Engro

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INTRODUCTION
1.1 AGRICULTURE
Pakistan is an agricultural country. In the past decades, Pakistan has progressed
from a purely agriculture based economy to a relatively balanced economy
dependent on services and other commodity producing sectors as well. Although
agriculture continues to perform an important role in the overall GDP, however in
recent times it has been outpaced by rapid growth in non agricultural sectors.
Share of agriculture output to overall GDP stood at 21% to total GDP in FY08
employing 44 percent of the workforce, whereas industrial sector contributed about
26%. As per experts estimation the share of agriculture cannot go down further, as
many industrial sector such textile, sugar and fertilizer are also depend on
agriculture. These industries provide input, as well as derived input from agriculture.
However, in the future, the share of agriculture in overall GDP is estimated to start
rising henceforth as the population demand for food rises.
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1.2 ECONOMIC ENVIRONMENT
Fertilizer consumption world wide is highly correlated with macroeconomic growth of
the country. Likewise, Pakistan has witnessed robust economic growth in the last
few years. The country’s GDP has grown at a CAVR of 7.55% over the past 3 years
and future prospects are positive. The strong economic performance has been
accompanied by an increase in agriculture growth, per acre yield and resultant
demand. Pakistan’s agriculture output has suffered in the recent past due to adverse
weather conditions and crop spoilage. The government is committed to improve
agriculture performance through the following measures:
i. Irrigation system improvement

ii. Subsidy to farmer
iii. Encouraging use of fertilizer
iv. Above average credit disbursement
As a result of these policies, yield per hectare of Pakistan is showing gradual
improvement although it is low as compared to the other countries. Currently it
stands at 1.44tn per hectare.
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The low yield can be explained in a large part by the low fertilizer use in Pakistan.
Fertilizer consumption in Pakistan stands at 162.5kg/hectare.
The fertilizer policy aimed at providing low cost fertilizers to the farmer so as to
enable them to improve yields. It encourages manufacturers to invest in the country
and subsidizes their most important feed stock gas rates. In the future these
measures are expected to results in great use of fertilizers and thereby create
demand for it.
Generally, fertilizer consumption closely follows production in a country subject to
the availability of raw materials and also because of the relation between fertilizers
consumption and economic growth.
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1.3 WORLD FERTILIZER SITUATION
1.3.1 CONSUMPTION AND PRODUCTION
World fertilizer consumption increased exponentially in the period of 1950_1990.
This growth was spurred by the rise in food demand by the burgeoning world
population. Attaining higher production given the same amount of land can be done
through three ways:
i. Turning more land into arable land through better irrigation
ii. Using High Yielding Seeds (HYS)
iii. Using fertilizers to improve soil content
Improvement in soil content is the most convenient and frequently followed method.
Moreover, it has gained widespread use as food demand rises.
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The exponential growth in world fertilizer consumption experienced a brief downturn
in the early 1990’s due to the collapse of fertilizer consumption in the countries of
central Europe and the Former Soviet Union, following structural changes and
economic problems. However, post that brief downturn, growth in fertilizer
consumption is again on the rise and rapid growth is expected to continue in the
future.
According to the IFA estimates, world fertilizer consumption is expected reach
163.7mntpa in 2011 from 143.3mntpa in 2007.
A Sharpe shift in actual consumers of fertilizer has also occurred over the period in
view. From a 12:88 ratio of developing : developed nations’ consumption in early
1960’s has now become 65:35.
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Interestingly, over a third of the world’s total production is in just two countries
namely China and India. Hence, Production of fertilizers becomes concentrated in
countries, who are also the users.
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Another factor that determines location of production is resources availability. The
most common feedstock used across the world is natural gas and availability of
natural gas reserves, therefore, facilities production.
Because of the relative location of producing and consuming countries, large
quantities of fertilizer materials are shipped internationally. As a proportion of world’s
dry bulk trade, only coal, iron ore and grain exceed trade of fertilizers and their raw
material.
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1.3.2 OUTLOOK
The international Fertilizer Association (IFA) produces forecast of world fertilizer
usage and production. Following estimates are taken from IFA:
Till the year 2030, the increasing world population and higher standards of living in
developing countries will demand a substantial increase in global cereal production.
Problem in supply-demand are likely to occur because agricultural production in
developing countries is not keeping pace with this increase in demand.
The increase in demand can be met through increase in cultivated area; however,
this appears only as a possibility in Africa and Latin America. In most other parts of
the world the increase in demand must be met through greater yield, which will most
certainly require increased use of fertilizers.
Growth in production is expected to outpace fertilizer consumption. According to IFA
estimates world urea supply is expected to reach 178.8mntpa in 2011 from
145.2mntpa in 2008.Most of the forecasted increase in fertilizer capacity is expected
to arise from China and Saudi Arabia.
