2009A
100%
4.5
2015E
6.0
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
1.2
2014A
130%
2013A
6.5
Local Production
Imported
Total Offtake (RHS)
(mn tons)
2010A
(mn tons)
2012A
Production
Offtake
Offtake / Production (RHS)
2011A
Exhibit: Urea Production and Offtake
Exhibit: Fertilizer offtake CY14

DH Fertilizer Pak Arab
0%
1%
Agritech
1%
FATIMA
7%
Exhibit: Fertilizer offtake 9MCY15

FFC
43%
NFML
12%
ENGRO
33%
FFBL
4%
ENGRO
33%
FATIMA
DH
Agritech
7%
Fertilizer
1%
1%
Pak Arab
NFML 0%
13%
FFC
41%
FFBL
3%
Fertilizer Sector
Page 18
Fertilizer Sector
November 18, 2015
Key risks
Gas unavailability
The key risk remains the unavailability of gas to the fertilizer plants, especially on the
SNGPL network. In this regard, the materialization of the long-term plan and its timings
are very crucial for the plants operating on this network.
Price reduction
Pricing risk prevails, as the govt may pressurize the manufacturers to cut urea prices
due to lower intl urea prices. Albeit, we believe the probability of this is low.
Imported urea
Imported urea could be a threat to local manufacturers if traded at lower prices
compared to local urea.
Political risk / GoP priority
Political instability coupled with governments stance and how it prioritizes gas allocation
to the fertilizer sector would bring clarity in the future for the fertilizer sector.
Fertilizer Sector
Page 19
Fertilizer Sector
November 18, 2015
Crop Seasons
Pakistan has two crop seasons; Kharif being the first sowing season from April-Jun;
harvested during October-December. Main Kharif crops include rice, sugarcane, cotton,
and maize. Rabi, the second sowing season begins October-December; harvested in
April-May. Major Rabi crops include wheat, gram, lentil, tobacco, rapeseed, barley and
mustard. With two crop seasons, the fertilizer offtake with respect to products also
registers significant difference due to variations in fertilizer needs by each crop which
eventually affects the demand situation. When talking about demand scenario, as stated
earlier, Pakistan is an agri-based economy and for a healthy crop yield farmers need
optimal amounts of fertilizer to enhance crops growth. Resultantly, the overall domestic
demand generated is higher than local fertilizer production which stimulates extensive
need for importing fertilizer products like urea, and DAP etc.
May
Ju ne
KHARI F
Ju ly
Au g
S ep
Oct
No v
Dec
RABI
Jan
Feb
Mar
Apr
W h eat
Cotto n
Rice
S ug ar Cane
Maize
Patato
Chillies
S owin g
Fertilizer Sector
Growing
Harvesting
Page 20
Fertilizer Sector
November 18, 2015
Engro Corporation Limited

Diversification strategy paying off through deep valuations; Strong BUY
We reiterate our strong Buy stance on Engro Corporation Limited (ENGRO) with our
SoTP based Jun-16 price objective of PKR 433.5/share implying an upside potential of
48% from current levels. On a consolidated basis, we expect the company to post 5year profitability CAGR of 26%. The expected growth is primarily driven from 1) EFERT
where we assume recurring concessionary gas would be available for full year along
with synergies from DAP trading business, 2) Foods business (EFOODS) which is
expected to be back on track with increasing volumes and stable margins, 3) Power
business which is likely to remain stable amid secure gas supply, and 4) Future power
projects of ~USD 2bn including Sindh Engro Coal Mining Company (SECMC) mining
project amounting USD 800mn and Engro Powergen Thar Power Limited mine-mouth
660MW coal power plant amounting USD 1,200mn. The stocks recent
underperformance of 4.1% (last 30 trading days) was attributable to news regarding
diversion of gas from EFERT. We believe that the market has overplayed the news and
feel that the stock still offers attractive valuations. The stock is currently trading at
CY16F P/E of 8.8x along with the dividend yield of 6%.
ENGRO PA
Recommendation
BUY
Target Price
Current Price
433.5
293.0
Upside (% )
Market Cap. (PKR mn)
47.9
524
50.0
153,464
Market Cap. (USD mn)
1,476
Shares (mn)
Free float (% )
Indices
- MSCI FM, KSE100 Index
Major Shareholders
Exhibit: Key Financials

CY13A
CY14A
CY15E
CY16F
CY17F
EPS
PKR
15.3
13.6
25.9
33.4
42.2
DPS
PKR
6.0
13.0
17.0
21.0
P/E
19.2
21.6
11.3
8.8
6.9
- Patek (Pvt) Ltd & Dawood Hercules

Relative Performance
P/B
2.8
2.3
2.0
1.7
1.5
Return %
Dividend Yield
2.0
4.4
5.8
7.2
Avg. Volume (000)
Source: Company Financials, AHL Research
Engro Fertilizer Limited

Ambiguity regarding Guddu gas supply remained a major hindrance while evaluating
the investment case for EFERT. However according to our analysis even the worst
case scenario portrays a relatively better picture than assumed by most, as we expect
the company to post PAT of PKR 13,671 (EPS: PKR 10.27) despite of gas diversion
from Guddu. We value the company using FCFF and our target price works out to be
PKR 108.65/share.
3M
6M
12M
-12.7
7.1
49.2
2,225.8 2,929.0 4,487.9
High Price - PKR
335.8
337.5
337.5
Low Price - PKR
288.2
269.4
187.8
Price Performance
220%
ENGRO
190%
Engro Foods Limited

The company was back on track in the current year since the revival of volumes and
margins catered by UHT segment amid lower intl powder milk prices. Our Jun-16 target
price for EFOODS works out to be PKR 150/share using FCFF.
160%
Engro Powergen Qadirpur Limited

Being operating on permeated gas, the company is well positioned to secure its supply.
We believe stable cash flows ahead, our TP works out to be PKR 35/share.
70%
Engro Eximp Agri Product Pvt Limited

ENGRO has purchased the entire share capital of Engro Exim Agri-products Limited
(EEAP, subsidiary of EXIMP) making it a direct subsidiary of ENGRO. EEAP is
engaged in procurement, processing & sale of Basmati rice & owns the largest
integrated rice processing plant in the country. The restructuring of the company is
ongoing and it recently booked impairment on its rice processing plant.
Source: Bloomberg
Engro Vopak Terminal Limited

We expect stable cash flows ahead from storage business due to historical stable
operations subject to long term contracts with LOTCHEM, Akzonobel and others. We
value the company using DDM model and our target price is PKR 3.0/share based on
ENGROs stake.
UAN: +92 21 111 245 111, Ext: 248
Fertilizer Sector
KSE100
130%
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
100%
Analyst:
Tahir Abbas
D:+92 21 3246 2589
F:+92 21 3242 0742
Page 21
Fertilizer Sector
November 18, 2015
Elengy Terminal Pakistan Limited
Elengy Terminal Pakistan Limited, won the GOPs tender for Fast Track LNG back in
Nov-2013. Accordingly, Engro setup a re-gasification facility and will handle LNG on
tolling basis for 15 years. We value the company using FCFF and our target price is
PKR 7.4/share on ENGROs paid up capital.
Cracking the Value pie
The flagship business (EFERT) is expected to provide major value to ENGRO,
contributing 50% to our SoTP based target price. We view that even in the case of gas
diversion in CY16 the investment case is expected to remain intact amid higher
utilization of EnVen and concessionary gas flows. Furthermore, the DAP trading
business is also expected to contribute in EFERTs earnings going forward. EFOODS is
the second major contributor in our ENGRO valuation adding 44% to the total value, we
believe higher consumer spending in conjunction with revival of volumes and margins
would unleash new horizons for the fast growing food business. Engro Powergen (via
Engro Powergen Qadirpur Limited) contributes 3% to our valuations.
Future power projects of ~USD 2bn which includes Sindh Engro Coal Mining Company
(SECMC) mining project amounting USD 800mn and Engro Powergen Thar Power
Limited mine-mouth 330MW x 2 coal power plant amounting USD 1200mn. As per initial
estimates we believe Engro Powengen Thar Power Limited will contribute PKR
46.23/share to our target price of ENGRO assuming 65% stake of Engro Powengen,
30.65% RoE and 75:25 debt to equity ratio, while upside from SECMC mining project
will be PKR 8.14/share assuming 22% stake of Engro Powergen, 27% RoE and 75:25
debt to equity ratio. However due to lack of information amid pre financial closure phase
of the projects, we have not included the impact in our valuations.
Engro
Corporation
Engro Foods (87%)
Engro Eximp
Agriproducts
Private Limited
(100%)
Elengy Terminal
Engro Fertilizers
(79%)
Pakistan Ltd.
(80%)
Engro
Powergen
Qadirpur
Limited (69%)
Engro Eximp
Private Limited
(100%)
Engro Powergen
(100%)
Sindh Engro
Coal Minig
Company
Limited (22%)
Engro Polymer
and Chemicals
Limited (56%)
Engro VoPak
terminal Limited
(50%)
Thar Power
Comapany
Limited (65%)
Engro Eximp
FZE (100%)
Exhibit: Sum of the Parts Valuation (SOTP)