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1.4 PAKISTAN FERTILIZER INDUSTRY
Pakistan’s economy is agro-based; however our cultivable land is deficient in
nutrient contents. This deficiency can only be overcome through the balanced use of
fertilizer. Presently, there are ten manufacturing units in Pakistan. Out of these, four
units are located in the public sector and six are operating in the private sector. The
province-wise distribution of units confirms that 5 units are located in Punjab, 3 in
Sindh and 2 in the NWFP.
Fertilizer production is concentrated in nitrogenous fertilizers, which comprises 85%
of all fertilizers produced in the country. Although other types of fertilizers are also
produced in Pakistan, the bulk of whose demand is imported. The main reason for
this concentration on nitrogenous fertilizers is that its main raw material i.e. natural
gas is cheaply available in the country. The raw material for other fertilizers such as
potassium and phosphate has to be imported. The local fertilizer companies meet
almost 80% of Pakistan’s Fertilizer requirement. The total installed capacity is over
5,124 million tones /annum. It mainly comprises of 4,180 million tones for urea and
remaining for NP, DAP, CAN and SSP.
20%
80%
Local Manufacture Import
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1.4.1 FERTILIZER INDUSTRY BRIEF
PARTICULARS DESCRIPTIONS
Sector Fertilizer Industry

Expansion stage
Sector Life Cycle
Type of Industry Growth Industry

Growth rate 24.29%
Fertilizer industry is fast growing industry, being aided by
Government of Pakistan, as it is associated with agriculture.
Pakistan, being an agriculture country will have to support
Historical Performance all industries which are directly related to Agriculture to
ensure maximum benefits as well as maximum production.
Current the sector is growing with almost 35% rate.
• Dawood Hercules Company Ltd,

• Fauji Fertilizers Company Ltd,
Market Player
• Fauji Fertilizers Bin Qasim Company Ltd,
• Engro Chemicals Pakistan Ltd,
Supplier (Row material), Consumer (Less purchasing power)
Threats
Inflation rate, Interest rate, Environmental problems,

Risks & mitigation
Political instability
• Overall profitability of fertilizer sector increased 45%
Financial Indicators • Increased in fertilizer demand by 18%
• Fertilizer sector is the 2nd largest consumer of gas
1.4.2 MARKET DYNAMICS
1.4.2.1 Demand – Supply situation
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The fertilizer industry in Pakistan has an oligopoly structure. The product I
differentiated and there are 10 firms in the industry. Four of them are listed and other
is unlisted. The entry or exit of a single player can affect pricing. There is no single
dominant industry leader. The four largest firms are deemed to be price setters.
These include
i. Fauji Fertilizers Company Limited
ii. Engro Chemical Pakistan Limited
iii. Fauji Fertilizers Bin Qasim Limited
iv. Dawood Hercules Company Limited
However, government regulations and subsidies to farmers prevent these firms from
exploiting their market power to arrange price setting agreement.
The current situation in the industry is one of excess demand. Currently, domestic
supply capacity is 5.8mntpa (million tones per annum) and demand is 6.8mntpa.
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Overall industry capacity has shown a CAGR of 5.5% from CY90 to Cy07 whereas
sales have shown a CAGR of 5.3% from CY90 to CY07 i.e. supply has grown faster
that demand. Given the same pace, the situation is expected to reverse in the
Pakistan (TCP), which imports foreign fertilizer that it sells on to domestic producers
and distributors at a subsidized rate. TCP only imports urea and local manufacturers
themselves and they earn good margins on it especially when international
phosphate prices rise and local importers have significant amount of DAP inventory
on hand.
1.4.2.2 Market Player
The table below show industry concentrated measures. The 4 firm’s concentration
ratio, which is the sum of the market shares of the four largest producers, is 94.5%.
The market is dominated y the four largest firms. Entry by a new firm is unlikely to
significantly decrease concentration. Also mergers and acquisitions are unlikely in
the industry, therefore, it is expected that manufacturers will grow through
expansion.
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1.4.3 Industry Outlook
Presently, industry capacity stands at 5.8mntpa.Domestic demand is
6.8mntpa.Fertilizer demand is expected to grow at a CAGR of 5.25% from 2007 to
2012.
As for capacity, the three major players have planned following capacity expansion
plans. These, as well as others, will take overall industry capacity to 7.5mntpa in the
year 2010 at which time Pakistan’s fertilizer industry will face excess supply
situation.
Exports may become possible if such a situation arises, which will have special
implication for fertilizers industry.
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COMPANY PROFILE
Company Name Engro Chemical Pakistan Limited
Nature of Business Manufacturing & Marketing
Share in Market 20% (2nd largest)
Date of Formation 1965
• Food
• Fertilizer
• PVC Resin
Product Portfolio
• Power Generation
• Industry Automation
• Chemical handling & Storage
• Lahore Stock Exchange
Listed • Karachi Stock Exchange
• Islamabad Stock Exchange
7 & 8th Floor, The Harbor Front Building,
th
Registered Office HC # 3,Marine Drive, Block 4,Clifton,
Karachi – 75600, Pakistan.
Chairman Hussain Dawood
Chief Executive Asad Umer
Company Secretary Andlib Alavi
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• Asif Qadir
• Khalid S. Subhani
• Khalid Mansoor
• Ruhail Mohammad
Board of Director
• Isra Ahmad
• Shezada Dawood
• Shabbir Hashmi
• Arshad Nasar
Auditor KPMG Taseer Hadi & Co. Charted Accountants
• ABN AMRO Bank N.V.
• Allied Bank Limited
• Askari Commercial Bank
• Bank Al-Habib
• Bank Al-Falah
• Bank of Tokyo
• Citibank N.A.
• Crescent Commercial Bank
• Faysal Bank Limited
Banks • Habib bank Limited
• Habib Metropolitan Bank Limited
• The Hong Kong and Shanghai Banking
• Corporation Limited
• Meezan Bank Limited
• MCB Bank Limited
• National Bank of Pakistan
• Standard Chartered Bank
• United Bank Limited
• JS Bank Limited
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1.4.4 ENGRO CHEMICAL PAKISTAN LIMITED
Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in
Pakistan. A premier fertilizer manufacturing and marketing Company with specific
product line that focuses on balanced crop nutrition and increased yield for the
farmer.
Its production is based in Daharki, Sindh and Karachi. It is included in the KSE 100
stock index at the Karachi Stock Exchange and also listed on the Lahore and
Islamabad Stock exchanges.
1.4.5 HISTORY
The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan
Limited until 1991, when Exxon decided to divest their fertilizer business on a global
basis and sold off its equity of 75% shares in Company.
The Employees of Engro, in partnership with leading international and local financial
institutions bought out Exxon’s equity and the company was renamed as Engro
Chemical Pakistan Limited.
Engro accomplished significant progress not only in its base urea fertilizer business
but also in diversification projects.
1.4.6 VISION
“To be the premier Pakistani enterprise with a global reach, passionately pursuing
value creation for all stakeholders”
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1.4.7 CORE VALUES
According to Engro Chemical Pakistan Limited
“Our employees’ performance can only flourish in a sound work environment. That is
why ENGRO is committed to supporting its leadership culture through systems and
policies that foster open communication, maintain employee and partner privacy,
and assure employee health and safety.”
Focus toward
• Safety, health & environment
• Ethics and integrity
• Leadership
• Quality &continuous improvement
• Enthusiastic pursuit of profit
• External & community involvement
• Candid & open communications
• Enjoyment & fun
• Innovation
• Individual growth & development
• Teamwork & partnership
• Diversity & international focus
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1.5 BUSINESS
The Company is engaged in the manufacturing and marketing fertilizer with product
line that focuses on balanced crop nutrition. The Company also owns joint
venture/subsidiaries, which are engaged in chemical terminal & storage, polyvinyl
chloride (PVC) resin manufacturing and marketing, control and automation, food and
energy businesses.
1.5.1 ENGRO CHEMICAL PAKISTAN LIMITED (ECPL)
The Company’s current manufacturing base includes urea name plate capacity of
975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per
year. A premier brand and nationwide presence ensure sellout production.
Additionally, the company imports and sells phosphates fertilizers for balanced
fertility and improved farm yields. Engro’s share of Pakistan’s phosphates market
mirrors or exceeds its urea market share.
Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at
Daharki. The US$ 1 billion project is well underway and on track for commercial
production in mid 2010. This addition will increase Engro’s urea market share to
35% from 19% at present.
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1.5.2 ENGRO VOPAK TERMINAL LIMITED (EVTL)
50:50 Joint Ventures with Royal Vopak - a Netherlands based global leader in
terminal operations. EVTL operates a bulk liquid chemical terminal at Port Qasim,
Karachi. It has an impeccable safety record of handling a range of chemicals and
LPG for over 10 years.
EVTL is building Pakistan’s first cryogenic Ethylene storage facility and expects to
be ready by early 2009. Given its experience with gasses, cryogenics, a brown field
location and international operating standards, EVTL is well-positioned to build a
LNG terminal, being pursued by the Government of Pakistan.
1.5.3 ENGRO POLYMER AND CHEMICALS LIMITED
(EPCL)
Also at Port Qasim, this 56% Engro owned Company is involved in manufacturing,
marketing and selling Polyvinyl Chloride (PVC).