Company
PV of Cash flows
Stake
Adjusted
TP*
Engro Fertilizer
144,610
79%
113,941
217.5
Engro Foods
114,179
87%
99,415
189.8
850
100%
850
1.6
10,689
69%
7,376
14.1
Engro Vopak
3,179
50%
1,589
3.0
Engro Elengy Terminal
4,841
80%
3,873
7.4
227,045
433.47
Engro Eximp Agri Products

Engro Powergen**
Total
278,348
Source: AHL Research *Target prices on ENGRO's paid up capital, **Engro Powergen own 69% of
Engro Powergen Qadirpur
Fertilizer Sector
Page 22
Fertilizer Sector
November 18, 2015
Focus Charts
Exhibit: Upbeat GMs amid recovering sales
(%)
40.0
35.0
163.8
170.0
155.4
150.7
25.0
25.0
20.0
20.0
10.0
19.2
Exhibit: Gross and Net Margins continue
8.2
21.5
10.0
10.0
5.0
Exhibit: Sales and Net Margins

Net Margins
(PKR bn)
45.0
Sales
Net Margins (RHS)
(%)
20.0
210.0
37.5
17.5
190.0
30.0
22.5
170.0
15.0
150.0
176.0
172.9
163.8
155.4
10.0
7.5
110.0
100.0
17.0
2.0
15.0
1.5
70.6
CY17F
2.0
12.3
13.0
1.5
7.0
5.0
7.3
6.1
0.5
-
CY17F
CY17F
0.5
1.0
8.5
9.0
CY16F
1.0
CY16F
CY15E
2.5
CY15E
62.2
40.0
CY14A
(x)
11.0
47.4
CY13A
Debt to Equity (RHS)
15.6
CY14A
57.2
Interest Expense
(PKR bn)
2.5
82.6
60.0
50.0
(x)
CY13A
90.0
70.0
CY16F
Exhibit: Lower debt plus falling interest rates leading to lower interest costs
80.0
CY15E
CY13A
CY17F
CY16F
CY15E
CY14A
CY13A
Exhibit: Deleveraging leading to lower risk

Equity
5.0
CY14A
130.0
15.0
12.5
150.7
7.5
(PKR bn)
20.0
15.0
5.0
CY17F
CY16F
CY15E
CY14A
15.0
CY13A
130.0
Gross Margins
27.5
30.0
30.0
15.0
150.0
(%)
25.0
CY17F
172.9
(%)
35.0
CY16F
176.0
Net Margins (RHS)
CY15E
190.0
PAT
(PKR bn)
40.0
CY14A
Gross Margins (RHS)
CY13A
Net Sales
(PKR bn)
210.0
Exhibit: Net margins and PAT both tilt upwards
Fertilizer Sector
Page 23
Fertilizer Sector
November 18, 2015
Engro Fertilizer Limited

Stable prices plus subsidized costs cultivating upside potential; BUY
EFERT has two fully integrated fertilizer plants having nameplate capacity of producing
2.275mn tons of urea (base plant: 0.975mn tons and EnVen: 1.3mn tons). Both of the
companys plants are located in Sindh. The company is expected to remain a major
contributor to ENGROs profitability by contributing 74% in CY15E (ENGRO EPS
impact: PKR 21.34) and 71% in CY16F (ENGRO EPS impact: PKR 20.56) respectively.
EFERT PA
Recommendation
BUY
Target Price
Current Price
108.7
84.0
Upside (% )
CY13A
CY14A
CY15E
CY16F
CY17F
4.1
6.2
10.7
10.3
12.8
29.3
1,331
25.0
111,812
1,075

EPS
PKR
DPS
PKR
3.0
6.0
7.0
7.0
P/E
20.3
13.6
7.9
8.2
6.6
P/B
Dividend Yield
x
%
4.5
-
3.2
3.6
2.8
7.1
2.5
8.3
2.1
8.3
Shares (mn)
Free float (% )
Indices
- KSE100 Index
GP margins to hover around 54%, PAT to grow at a 5 year CAGR of 13%

Concessionary gas flows would fully be magnified in CY16 amid availability for full year.
GM are expected to clock in at a CY15-19 average of 54%. Similarly, companys
profitability is expected to post 5-year CAGR of an impressive 13% going forward.
Product pricing to remain stable
As far as product pricing is concerned, the industry is expected to maintain urea prices
at current levels. We derive our assumption with the manufacturers stance that urea
prices reversal is only possible if govt will revert gas tariff (both feed and fuel stock) to
old level. Furthermore, the demand-supply gap of urea, is expected to remain ~1mn
tons as observed from regular imports being made by the govt.
Synergies from Engro Eximp
Subsequent to the purchase of Engro Eximp the DAP trading arm by EFERT, the
company is expected to import 450k tons of DAP annually leading towards
improvement in annualized after tax earnings by PKR 1,585 (EPS: PKR 1.20).
Important to mention here is that annual demand for DAP in Pakistan is around 1.6mn
out of which FFBL is expected to cater 0.7mn while remaining pie is for EFERT and
other private importers.
Major Shareholders
- Engro Corporation
Return %
Avg. Volume (000)
3M
6M
12M
-11.7
0.5
36.2
1,564.3 2,886.8 4,313.6
High Price - PKR
97.8
97.8
97.8
Low Price - PKR
84.0
82.6
58.9
Price Performance
190%
EFERT
KSE100
160%
130%
100%
70%
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Guddu gas availability to remain a concern

Guddu gas is expected to be diverted from EFERT in Dec-15 as stated in the GSA
signed between the company and the Govt. Bridging the average power shortfall of
6,000MW as govt priority, there is a high chance for the diversion. However, further
delay of 3-6 months cannot be ruled out amid technical issues in Guddu 747 MW (249
MW x 3) power plant. Our channel checks suggest that it would be delayed for another
3 months. Clarity is yet to emerge on the same as further extension has not been
finalized. It is important to mention here that Guddu gas diversion has been delayed
twice in the past due to the same issue. Assuming complete diversion of Guddu gas,
we expect the EnVen plant to operate at 103% with all the available gas. Resultantly we
expect the company to post PAT of PKR 13,671 (EPS: PKR 10.27) in CY16F. Our
sensitivity analysis indicates one months availability of Guddu gas having a positive
earnings impact of PKR 0.23/share. Being on a conservative side we have assumed
diversion and that only EnVen is operational in CY16F.
Source: Bloomberg
Analyst:
Tahir Abbas
D:+92 21 3246 2589
UAN: +92 21 111 245 111, Ext: 248
Key Risks
1) Intervention by govt in setting up prices for the fertilizer sector, 2) Substantial
reduction in Intl urea prices (highly unlikely), 3) Increased GIDC, and 4) Margin attrition
in DAP trading business.
Fertilizer Sector
F:+92 21 3242 0742

Page 24
Fertilizer Sector
November 18, 2015
Focus Charts
Exhibit: Net Sales & Total Volume
Exhibit: Production & Utilization
57.0
45.3
47.0
1,400
1,400
65%
60%
55%
50%
CY13A
CY17F
CY16F
CY15E
CY14A
CY13A
70%
600
1,200
Exhibit: Higher earnings going forward

(PKR)
18.0
1,800
1,000
42.0
37.0
80%
Exhibit: Higher profitability coupled with better margins

PAT
(PKR bn)
25.0
EPS
10.7
17.0
14.2
4.1
9.0
8.2
5.5
Sales
(PKR bn)
72.0
67.0
61.4
34.5
40.6
45.0
(x)
2.5
2.0
1.5
1.0
25.1
(PKR bn)
11.0
3.0
CY17F
10.0
CY16F
0.5
CY15E
CY17F
CY17F
CY16F
2.0
1.5
6.6
7.0
20.0
CY14A
9.9
Debt to Equity (RHS) (x)

2.5
9.0
5.0
CY13A
Interest Expense
5.4
5.0
1.0
4.4
0.5
-
CY17F

52.7
40.0
(%)
65.0
60.0
55.0
50.0
45.0
40.0
35.0
30.0
Exhibit: Lower finance costs amid receding interest rates and lower debt
60.0
50.0
45.3
CY16F
Equity
50.1
CY13A
Exhibit: Deleveraging leading to lower risk
61.1
57.0
CY13A
CY17F
CY16F
CY15E
CY14A
CY13A
52.0
47.0
42.0
Gross Margins
CY15E
Net Margins
CY14A
EBITDA Margins
62.0
57.0
(PKR bn)
70.0
CY16F
Exhibit: Higher gross margins amid new plant
CY14A
Gross Margins
CY15E
CY13A
CY17F
CY16F
CY15E
CY14A
CY13A
Exhibit: Rising Gross, EBITDA and Net margins
CY14A
5.0
2.0
30.0
13.7
13.0
6.2
(%)
75.0
65.0
55.0
45.0
35.0
25.0
15.0
5.0
34.0
31.0
28.0
25.0
22.0
19.0
16.0
13.0
10.0
17.1
10.3
10.0
6.0
(%)
21.0
12.8
14.0
Net Margins (RHS)
CY15E
52.0
85%
75%
1,600
50.1
Utilization
2,200
1,800
57.0
Production
CY17F
62.0
61.1
Capacity
(K tons)
2,600
CY16F
61.4
(K tons)
2,000
CY15E
67.0
Total Volume (RHS)
CY14A
Net Sales
(PKR bn)
72.0
Fertilizer Sector
Page 25
Fertilizer Sector
November 18, 2015
Financials
Exhibit: Income Statement
(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Net Sales
50,129
61,425
61,089
45,274
56,966
Gross Profit
22,121
22,603
30,516
27,340
31,913
Gross Margins
EBITDA
EBITDA Margins
44.1
36.8
50.0
60.4
56.0
18,610
18,161
26,510
24,319
28,188
37.1
29.6
43.4
53.7
49.5
18,302
18,520
27,179
24,773
28,783
Other Income
1,151
2,449
2,138
1,585
1,994
Financial Charges
9,918
6,625
5,350
4,960
4,413
5,497
8,208
14,188
13,671
17,059
11.0
4.1
-
13.4
6.2
3.0
23.2
10.7
6.0
30.2
10.3
7.0
29.9
12.8
7.0
Exhibit: Balance Sheet

(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Shareholders' Equity
25,069
34,478
40,613
44,968
52,710
Non Current Liabilities

Long Term Loan
52,896
36,091
22,591
18,072
13,554
Total Non Current Liabilities
62,186
41,437
27,937
23,419
18,901
Current Liabilities
Trade and Other Payables
18,012
24,472
8,735
5,124
7,158
Operating Profit
Profit after Tax

Net Margins
EPS
DPS
%
PKR
PKR
Total Current Liabilities
22,673
35,556
25,407
12,814
14,848
109,929
111,472
93,957
81,200
86,459
Assets
Non Current Assets
79,563
75,175
71,172
68,125
65,558
Current Assets
30,366
36,297
22,785
13,075
20,901
109,929
111,472
93,957
81,200
86,459
Total Liabilities and Equity
Total Assets
Exhibit: Ratio Analysis

CY13A
CY14A
CY15E
CY16F
CY17F
ROE
29.2
27.6
37.8
31.9
34.9
ROA
7.3
7.4
13.8
15.6
20.3
Coverage Ratio
1.8
2.8
5.1
5.0
6.5
Debt to Equity
3.4
2.2
1.3
0.8
0.6
Debt to Assets
0.8
0.7
0.6
0.4
0.4
Dividend Yield
3.6
7.1
8.3
8.3
P/E
20.3
13.6
7.9
8.2
6.6
P/B
4.5
3.2
2.8
2.5
2.1
Fertilizer Sector
Page 26
Fertilizer Sector
November 18, 2015
Engro Foods Limited

Volumetric growth in dairy products to push profitability upwards
The foods business is mainly engaged in manufacturing and selling of dairy and juice
products along with penetration in ice cream segment and also owns a dairy farm. After
suffering from turbulent year back in CY13 amid supply chain issues, the company is all
set to contribute 18% and 25% into earnings of ENGRO in CY15E and CY16F followed
by 44% contribution to ENGROs target price.
EFOODS PA
Recommendation
HOLD
Target Price
149.6
Current Price
156.3
Upside (% )

CY13A
CY14A
CY15E
CY16F
CY17F
0.3
1.2
4.6
6.2
7.7
EPS
PKR
P/E
568.0
134.8
33.8
25.4
20.3
P/B
11.2
10.4
8.1
6.2
4.7
(4.3)
Shares (mn)
767
Free float (% )
15.0
119,834
1,152
Indices
We expect the company to post profit after tax (PAT) of PKR 3,541mn (EPS: PKR 4.62)
in CY15 significantly up 3.9x YoY. The major driver behind this growth is revival of
volumes in low end UHT milk segment (Tarang and Omung) coupled with expected
price increase in dairy products going forward.
- KSE100 Index
Major Shareholders
- Engro Corporation Limited
Exhibit: 04-year Average

15.0%
3M
11.2%
8.8%
5.8%
5.0%
0.0%
Food Inflation
Fresh Milk
Return %
-10.8
15.9
59.7
Avg. Volume (000)
973.5
1615.3
2615.4
High Price - PKR
175.2
175.2
175.2
Low Price - PKR
144.6
131.9
96.0
Powder Milk
Dairy & beverages segment

The dairy products include UHT milk, powder milk, cream and juices. We expect the
dairy volume to grow at a 5-year CAGR of 6% and is expected to contribute 91% to the
total revenues and profitability.
Ice cream segment
The companys Omore brand is countrys 2nd largest ice cream brand. Furthermore, the
ice cream segment posted LAT of PKR 293mn CY14. However, in CY15 the segment
posted profitability of PKR 101mn in 9MCY15. Going forward we view that the volumes
are expected to grow at a 5-year CAGR of 3% along with revenue to grow at 4%.
Price Performance
190%
EFOODS
KSE100
160%
130%
100%
70%
Farm segment
The segment posted PAT of PKR 15mn in 9MCY15 as compared to LAT of PKR 34mn
in the SPLY. The revival is mainly on account of increase in herd size along with some
improvement in the yields. We expect the segment to post PAT of PKR 18mn and PKR
30mn in CY15E and CY16F respectively.
Source: Bloomberg
Key Risk and Outlook

1) Unexpected increase in intl powder milk prices, 2) Higher fuel cost, 3) Lower
consumer spending, and 4) Volume slowdown in dairy segment. Going forward the
company is expected to maintain its focus on leading brands like Olpers, Tarang,
Omung and Omore along with aggressive advertising and marketing techniques to
maintain its market share.
D:+92 21 3246 2589
Fertilizer Sector
12M
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
10.0%
6M
Analyst:
Tahir Abbas
UAN: +92 21 111 245 111, Ext: 248
F:+92 21 3242 0742
Page 27
Fertilizer Sector
November 18, 2015
Focus Charts
65.8
62.3
54.4
52.5
43.0
37.9
37.5
10.0
7.5
5.0
2.5
0.9
0.2
CY17F
CY16F
(PKR bn)
Sales
Exhibit: Declining interest expense