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EPCL is undergoing expansion involving PVC production increase of 50,000 tones
(current capacity: 100,000 tons p.a) and back integration through setting up of an
EDC/VCM plant and a Chlor alkali plant.
1.5.4 AVANCEON (ENGRO INNOVATIVE AUTOMATION PVT.
LTD)
A 63% owned subsidiary of Engro, Avanceon is the leading global automation
business, providing process & control solutions. It also offers Power & Energy
Management software solutions as well as High-End software that integrate
production and business applications.
Previously operating in Pakistan and UAE, they have now penetrated in the USA
market with the merger of ENGRO Innovative and Advance Automation. Advance
Automation is an award winning technology solutions provider to manufacturers in
North American and has been awarded as the System Integrator of the Year 2007
by Control Engineering.
Synchronizing to a single brand worldwide with all the engineering Standards,
processes, brand identity and global brand recognition was a huge task and due to
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various different cultural factors it was even complex then perceived. After months of
hard work AVANCEON emerged as the new name and the true Global Automation
Player. The new company name will help to reinforce the single brand identity that
has emerged over the last 16 months as the two formerly separate companies have
successfully worked to become a single global enterprise.
1.5.5 ENGRO FOODS LIMITED (EFL)
Engro Foods, a wholly owned subsidiary had its first full year of operations in 2007.
The Company continued expanding with additions to brand portfolio, milk production
and distribution capacities.
The portfolio now includes four impressive brands; Olper's milk, Olper’s cream,
Olwell and Tarang. Olper’s market share peaked at 17% during 2007.
EFL operates two dairy processing factories located in Sukkur, and Sahiwal. The
company’s milk collection network now boasts over 700 village milk collectors and
400 milk collection centers.
Covering 2400 villages across Pakistan, the activities of the Company touch the
lives of almost 51,000 farmers.
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An exciting new venture is the diversification of dairy portfolio into ice cream. Work
has commenced full throttle for detailed engineering and market study with a view to
launch of first ice cream in 2009. Also on EFL slate is the establishment of a dairy
farm with milking expected to start in second quarter 2009.
1.5.6 ENGRO ENERGY LIMITED (EEL)
This wholly owned subsidiary is setting up an Independent Power Plant near
Qadirpur in Sindh; Targeting 2009 for commercial operations, the power project will
have a net output of 217 MW.
The plant will utilize low heating value permeate gas from Qadirpur gas field which is
currently being flared.
1.5.7 ENGRO EXIMP (PVT.) LIMITED (EEPL)
Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the trading business of
fertilizer imports.
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INDUSTRY ANALYSIS
2.1 PORTER’S FIVE FORCES
Engro is taken from the company logo "Energy for Growth". Engro Chemical
Pakistan Limited (ECPL) is a Pakistani fertilizer manufacturing and marketing
company is a primary target for an analysis using Michael Porter’s 5-Forces Model
(“5-Forces”).
We have applied the 5-Forces analysis into the respective divisions:
3.1.1 Supplier Power
3.1.2 Barriers to Entry
3.1.3 Threat of Substitutes
3.1.4 Buyer Power and Degree of Rivalry
3.1.5 Competitive rivalry
GRAPHICAL REPRESENTATION
Threat of Entrant
Bargaining Bargaining
Power of Competitive Power of
Supplier Rivalry Buyer
Threat of Substitute
Product
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2.1.1 SUPPLIER POWER
Supplier Power is analyzed though supplier concentration, importance of volume to
supplier, differentiation of inputs, switching costs of firms in the industry, etcetera.
Suppliers are powerful if there are only a few suppliers, a large number of
purchasers, and significant costs of switching suppliers. Supplier power is strongly
buttressed when a supplier has control over prices.
Suppliers in this industry are not concentrated. They act as separate groups
competing for the same project through the bid system that is prevalent in chemical
Industry. Volume is of significant concern. The, large chemical industry is not
affected in terms of supply volume giving suppliers any leverage. The Company’s
current manufacturing base includes urea nameplate capacity of 975,000 tons per
annum and blended fertilizer (NPK) capacity of 160,000 tons per year.
2.1.2 BUYER POWER
Engro Chemical Pakistan Limited (ECPL) A premier brand and nationwide presence
ensure sellout production to Pakistani and international customers, due to flexible
demand delivery and low down payments.
Buyers have power over when they are concentrated, purchase a significant portion
of new production, and pose a credible threat to purchases from competitors.
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2.1.3 BARRIERS TO ENTRY (Threat of Potential Entry)
Identifying the possibility and probability of new entrants in an industry is critical
because they can intrude on market share and profitability of existing competitors.
Economies of scale, product differentiation, capital requirements, switching costs
and government policy all affect the Industry.
The economies of scale realized by Engro make it almost impossible for new
entrants. The governmental red tape that must be overcome in this industry is
paramount to the success of a prospective Fertilizer Company.
Massive ecological and environment surveys must be done before companies can
begin production. The required capital and the ability to work with in the industry
are the two primary barriers to entry to the Market
The government regulates the pricing of natural gas, the most input to the fertilizer
industry. Natural gas is used a fuel and as raw material or feed stick.
Previously the government's policy was to supply fuel gas at rate pegged t high
surplus Fuel oil, while feed stick at lower rates.
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2.1.4 THREAT OF SUBSTITUTES
The threat of substitutes entails a consideration of such things as switching costs,
buyer inclination to substitute and the price-performance trade-off of substitutes.
Most individuals would like to make an investment with the purchase of a particular
product of an organization.
Many organizations do realize that substitutes are there but they must develop such
a product that satisfies their customer. When prices become exorbitantly high,
Companies mainly watch out for a decreased demand.
2.1.5 DEGREE OF COMPETITIVE RIVALRY
The growth rate of the Chemical market is tremendous; however, it is limited in many
respects. The growth for the demand and the production of Urea is enormous. We
believe the growth in the actual number of competitors is merely a related effect of
the costly barriers to entry.
The market is both mature and developing at the same time. The maturity of the
market can be illustrated by the Interventions and helps to carry out a cost benefit
analysis of a policy provided that governments know the tradeoff between efficiency
and non efficiency goals.
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EXTERNAL ENVIIRONMENT
3.1 PEST ANALYSIS
A scan of the external macro-environment in which the firm operates can be
expressed in terms of the following factors:
4.1.1 Political / Legal Factor
4.1.2 Economic Factor
4.1.3 Social Factor
4.1.4 Technological Factor
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a
framework for the analysis of these macro environmental factors.
PEST Analysis Framework
Environmental Scan
/ \
External Analysis Internal Analysis
/ \
Microenvironment Microenvironment
P.E.S.T
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3.1.1 POLITICAL / LEGAL FACTOR
Political factors include government regulations and legal issues and
define both formal and informal rules under which the firms operate. The
rule and regulations that the cement industries follow are as follows:
4.1.1. 1 Employment laws
4.1.1. 2 Tax policies
4.1.1.3 Environment regulations
4.1.1.4 Political stability
3.1.1.1 Employment Laws
The labor policy issued by the Government of Pakistan lays down the parameters for
the growth of trade unionism, the protection of workers' rights, the settlement of
industrial disputes, and the redress of workers' grievances. The policy also provides
for the compliance with international labor standards ratified by Pakistan.
At present, the labor policy as approved in year 2002 is in force. The minimum
wages for unskilled worker is Rs. 2,500. The minimum threshold of income for
taxation of salaried individuals has been enhanced from Rs. 150,000 to 180,000 per
annum.
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3.1.1.2 Tax Policies
According to the tax memorandum 2008, the cement industries have to abide by the
following rules:
o Tax rate is 35%.
o For income years 2003 – 2007 income turn returns have been filled
under self assessment scheme by the company.
o The company confident that all pending issues will be ultimately resolved
without any additional liability.
3.1.1.3 Environment Regulations
At present Pakistan industries follow the Pakistan Environmental Protection Act,
1997. The Pakistan government has now become conscious of the environmental
pollution. It has set some specific laws that all the manufacturing industries have to
follow according to the Pakistan Environmental Protection act, 1997.
Efforts to reduce environmental footprint were vigorously pursed. Environmental
friendly disposal of chromate sludge continued and it is expected that chromate
sludge will be removed in year 2009.
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3.1.1.4 Political Stability
Since the day Pakistan got its independence, political condition of Pakistan is getting
worse day after day and minute after minute. The present situation regarding the
political stability is negative in Pakistan. This political instability has been in process
since the fate full attack of 9/11, 2001. This instability has affected the businesses
adversely. The poor security situation and uncertainty leading up to the
parliamentary elections in February have caused a capital flight from Pakistan, and
its rupee currency has fallen 13% against the US dollar since January 2008.
However, the stepping down of Pervaiz Musharraf as president has shown some
hope for the reviving of the political stability.
According to the survey conducted by IRI (international republican institute), 52% of
the people expected that the things will get better now that there is a new
government but still there are many factors that are prevailing up till now and are the
cause of the unrest.
Moreover, the geographical region where Pakistan is located, having the neighbors
such as India and Afghanistan, and the pertaining international situation regarding
the war against terrorism, not only the direct investors have stepped back even the
investors who have made investments in the country are backing up. The
demonstrations, social unrest, suicidal attacks and terrorist’s attacks on different
areas as well are highest risks to the company’s operations.
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3.1.2 ECONOMIC FACTORS
Economic factors affect the purchasing power of potential customers and the firm’s
cost of capital. Economic factors can not be excluded for operating any business
including fertilizers.