Gross Margins
(%)
35.0
80.0
70.0
62.3
54.4
60.0
50.0
40.0
65.8
31.0
27.0
23.0
43.0
37.9
19.0
CY17F
CY16F
CY15E
CY14A
15.0
CY13A
30.0
Exhibit: Sales Contribution CY14
Interest Expense
1.2
(PKR bn)
(x)
1.0
1.3
1.0
1.0
0.8
0.8
0.8
0.6
0.6
0.5
0.4
0.3
0.3
0.2
CY17F
Exhibit: Higher margins amid rising sales
CY16F
CY15E
CY14A
CY13A
Net Margins
CY17F
15.0
Gross Margins
(%)
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
CY16F
(%)
12.5
3.5
2.0
CY15E
4.7
4.0
1.2
0.3
Exhibit: Gross and Net Margins

Net Margins (RHS)
5.9
6.0
3.0
CY15E
PAT
4.6
CY14A
Exhibit: Rising PAT and Net Margins

(PKR bn)
6.2
6.0
CY13A
CY17F
CY16F
CY15E
CY14A
CY13A
30.0
7.7
CY14A
45.0
EPS
CY13A
60.0
(PKR)
9.0
CY17F
67.5
(%)
30.0
25.0
20.0
15.0
10.0
5.0
(5.0)
(10.0)
CY16F
Growth (RHS)
CY15E
Net Sales
CY13A
(PKR bn)
75.0
Exhibit: Expecting higher earnings ahead
CY14A
Exhibit: Rising sales, albeit at a slower pace
Exhibit: PAT Contribution CY14 (PKR mn)

Ice Cream,
(293)
Dairy Farm,
(31)
Dairy &
Beverages,
90.6%
Others, 0.9%
Ice Cream,
6.6%
Dairy Farm,
1.7%
Business
Development
, 0.2%
Dairy &
Beverages,
1,710
Business
Development
, (238)
Others,
(280)
Fertilizer Sector
Page 28
Fertilizer Sector
November 18, 2015
Financials
(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Net Sales
37,891
43,027
54,357
62,273
65,830
8,143
8,101
13,323
16,484
18,094
21.5
18.8
24.5
26.5
27.5
Gross Profit
Gross Margins
Operating Profit
2,174
2,328
7,073
8,171
9,584
Other Income
324
305
417
423
513
Financial Charges
785
1,237
972
575
320
211
0.6
0.3
889
2.1
1.2
3,541
6.5
4.6
4,723
7.6
6.2
5,910
9.0
7.7
CY13A
CY14A
CY15E
CY16F
CY17F
Profit after Tax

Net Margins
EPS
%
PKR

(PKR mn)
10,715
11,578
14,755
19,478
25,388

Long Term Loan
7,127
5,477
4,786
2,086
500
8,675
6,665
5,975
3,274
1,688
Current Liabilities
3,369
3,223
3,923
4,349
4,549
4,655
7,457
8,146
8,591
7,748
24,046
25,700
28,876
31,344
34,824
Assets
Non Current Assets
16,033
16,214
15,314
13,563
12,553
Current Assets
Total Assets
8,012
9,485
13,562
17,781
22,271
24,046
25,700
28,876
31,344
34,824

CY13A
CY14A
CY15E
CY16F
CY17F
ROE
1.8
8.0
26.9
27.6
26.3
ROA
0.7
3.6
13.0
15.7
17.9
Coverage Ratio
2.8
1.9
7.3
14.2
30.0
Debt to Equity
0.8
0.8
0.6
0.3
0.1
Debt to Assets
0.3
0.4
0.3
0.2
0.1
P/E
568.0
134.8
33.8
25.4
20.3
P/B
11.2
10.4
8.1
6.2
4.7
Fertilizer Sector
Page 29
Fertilizer Sector
November 18, 2015
Engro Powergen Qadirpur Limited

Guaranteed returns plus cost efficiencies powering up earnings
Engro Powergen Qadirpur Limited (EPQL) is a gas based thermal power project near
Qadirpur (Sindh) and has a net capacity of 217.3MW. EPQL constructed a state-of-theart power plant of Chinese origin on the said land. The cost for the project was
estimated to be USD 205mn with a debt to equity ratio of 75:25. It supplies power to
NTDC under Power Purchase Agreement (2007) which is valid for 25-yrs from the
plants COD and its tariff was indexed accordingly. Since operations started the plant
has managed to maintain an average Billable Availability Factor of 95%. To be more
precise, EPQL is a combined cycle power plant which utilizes low BTU permeate gas to
generate electricity. The plant uses High Speed Diesel (HSD) as a start-up and back-up
fuel. It runs on combined cycle operations, with one gas turbine, one heat recovery
steam generator and one steam turbine. Being a gas run plant, it is one of the lowest
cost power producers in the country. ENGROs 100% owned subsidiary Engro
Powergen owns 69% stake in EPQL.
EPQL PA
Recommendation
HOLD
Target Price
Current Price
35.0
35.9
Upside (% )
(2.4)
324
27.7
11,615
112
Shares (mn)
Free float (% )
Indices
- KSEALL Index
90%
60%
30%
3QCY15
0%
Source: NEPRA, AHL Research
Permeate Gas: Ensuring undeterred gas supply

The Company uses low BTU, high sulphur content permeate gas from Qadirpur Gas
field as fuel, which safeguards it from gas shortage - supply of permeate gas is entirely
separate from the national gas supply. Moreover, due to usage of permeate gas, the
company is able produce one of the cheapest forms of power and this has ensured the
companys spot on NEPRAs dispatch merit order list.
Guaranteed USD base return IRR of ~15%
The Company operates under 2007 Power Purchase Agreement (PPA), which
guarantees USD based Internal Rate of Return (IRR) of ~15%. In addition, the tariff
structure also lets the company to pass on costs to the power purchaser. Furthermore,
any changes in inflation, exchange rate, interest rate and additional fuel costs are not
borne by the company.
Earnings to grow at 8% 5-year CAGR
Earnings of the company are projected to grow at a 5-year CAGR of 8%, leaving decent
cash flow availability. We have valued the company using Dividend Discount Model
(DDM). We have set our target price for EPQL at PKR 35/share and it is expected to
contribute 3% in ENGRO valuations.
3M
6M
12M
-6.9
-6.7
-8.3
Avg. Volume (000)
156.4
381.0
608.2
High Price - PKR
38.6
39.5
42.8
Low Price - PKR
34.9
34.9
33.6
Return %
Price Performance
140%
EPQL
KSE100
120%
100%
80%
Source: Bloomberg
Analyst:
EPS
PKR
CY13A
4.5
DPS
PKR
6.2
1.5
3.0
3.0
3.0
P/E
P/B
x
x
8.0
2.1
5.7
1.8
7.0
2.2
6.4
1.9
6.0
1.6
Dividend Yield
17.2
4.2
8.4
8.4
8.4
Fertilizer Sector
Major Shareholders
- Engro Corporation
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
120%
2QCY15
1QCY15
4QCY14
3QCY14
2QCY14
1QCY14
4QCY13
3QCY13
2QCY13
1QCY13
Exhibit: Steady load factor amid permeate gas advantage

Generation
Load Factor (RHS)
(GWh)
500
400
300
200
100
-
CY14A
6.2
CY15E
5.1
CY16F
5.6
CY17F
6.0
Tahir Abbas
D:+92 21 3246 2589
UAN: +92 21 111 245 111, Ext: 248
F:+92 21 3242 0742
Page 30
Fertilizer Sector
November 18, 2015
Focus Charts
Exhibit: Steadily growing sales amid rising dispatches
(PKR bn)
20.0
Net Sales
15.0
10.0
12.0
Exhibit: Earnings growth beyond CY15E
Dispatches (RHS)
13.0
(GWh)
1,900
15.3
14.0
1,700
8.7
1,500
(PKR)
7.0
EPS
DPS
6.2
6.0
5.0
6.0
5.6
5.1
4.5
4.0
3.0
2.0
Exhibit: DPS and Payout ratio