Following are the factors affecting the macro economy:
4.1.2.1 Economic growth
4.1.2.2 Inflation rate
4.1.2.3 Interest rates
4.1.2.4 Exchange rates
3.1.2.1 Economic Growth
The manufacturing sector growth continued 5.73% in 2008-09, which is slightly more
moderate than 5.27% for the year 2007. Economic conditions are not very sound.
The increasing inflation, imposition of new taxes, rising fuel charges and changes in
government economic policies has discouraged investment in fertilizer.
If Pakistan keeps on getting better grants and loans waivers or if any other economy
boosting factor such as controlled inflation rate and economic growth take place, it
will benefit the entire industry.
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3.1.2.2 Interest Rates
The monetary policy of Pakistan is controlled by the state bank of Pakistan. The
state bank, in order to control the inflation has taken measures and tightened up the
monetary policies. Pakistan has raised its main interest rate by 1 percentage point to
13 % to help fight inflation.
3.1.2.3 Exchange Rates
The exchange rates of Pakistan with respect to the U.S. dollar, has declined. The
Pakistani rupee has depreciated since the proclamation of emergency rule in
November 2007. In other words we can say that the value of the rupee has fallen as
the time passed by.
3.1.2.4 Inflation Rate
Inflation is one of these core problems. This thing is really hurting the purchasing
power of Pakistani consumers. The inflation in year 2008 has recorded to be the
highest according to the Federal Bureau of Statistics. Consumer Price jumped to
17.21% in March 2008 according to the statistics given by Federal Bureau of
Statistics. In April 2008, the Pakistan inflation accelerated at it fasted pace and the
inflation is still increasing. The reason behind this is that in April 2008 the food prices
rose 25.5 percent from a year ago and fuel prices climbed 8.6 percent and the
tension among the political leaders.
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3.1.3 SOCIAL FACTORS
Health consciousness among the people of Pakistan has been increasing day by
day. The citizens of Pakistan are getting aware of their duties in order to maintain
the healthy environment. Government is taking several steps in order to educate,
how important it is for the people to live in the healthy environment.
The government discourages the operation of the industries with in the city by
charging these factories with environmental charges. In spite of this discouragement,
there are many factories that are running inside the city, discharging poisonous
gases and chemicals. By the passage of time, the people as well along with the
government are discouraging such activities and demand for clean environment.
During 2008, Engro maintained high health, safety and environment standards.
Company’s occupational health evaluation was carried out by DuPont Safety
Resources consultant, in an endeavor to keep it abreast with the World-Class Safety
Standards; Engro has adopted DuPont’s Safety Management Systems under an
agreement, with the world-renowned DuPont Safety Resources, in 2003
Urea manufacturing site has got ISO 9001:2000 & ISO 14001:2004, OHSAS
18001:1999, & SA 8000:2001 certifications.
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3.1.4 TECHNOLOGICAL FACTORS
Technological factors can lower barriers to entry, reduce minimum efficient
production levels, and influence outsourcing decisions Technological factors can
lower barriers to entry, reduce minimum efficient production levels, and influence
outsourcing decisions.
The Pakistani industries not only have to compete among them selves but with the
international market as well. Pakistan is steadily automating particularly its
manufacturing sectors to stir quality production and ensure skilled management, as
it would ensure a good place for the country in the global competitive market.
According to the report issued by the ministry of technology, the government will
invest in various fiscal and non-fiscal incentives to nurture, develop, and promote the
use of IT in organizations, to increase their efficiency and productivity. The strategies
focus on promotion of venture capital industry through incentives, recognition of
software development as a priority industry for financing by the banks, creation of
investment friendly environment, and building investors’ confidence.
In recent years, technology has been seen to be progressing at very fast rate all
over the world. It has helped to raise income and alleviate poverty in the developing
countries. The change in technology can be seen in the Pakistani industries as well.
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3.2 CONCLUSION
“When the rate of change inside the company is exceeded by the rate of change
outside the company, the end is near.”
(Jack Welch, former Chief Executive Officer of General Electric)
According to the Engro Chemical Pakistan Limited:
The economic condition of Pakistan has strong impact on Engro chemical Pakistan
Limited. As Pakistan inflation rate is entering in galloping inflation rate, so the
company revises its strategies accordingly. As for as Chemical industry is
concerned, there is much competition in political, economical, social and
technological factors especially price competition.
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INTERNAL ENVIRONMENT
4.1 SWOT ANALYSIS
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified
as strengths (S) or weaknesses (W), and those external to the firm can be classified
as opportunities (O) or threats (T). Such an analysis of the strategic environment is
referred to as a SWOT analysis.