(%)
170.0
Payout Ratio (RHS)
6.2
6.0
(PKR bn)
PAT
2.0
2.0
3.0
3.0
3.0
1.7
90.0
1.5
1.5
2.0
CY17F
Net Margins (RHS)
2.5
130.0
4.0
CY16F
CY15E
CY14A
CY13A
Exhibit: PAT and Net Margins
DPS
(PKR)
8.0
1.0
CY17F
CY16F
CY15E
CY14A
1,300
CY13A
5.0
1.9
1.8
1.5
50.0
Exhibit: Gross and Net Margins
CY17F
CY16F
CY15E
Exhibit: Sales and Gross Margins
Gross Margins
(%)
22.0
CY13A
CY17F
CY16F
CY15E
CY14A
CY13A
10.0
CY14A
1.0
-
(%)
18.0
17.0
16.0
15.0
14.0
13.0
12.0
Sales
(PKR bn)
20.0
Net Margins
18.0
15.0
14.0
10.0
12.0
Gross Margins
13.0
14.0
(%)
30.0
15.3
26.0
22.0
18.0
8.7
14.0
(x)
2.5
2.0
0.8
CY17F
1.5
0.6
0.5
0.4
0.5
0.3
0.5
1.0
CY17F
CY17F
CY16F
CY15E
CY14A
5.0
2.5
1.0
CY16F
6.2
5.4
0.7
0.6
CY13A
6.5
5.5
0.8
(x)
2.0
0.7
1.5
7.1

0.8
CY15E
9.0
Interest Expense
(PKR bn)
CY14A
11.0
CY13A
CY16F
Exhibit: Interest expense & Debt to Equity

Equity
7.0
CY15E
CY13A
Exhibit: Debt to Equity

(PKR bn)
10.0
CY14A
5.0
CY17F
CY16F
CY15E
CY14A
CY13A
10.0
Fertilizer Sector
Page 31
Fertilizer Sector
November 18, 2015
Financials
(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Net Sales
8,665
12,041
12,990
13,997
15,258
Gross profit
1,652
2,006
2,138
2,249
2,309
19.1
16.7
16.5
16.1
15.1
410
154
317
324
368
1,934
2,600
2,455
2,572
2,678
476
579
792
760
743
Gross Margins
Other Income
Profit from Operations
Financial Charges
PAT
1,458
2,021
1,663
1,812
1,935
16.8
16.8
12.8
12.9
12.7
EPS @324 mn Shares
PKR
4.5
6.2
5.1
5.6
6.0
DPS @324 mn Shares
PKR
6.2
1.5
3.0
3.0
3.0
Net Margin

(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Total Shareholders' Equity
5,523
6,509
5,365
6,198
7,063

Long Term Loan
9,586
7,714
6,730
5,444
3,956
9,586
7,714
6,730
5,444
3,956
882
1,961
3,248
3,483
3,855
Current Liabilities
Short term borrowings
3,923
4,806
7,313
7,859
8,663
19,033
19,029
19,274
19,368
19,548
Assets
Non Current Assets
15,337
14,329
14,166
13,946
13,575
3,696
4,699
5,108
5,422
5,973
19,033
19,029
19,274
19,368
19,548
Current Assets
Total Assets
CY13A
CY14A
CY15E
CY16F
CY17F
ROE
26.4
33.6
28.0
31.3
29.2
ROA
7.7
10.6
8.7
9.4
9.9
Coverage Ratio
4.1
4.5
3.1
3.4
3.6
Debt to Equity
2.1
1.7
2.1
1.7
1.4
Debt to Assets
0.6
0.6
0.6
0.5
0.5
Dividend Yield
17.2
4.2
8.4
8.4
8.4
P/E
8.0
5.7
7.0
6.4
6.0
P/B
2.1
1.8
2.2
1.9
1.6
Fertilizer Sector
Page 32
Fertilizer Sector
November 18, 2015
Engro Eximp Agri Product Pvt Limited

EEAP is engaged in procurement, processing & sale of Basmati rice & owns the largest
integrated rice processing plant in the country. The restructuring of the company is
ongoing and the company subsequently has booked impairment against rice processing
plant of PKR 2.138bn in CY15 while the net book value of the rice plant now stands at
~PKR 2.3bn. The company has already explored its B2B side and plans to now redirect
its focus to the B2C side in the rice segment. The outlook depends upon several factors
most importantly the ability to cater retail segment. The company has launched
packaged wheat under the brand name Onaaj and expects a good response from the
market. Similar strategy would be opted for rice branding going forward.
Engro Vopak Terminal Limited

Engro Vopak Terminal Limited (EVTL) is a 50:50 joint venture between Engro and
Royal Vopak (Netherlands). Major clients include Lotte Chemicals Pakistan
(LOTCHEM), ICI Pakistan (ICI), Akzonobel Pakistan (AKZO) which imports PX, MEG,
Ethylene and others. LOTECHEM is one of the biggest clients of VOPAK. We have
valued the company using DDM and our target price works out to be PKR 3/share
based on ENGROs stake in the company and contributes 1% to our SoTP valuation of
ENGRO.
Exhibit: Major Customers
Akzo Noble
Jamshoro Joint Venture Ltd.
Lotte Chemicals Pakistan Ltd.
Aftab Traders
Engro Polymers and Chemicals Ltd.
SHV
Fauji Fertilizer Bin Qasim Ltd.

Source: Company Website, AHL Research
Engro Elengy Terminal Limited

Elengy Terminal Pakistan Limited, won the GOPs tender for Fast Track LNG back in
Nov-2013. Accordingly, Engro setup a re-gasification facility and will handle LNG on
tolling basis for 15 years. As per the agreement the volume of gas will be 200mmcd for
1st year while for the remaining 14 years it will be 400mmcfd. However, the maximum
handling capacity is around 600mmcfd. It is important to mention here that, as per the
agreement if govt wont be able to import LNG, the company would receive amount of
USD 272k per day. We value the company using FCFF and our target price is PKR
7.4/share on ENGROs no. of shares and has 2% contribution in ENGROs target price.
Fertilizer Sector
Page 33
Fertilizer Sector
November 18, 2015
Fauji Fertilizer Company

Attractive yields plus gas advantage makes FFC the safest bet!
FFC remained the biggest player in urea market in terms of offtake making it the safest
bet in the fertilizer sector while peers were challenged with gas curtailment in CY15.
This was possible due to secure gas supply from Maris gas network, which faced least
gas curtailment (~12%-15%). FFC continued to be the market leader in urea sales, as
the company catered to 43% and 41% of total urea off-take for CY14 and 9MCY15
respectively. Together with its core business, the company is diversifying its investment
base into 1) Alternate energy, 2) Financial services, 3) Food business, and 4) more
recently setting up an offshore fertilizer plant in Tanzania which is in the initial stages.
CY13A
CY14A
CY15E
CY16F
CY17F
EPS
PKR
15.8
14.3
13.6
14.1
14.5
DPS
PKR
15.4
13.7
12.0
13.0
13.0
P/E
7.7
8.6
9.0
8.7
8.4
P/B
6.2
6.0
5.6
5.3
5.0
Dividend Yield
12.5
11.1
9.8
10.6
10.6
Functioning position
Capacity utilization of the company was optimal in CY14 / 9MCY15, and was recorded
at 117% / 118%. The operational performance is expected to maintain the same level
going forward with the utilization hovering around 118% in CY16. Top-line of the
company is expected to grow at 5-year CAGR of 2% amid better production coupled
with 2.5% expansion in urea prices subject to 5% gas price hike assumed in our
valuations.
Price reduction could be tricky!
The companys earnings are highly sensitive to fluctuations in urea prices due to its full
exposure and dependency on urea. Our sensitivity analysis suggests that every PKR
50/bag change in urea price would lead to earnings impact of PKR 1.11/share (7.8% of
CY16 earnings). However, we do not expect any price cuts in the local urea prices as
the inflated urea prices are on account of gas tariff hike for feed and fuel stock
announced in Sept-15 coupled with prevailing demand-supply gap of ~1mn tons. Urea
price cut can only be expected if govt decides to reverse gas tariff hike.
FFC PA
Recommendation
BUY
Target Price
Current Price
140.7
122.5
Upside (% )
14.9
934
74.9
114,428
1,100
Shares (mn)
Free float (% )
Indices
- MSCI FM, KSE100 Index
Major Shareholders
- Fauji Foundation
3M
6M
12M
-15.1
-11.7
11.9
Avg. Volume (000)
1087.2
1247.7
1652.7
High Price - PKR
143.4
156.7
156.7
Low Price - PKR
121.7
121.7
107.6
Return %
Price Performance
160%
FFC
KSE100
140%
120%
Valuation
Our SoTP based Jun-16 target price for FFC works out to PKR 140.7/share, translating
into an upside potential of 14.9% from the last closing price of PKR 122.5/share.
Besides this sizeable upside potential the stock is trading at CY16F PER of 8.7x and
PEB of 5.3x, while offering lucrative yield of 10.6% for CY16F against 1-year T-bill yield
100%
80%
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Diversification at top notch

With the successful transaction of 28% stake acquisition in Askari Bank Ltd (AKBL),
Fauji Foundation and Fauji Fertilizer Bin Qasim back in Sept-13, the company has
started reaping profit with CY14 dividend income of PKR 702mn (EPS impact of PKR
0.55 for FFC). Going forward, we believe that AKBL will maintain its dividend payout
ratio and will distribute PKR 2/share in CY15 and PKR 2.5/share in CY16. The dividend
income does not stop here as FFCs venture into wind power business with FFC Energy
Limited CoD in May-13 will start to pay dividend in CY15. The business posted profit
after tax of PKR 735mn in CY14 with annual electricity production of 142GWh and
average plant availability of 99%. Assuming payout ratio of 90%, we believe that the
annual contribution in FFC would be PKR 662mn (pre-tax FFC EPS PKR 0.52/share) in
CY16F.
Source: Bloomberg
Analyst:
Tahir Abbas
D:+92 21 3246 2589
UAN: +92 21 111 245 111, Ext: 248
F:+92 21 3242 0742
Fertilizer Sector
Page 34
Fertilizer Sector
November 18, 2015
of 6.3% thus forming a strong case of yield play alongside with diversified base into
fertilizer, foods, alternate energy and financial services sectors.
Key Risks
These factors largely based on industry risk include 1) Intervention by govt in setting
prices for the fertilizer sector 2) Significant reduction in Intl urea prices 3) Increased
GIDC 4) Lower demand stemming from the food business.
Fertilizer Sector
Page 35
Fertilizer Sector
November 18, 2015
Focus Charts
CY17F
CY16F
CY15E
CY14A
15.5
Exhibit: Recovering PATs ahead, with stable NMs
DPS
15.4
(%)
Payout Ratio (RHS)
99.0
97.0
15.0
95.0
13.7
14.0
13.0
13.0
93.0
12.0
91.0
12.0
89.0
CY15E
Exhibit: Gross, EBITDA and Net Margins to remain strong

Gross Margins
EBITDA Margins
20.1
20.0
18.2
18.0
17.9
18.5
17.3
16.0
Net Margins
(PKR bn)
Sales
85.0
Gross Margins (RHS)
CY17F
CY16F
CY15E
CY14A
22.0
CY17F
CY16F
CY15E
CY14A
Interest Expense
1.3
1.0
0.8
1.2

1.0
0.8
0.8
0.5
0.5
0.3
-
(x)
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
CY17F
26.0
(PKR bn)
CY16F
29.4
28.0
(x)
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
CY15E
31.3
CY13A
70.0
CY14A
34.0
25.2
77.4
(%)
49.0
47.0
45.0
43.0
41.0
39.0
37.0
35.0
Exhibit: Lower interest expenses amid falling debt quantum
Equity
30.0
79.7
74.5
CY13A
CY17F
CY16F
CY15E
CY14A
75.0
82.1
81.2
80.0
(PKR bn)
(%)
28.0
27.0
26.0
25.0
24.0
23.0
22.0
21.0
20.0
Exhibit: Sales & Gross Margins
Exhibit: Lower Debt-to-equity ratio
26.0
Net Margins (RHS)
90.0
CY13A
(%)
50.0
45.0
40.0
35.0
30.0
25.0
20.0
PAT
22.0
CY17F
85.0
CY16F
10.0
CY14A
87.0
CY13A
11.0
(PKR bn)
CY13A
16.0
14.1
13.6
CY17F
(PKR)
14.3
CY16F
Exhibit: DPS & Payouts
15.8
CY15E
CY13A
70.0
DPS
CY17F
77.4
74.5
EPS
16.4
CY16F
79.7
(PKR)
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
CY15E
80.0
75.0
82.1
81.2
(K tons)
2,500
2,450
2,400
2,350
2,300
2,250
2,200
CY14A
85.0
Total Volume (RHS)
CY13A
Net Sales
CY13A
(PKR bn)
90.0
Exhibit: Continues to maintain high payouts
CY14A
Exhibit: Net Sales and Total Volumes
Fertilizer Sector
Page 36
Fertilizer Sector
November 18, 2015
Financials
(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Net Sales
74,481
81,240
77,415
79,737
82,129
34,532
31,103
30,564
31,376
32,299
46.4
38.3
39.5
39.3
39.3
Gross Profit
Gross Margins
EBITDA Margins
42.6
35.4
37.0
36.9
36.4
Operating Profit
25,807
22,369
21,377
21,561
21,815
Other Income
28,365
24,672
23,586
23,862
24,159
756
849
1,209
976
478
20,135
27.0
15.8
15.4
18,171
22.4
14.3
13.7
17,317
22.4
13.6
12.0
17,948
22.5
14.1
13.0
18,460
22.5
14.5
13.0

(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Financial Charges
Profit after Tax
Net Margins
EPS @1,272 mn Shares
DPS @1,272 mn Shares
%
PKR
PKR
25,151
25,959
28,013
29,425
31,349

Long Term Loan
4,280
2,500
1,150
425
8,358
6,293
4,677
3,705
3,051
Current Liabilities
21,854
24,916
25,626
26,386
27,014
34,319
39,564
39,676
40,493
41,535
67,829
71,816
72,366
73,624
75,935
Assets
Non Current Assets
41,502
40,915
41,815
42,607
43,290
Current Assets
26,328
30,901
30,550
31,017
32,645
Total Assets
67,829
71,816
72,366
73,624
75,935

CY13A
CY14A
CY15E
CY16F
CY17F
ROE
106.8
71.1
64.2
62.5
60.7
ROA
37.1
26.0
24.0
24.6
24.7
Coverage Ratio
34.1
26.3
17.7
22.1
45.6
Debt to Equity
1.7
1.8
1.6
1.5
1.4
Debt to Assets
0.6
0.6
0.6
0.6
0.6
Dividend Yield
12.5
11.1
9.8
10.6
10.6
P/E
7.7
8.6
9.0
8.7
8.4
P/B
6.2
6.0
5.6
5.3
5.0
Fertilizer Sector
Page 37
Fertilizer Sector
November 18, 2015
Fauji Fertilizer Bin Qasim Limited