The SWOT analysis provides information that is helpful in matching the firm's
resources and capabilities to the competitive environment in which it operates. As
such, it is instrumental in strategy formulation and selection. The following diagram
shows how a SWOT analysis fits into an environmental scan:
SWOT Analysis Framework
Environmental Scan
/ \
Internal Analysis External Analysis
/\ /\
Strengths Weaknesses Opportunities Threats
|
SWOT Matrix
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4.1.1 STRENGTHS
A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths in Engro include:
4.1.1.1 Quality Assurance
Quality is of most importance at any Organization. It is a focus and goal that
permeates every department and technical section of the Firm. The quality process
used addresses the needs of its customers. Through constant monitoring, with a
focus on continuous improvement, ensures that clients are satisfied with the services
they receive.
4.1.1.2 Cost-Effective Approach
Focus also set on designing cost-effective approaches for the delivery of company’s
services.
4.1.1.3 Professional Team
High Quality and Skilled Professionals Dedicated laboratory professionals of
departments and ancillary support staff make the target achievable.
4.1.1.4 Access To Distribution Networks
Engro has a strong distribution network in all over the Pakistan so it can provide
services in everywhere in the country.
43
4.1.1.5 Natural Resources
Engro has new technological devices to seeking and using the natural resources in
the fertilizer industry.
4.1.1.6 Strong Brand Names
Engro has a good brand name in market for their good quality and better services
because it works since 1965 in Pakistan. It has a strong brand image in the farmer’s
mind. It is strength for Engro to compete in the fertilizers industry with other brands
as Fauji Fertilizers and.
4.1.1.7 Good Reputation Among Customers
Because targeted customers of Engro are satisfied with the services provided by the
Company it has a strong brand image in the customer’s mind which create a good
reputation of Engro in customers mind.
4.1.1.8 Cost Advantages
Engro works since 1965 in Pakistan so it has cost advantages from new entrant in
industry because it has more work experience in different situation of fluctuation in
business cycle.
44
4.1.2 WEAKNESSES
The absence of certain strengths may be viewed as a weakness. For example, each
of the following may be considered weaknesses of Engro
• Higher Cost
• Wastage of row material
• Delay in capacity expansion
• Large investment needed for business expansion
• Workers leave the organization after working one year
• Lack of online market facility to access international buyers
• Disputes between Middle level and Lower management
• Relative weak position in fertilizer market as compare to the Fauji fertilizer
• Some pesticides produce by the company may dangerous for human
health.
• Dependence on supply and price of international market raw material and
natural gas
45
4.1.3 OPPORTUNITIES
The external environmental analysis may reveal certain new opportunities for profit
and growth. Some of them are
4.1.3.1 Market Demand
At present the demand for fertilizers in the domestic market is increasing. Engro is
benefiting quite well at present. This has given Engro a golden opportunity to
capture the market with very less competition. The demand of fertilizer outside
Pakistan has been increasing rapidly, providing Engro a good chance to explore
these markets.
4.1.3.2 Attractive Export Avenues
The current excess demand situation has prompted capacity expansions which are
likely to open up profitable export avenues post 2010.Industry supply is expected to
reach 7.5mntpa by 2010 which will be higher than local demand. This surplus is
likely to be exported to the neighboring countries in the excess supply of fertilizer in
the near future.
4.1.3.3 Technology
New technology is an opportunity for the industry. Engro has enough finance to
capture the new technological production system. New technology will affect the
operation of business and production level of the organization in a positive manner.
46
4.1.3.4 Increased Funding by Government
Pakistan’s fertilizer manufacturers have low resource cost to feedstock gas subsidy
advanced by the Government. Through this subsidy manufactures are able to get
feed stock gas at significantly lower rates than the market which improves their
profitability.
Government has decided to increase fertilizer industry funding. This is an
opportunity for ENGRO because previously due to weather conditions, pest attacks
and other reasons there was lots of wastage of crops but now that can be reduced
as industry will be better able to provide fertilizers for longer time periods.
4.1.3.5 Awareness
Government programs and excess demand of fertilizers in Pakistan aware the
farmer in Pakistan. So it is a golden opportunity for firms to provide better services to
potential customers.
4.1.3.6 Second largest Market Share
Engro capture the 21% market share. It is at 2nd position after Fauji fertilizer in
Pakistan. This is an opportunity for ENGRO as there is lot of growth in this part of
the sector.
4.1.3.7 Investment Portfolios
Engro is a dominant player who hold attractive investment portfolio. Engro invests in
various subsidiaries as Engro Food, Power, and Fertilizers etc so Engro has the
opportunity of high risk high reward I n future in the business.
47
4.1.4 THREATS
Changes in the external environmental also may present threats to the firm.