Core business plus new ventures adding to companys profitability!
Fauji Fertilizer Bin Qasim (FFBL) is the sole producer of DAP in the country having
annual capacity of 650k tons in addition to installed urea capacity of 500k tons.
Operating on the Sui Southern Gas Company (SSGC) network, the company faces an
annual gas shortage of ~45-48%. Like its parent company, FFC, FFBL also has a
diversified investment base in 1) Alternate energy, 2) Financial services, 3) Meat
business, and 4) Coal power plant. We project earnings to grow at 5-year CAGR of 7%
going forward backed by 1) Higher DAP offtake, 2) expected recovery in DAP margins
due to subsidy announcement, and 3) stable local DAP prices.
CY13A
CY14A
CY15E
CY16F
CY17F
EPS
PKR
6.2
4.3
3.9
4.9
5.7
DPS
P/E
PKR
x
5.0
9.2
4.0
13.2
3.0
14.6
4.0
11.6
5.0
10.0
P/B
4.1
4.1
3.8
3.6
3.5
Dividend Yield
8.8
7.0
5.3
7.0
8.8
Operational overview
FFBL is facing 45% annual gas curtailment on SSGC network, due to which the
companys urea production and sales declined significantly by 15% and 6% YoY,
respectively, in CY14. In CY15, we expect gas curtailment to remain at the mentioned
levels. To address the curtailment problem the company is in process of setting up
118MW coal based power plant which is expected to be operational by the end of
CY17, eventually allowing the company to divert its fuel stock gas for usage as feed
stock.
Upward sticky DAP primary margins!
Primary margins of DAP are expected to remain on the dull side, as we have already
seen the increasing trend in the intl phosphoric acid prices since Apr-14. During
CY15TD the phos acid prices surged 11% while the local DAP prices were sluggish
with average prices dropping by 1% YoY. As a result, DAP primary margins for
9MCY15 clocked in at USD 257/ton, down 9% YoY as compared to USD 283/ton in the
SPLY. However, the introduction of subsidy on phosphate fertilizer amounting to PKR
20bn (PKR 500/bag for DAP) will help the company to offload its excess inventory in
4QCY15.
FFBL PA
Recommendation
BUY
Target Price
65.0
Current Price
56.8
Upside (% )
14.3
Shares (mn)
Free float (% )
934
35.0
53,095
511
Indices
- KSE100 Index
Major Shareholders
- Fauji Fertilizer Co. Limited
Return %
Avg. Volume (000)
3M
6M
12M
-7.9
20.8
46.5
4,112.0 5,219.4 4,430.5
High Price - PKR
65.3
65.3
65.3
Low Price - PKR
56.5
47.1
38.8
Price Performance
190%
FFBL
KSE100
160%
130%
100%
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
70%
Broadening investment base

The companys stake in AKBL stood at 21.57%, contributing around PKR 0.81/share
and PKR 0.74/share to earnings in CY15 and CY16 respectively, we estimate. Impact
of Fauji Meat Limited is expected to add PKR 7.2/share in our valuations and PKR
0.70/share in CY16 earnings. Going forward, FFBL Power Limited which is setting up
118MW coal power plant, out of which ~52MW would be set aside for Karachi Electric
Limited (KEL) for which MoU has already been signed further augments our investment
case. The said mechanism is also set to save ~10mmcfd of fuel gas which will be used
in producing ~125k tons of urea. Our initial estimate suggests that the project would
have an earnings impact of PKR 1.26/share starting from CY18. The company also has
a 35% stake in Foundation Wind Energy I-II which will bring in an additional PKR
0.50/share in CY16.
Source: Bloomberg
Analyst:
Tahir Abbas
D:+92 21 3246 2589
UAN: +92 21 111 245 111, Ext: 248
F:+92 21 3242 0742
Fertilizer Sector
Page 38
Fertilizer Sector
November 18, 2015
Valuation
Our SoTP based Jun-16 target price for FFBL works out to PKR 65.0/share, translating
into an upside potential of 14.3% from the last closing price of PKR 56.8/share. The
stock is currently trading at CY16F PER of 11.6x and PB of 3.6x while offering dividend
yield of 7.0% for CY16F.
Key Risks
1) Further delay in the Meat business, 2) Impediments in setting up 118MW coal power
plant, 3) Intervention by govt in setting up prices for the fertilizer sector, 4) Unfavorable
Dap primary margins, 5) Drastic reduction in Intl urea prices (highly unlikely), and 6)
Increased GIDC.
Fertilizer Sector
Page 39
Fertilizer Sector
November 18, 2015
Focus Charts
Exhibit: Higher net sales amid stable volumes
Total Volume (RHS) (K tons)
972
3.5
956
2.5
CY17F
CY16F
CY15E
CY14A
Exhibit: Rich payouts persist
Exhibit: Rising PAT and increased Net Margins

(%)
95.0
5.0
5.0
(PKR bn)
6.0
90.0
4.0
4.0
4.0
30.0
10.0
9.0
3.6
8.0
7.0
70.0
2.0
6.0
CY13A
75.0
CY17F
CY16F
CY15E
CY14A
CY13A
Gross Margins
Net Margins
Exhibit: Sales to depict rising trend

EBITDA Margins
Sales
(PKR bn)
70.0
Gross Margins
64.6
25.0
60.5
20.0
60.0
15.0
10.0
56.7
54.5
49.4
50.0
5.0
13.9
12.8
13.1
12.0
CY17F
CY16F
CY15E
CY14A
10.0
CY13A
CY17F
CY16F
CY15E
30.0
28.0
26.0
24.0
22.0
20.0
18.0
16.0
(x)
2.7
1.8
1.8
1.5
1.5
2.3
1.5
1.4
1.3
1.9
1.3
1.0
1.5
CY17F
14.0
14.7
15.4
2.9
2.7
2.5
2.3
2.1
1.9
1.7
1.5
Interest Expense
(PKR bn)
2.0
CY16F
16.0
(x)
CY15E
CY14A
Equity
(%)
Exhibit: Falling interest expenses
CY13A
Exhibit: Debt to equity ratio on decline
CY14A
CY13A
CY17F
CY16F
CY15E
CY14A
40.0
CY13A
(PKR bn)
18.0
(%)
11.0
3.0
Exhibit: Strong Gross, EBITDA and Net Margins

(%)
5.3
4.6
4.0
80.0
2.5
Net Margins (RHS)
5.0
85.0
3.0
PAT
5.8
CY17F
Payout Ratio (RHS)
CY16F
DPS
CY15E
CY13A
952
CY15E
52.1
3.5
3.9
960
54.1
4.5
4.3
4.5
56.7
50.0
(PKR)
5.5
4.9
964
CY13A
55.0
5.5
CY14A
60.0
DPS
5.7
968
60.5
EPS
6.2
CY17F
64.6
65.0
(PKR)
6.5
CY16F
Net Sales
70.0
CY14A
(PKR bn)
Exhibit: Higher earnings to lead to higher dividends
Fertilizer Sector
Page 40
Fertilizer Sector
November 18, 2015
Financials
(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
Net Sales
54,455
49,445
56,661
60,500
64,629
Gross Profit
14,513
11,092
11,070
12,073
13,270
Gross Margins
26.7
22.4
19.5
20.0
20.5
EBITDA Margins
18.5
14.3
12.8
13.3
13.7
10,012
6,460
6,033
6,713
7,569
681
1,063
1,676
1,850
1,907
Financial Charges
1,515
1,313
1,781
1,497
1,377
Profit after Tax

Net Margins
EPS
DPS
5,798
10.6
6.2
5.0
4,016
8.1
4.3
4.0
3,636
6.4
3.9
3.0
4,576
7.6
4.9
4.0
5,309
8.2
5.7
5.0

(PKR mn)
CY13A
CY14A
CY15E
CY16F
CY17F
12,843
13,072
13,905
14,745
15,384
Operating Profit
Other Income
%
PKR
PKR

Long Term Loan
584
4,042
13,277
11,181
8,377
5,574
Current Liabilities
8,381
13,860
10,934
12,098
13,344
19,335
19,900
24,549
27,074
28,994
36,220
46,249
49,636
50,196
49,951
Assets
Non Current Assets
22,060
24,412
23,956
24,528
25,274
Current Assets
14,160
21,837
25,680
25,668
24,678
Total Assets
36,220
46,249
49,636
50,196
49,951
CY13A
CY14A
CY15E
CY16F
CY17F

ROE
45.7
31.0
27.0
31.9
35.2
ROA
15.1
9.7
7.6
9.2
10.6
Coverage Ratio
6.6
4.9
3.4
4.5
5.5
Debt to Equity
1.8
2.5
2.6
2.4
2.2
Debt to Assets
0.6
0.7
0.7
0.7
0.7
Dividend Yield
8.8
7.0
5.3
7.0
8.8
P/E
9.2
13.2
14.6
11.6
10.0
P/B
4.1
4.1
3.8
3.6
3.5
Fertilizer Sector
Page 41
Fertilizer Sector
November 18, 2015
Analyst Certification: The research analyst(s) is (are) principally responsible for preparation of this report. The views expressed in this research report accurately
reflect the personal views of the analyst(s) about the subject security (ies) or sector (or economy), and no part of the compensation of the research analyst(s) was, is,
or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. In addition, we currently do not
have any interest (financial or otherwise) in the subject security (ies). Furthermore, compensation of the Analyst(s) is not determined nor based on any other
service(s) that AHL is offering. Analyst(s) are not subject to the supervision or control of any employee of AHLs non-research departments, and no personal engaged
in providing non-research services have any influence or control over the compensatory evaluation of the Analyst(s).
Equity Research Ratings

Arif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period as December 2015 for Target Price. In
addition, return excludes all type of taxes. For more details kindly refer the following table;
Rating
Description
BUY
HOLD
SELL
Total return of subject security(ies) is more than +10% from last closing of market price(s)
Total return of subject security(ies) is between -10% and +10% from last closing of market price(s)
Total return of subject security(ies) is less than -10% from last closing of market price(s)
Equity Valuation Methodology

Following valuation technique(s) are used to arrive at the target price of subject security (ies);
Free Cash Flow to Equity (FCFE)
Free Cash Flow to Firm (FCFF)
Dividend Discount Model (DDM)
Sum of the Parts (SoTP)
Risks
The following risks may potentially impact our valuations of subject security (ies);
Market risk
Interest Rate Risk
Exchange Rate (Currency) Risk
Disclaimer: This document has been prepared by Research analysts at Arif Habib Limited (AHL).
This document does not constitute an offer or solicitation for the
purchase or sale of any security. This publication is intended only for distribution to the clients of the Company who are assumed to be reasonably sophisticated
investors that understand the risks involved in investing in equity securities. The information contained herein is based upon publicly available data and sources
believed to be reliable. While every care was taken to ensure accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be
relied on as such. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors. The information given in
this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is
subject to change without any prior notice. AHL reserves the right to make modifications and alterations to this statement as may be required from time to time.
However, AHL is under no obligation to update or keep the information current. AHL is committed to providing independent and transparent recommendation to its
client and would be happy to provide any information in response to specific client queries. Past performance is not necessarily a guide to future performance. This
document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision. The user assumes the entire
risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation
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determine the merits and risks of such investment. AHL or any of its affiliates shall not be in any way responsible for any loss or damage that may be arise to any
person from any inadvertent error in the information contained in this report.
2015 Arif Habib Limited: Corporate Member of the Karachi, Lahore and Islamabad Stock Exchanges. No part of this publication may be copied, reproduced, stored
or disseminated in any form or by any means without the prior written consent of Arif Habib Limited.
Fertilizer Sector
Page 42
Fertilizer Sector
November 18, 2015
Contact Information
Shahid Ali Habib
Chief Executive Officer
shahid.habib@arifhabibltd.com
+92 -21-3240-1930
Shahbaz Ashraf, CFA
Head of Research
shahbaz.ashraf@arifhabibltd.com
+92-21-3246-0742
Tahir Abbas
AVP- Senior Investment Analyst
tahir.abbas@arifhabibltd.com
+92-21-3246-2589
Syed Fawad Basir
AVP- Investment Analyst
fawad.basir@arifhabibltd.com
+92-21-3246-2589
Ahmed Lakhani
Investment Analyst
ahmed.lakhani@arifhabibltd.com
+92-21-3246-1106
Rao Aamir Ali
Investment Analyst
amir.rao@arifhabibltd.com
+92-21-3246-0742
Syed Shiraz Zaidi
Investment Analyst
shiraz.zaidi@arifhabibltd.com
+92-21-3246-1106
Waleed Rehmani
Investment Analyst
mt.research@arifhabibltd.com
+92-21-3246-1106
Misha Zahid
Investment Analyst
mt.research@arifhabibltd.com
+92-21-3246-1106
Ovais Shakir
Officer- Database
ovais.shakir@arifhabibltd.com
+92-21-3246-1106
Khurram Schehzad
EVP- Head of Sales
k.shehzad@arifhabibltd.com
+92-21-3246-8285
Azhar Javaid
VP- International Sales
azhar.javaid@arifhabibltd.com
+92-21-3246-8312
Usman Taufiq Ahmed
AVP- International Sales
usman.ta@arifhabibltd.com
+92-21-3246-8285
M. Yousuf Ahmed
SVP- Equity Sales
yousuf.ahmed@arifhabibltd.com
+92-21-3242-7050
Syed Farhan Karim
VP- Equity Sales
farhan.karim@arifhabibltd.com
+92-21-3244-6255
Farhan Mansoori
VP- Equity Sales
farhanmansoori@arifhabibltd.com
+92-21-3242-9644
Afshan Aamir
VP- Equity Sales
afshan.aamir@arifhabibltd.com
+92-21-3244-6256
Atif Raza
VP- Equity Sales
atif.raza@arifhabibltd.com
+92-21-3246-2596
Furqan Aslam
AVP- Equity Sales
furqan.aslam@arifhabibltd.com
+92-21-3240-1932
Research Team
Equities Sales Team
Fertilizer Sector
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Fertilizer Sector

November 18, 2015

Local industry to perform, despite challenges

Exhibit: Financial Snapshot

AHL Universe Performance

UAN: +92 21 111 245 111, Ext: 248

Source: Bloomberg, AHL Research, * Jun-2016

FFBL Core business plus new ventures adding to companys profitability!

FFC Attractive yields plus gas advantage makes it a safe bet!

ENGRO Diversification strategy paying off through deep valuations

Commodity Prices - Boom to Gloom

Source: World Bank Global Economic Prospectus Jun-2015

Demand & Supply Dynamics of Global Harvests

Global Agricultural Prices Outlook

Availability of Nutrients Globally

CY15 - Testing Times for Global Fertilizer Demand and Prices

Downbeat Global Fertilizer Demand Perspective

Exhibit: Global DAP Capacities, Demand & Utilization Rate

Source: IHS, IFA, IFDC, AHL Research

Source: IFA, AHL Research

Long term - FY15-20

Avg. 2012-13 to 2014-15E

Avg. Annual Change

Source: IFA, AHL Research

Steady progression of the global fertilizer supply

Outlook for Fertilizer Prices

Source: IHS, IFA, IFDC, AHL Research

South West Asia

South East Asia

Total Global Production

South West Asia

South East Asia

Source: IFDC, IHS, IFA, Bloomberg, ANDA, FAJ, AHL Research

Key Risks to Fertilizer Outlook

Pakistan Agriculture Sector

Goth Macchi, Punjab and Ghotki, Sindh

Bin Qasim, Sindh

Rahimyar khan, Punjab

Mianwali, Punjab and Haripur, KPK

Total Urea Capacity

Operational Urea Capacity

Total Capacity Utilization

Source: AHL Research

Local Fertilizer Industry

Source: NFDC, AHL Research

Fertilizer policy 2001 overview

Exhibit: Production Index of Important Crops

Exhibit: Fertilizer usage vs Production of important Crops

Source: PBS, AHL Research

Fertilizer usage %age of total

(Production 000 tons)

*Production is in thousand bales of 375 lbs. each

Source: PBS, AHL Research

Exhibit: Production of Important Crops

Source: PBS, AHL Research

Exhibit: Total Cultivated Area

Source: PBS, AHL Research

Source: PBS, AHL Research

Source: PBS, AHL Research

Crop Support prices to play a vital role

Cotton Seed (Phutti)**

Source: PBS, AHL Research, *Average **B-557, 149-F, NIAB-78

Supply constraints depleting gas reserves