Potential unfavorable conditions for an Engro face such threats
4.1.4.1 Competition
The company is highly vulnerable to price competition since it faces higher cost of
production per bag. The rocketing increase in prices of gas, and even 300 %
increase in the price of coal has been affecting badly to company’s profitability.
Competition may pose a threat because the company will have to maintain its
leadership in an expanding market.
4.1.4.2 Perceptions and Price Differentials
Consumers’ perceptions and price differentials can cause a threat for the company.
It is important that Engro comes up to the expectations of the customers and fulfills
its conformance quality that is the company meets its promised specifications.
4.1.4.3 New Entrants
The fertilizer industry in Pakistan has an oligopoly structure. Products are
differentiated among firms. The entry and exit of a single player can affect pricing.
4.1.4.4 Others
• Environmental problems
• Emergence of substitute products
• New regulations imposed by new Government
48
4.2 SOWT MATRIX
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may
have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm
can overcome a weakness in order to prepare itself to pursue a compelling
opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these
factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is
shown below:
Valuable Strength
Critical Weakness
Fi
r ECPL
m
st
at
u
s
Environmental status
Abundant Critical
Environmental Environmental
Opportunities Threats
49
4.2.1 CONCLUSION
After anglicizing the current Strengths, Weaknesses, Opportunities and Threats the
main results are given as under and a strategy is also recommended here to help
the company to get profit advantages in future:
4.2.1.1 Current Status
As Engro chemical Pakistan Limited has more valuable strength and has more
market opportunities, so that “Growth Strategy” is much more helpful for it. That is
the time to expand its business. Following is an important recommended strategy to
grow up the business.
4.2.1.2 Recommended Strategy
“Expansion strategy” refers to expand the business after collecting information from
broad environment and task factors. Engro Chemical is also currently following this
strategy in order to meet the organizational goal and customers’ need. Engro has to
operate in whole over the country in order to become the market leader. That is the
best suitable strategy to meet the competition.
50
51
BOSTON CONSULTING GROUP MATRIX
5.1 BCG MATRIX
For more effective planning and operations, a multi-business or multi-product
organization should be divided according to its major markets o products. Each such
entity is called a strategic business unit (SBU).
Using this matrix, an organization classified each of such SBU according to the
factor like
i. Market Share
ii. Industry Growth Rate
The BCG matrix is shown below:

High
In
d
u ECPL
Low
st
ry
G
ro
w
th
Market Share 52
High Low
5.1.1 CONCLUSION
Under the light of BCG matrix, I can examine that Engro Chemical Pakistan Ltd is
existing in the category of Question MARK because of low market share 20% and
high business growth rate. In order to be the market leader, Engro Chemical
Pakistan Ltd has to improve its market position.
5.1.2 STRATEGY UNDER BCG MATRIX
This is the exact time for Engro Chemical Pakistan Ltd to grow more rapidly with the
showing of its internal strength to the market to make the market favorable.
Following are the main strategies that will be helpful for Engro Chemical Pakistan
Ltd to get a better market position.
5.1.2.1 Differentiation Strategy
Engro Chemical Pakistan Ltd has to provide good quality products and more values
to its consumers, so that it will be beneficial to become the market leader.
5.1.2.2 Cost Leadership Strategy
Engro Chemical Pakistan Ltd has to consider its cost to improve its profitability ratio.
5.1.2.3 Focused Strategy
Focus strategy refers to the focus on the customer, focus on the target market,
identify them and serve them better.
53
54
6.1 BALANCE SHEET
ENGRO CHEMICAL PAKISTAN LIMITED

Summarized Consolidated Balance Sheet
As at December 31, 2008
(Rs. IN 000)
2004 2005 2006 2007 2008
CURRENT ASSETS
Cash and Bank balances
In Banks
Deposit / Saving accounts 1,349,045 832,445 1,845,726 1,538,937 413,416
Current accounts 175,695 243,520 226,600 199,956 1,374,454
In Hand
Cash 3,333 3,510 4,915 13,069 403,953
Cheqes / Cash in transit 175,712 284,944 370,744 381,025 5,785
CASH AND BANK BALANCES 1,703,785 1,364,419 2,447,985 2,132,987 2,197,608
Short term Investment

Held - to – Maturity
Certificates of Investment 25,000 0 0 0 0
Available - for – Sale
Financial assets at fair value P/L
-Pakistan Special US bonds 686,682 0 0 0 0
-Certificates of investment 25,000 0 0 0 0
-Certificates of deposit 50,000 25,000 0 0 0
-Fixed income / money market funds 102,541 113,016 228,518 10,322,832 2,067,074
SHORT TERM INVESTMENTS 889,223 138,016 228,518 10,322,832 2,067,074
Total Absolute Liquid Assets 2,593,008 1,502,435 2,676,503 12,455,819 4,264,682
Other Receivables including Derivatives

Receivable from Government of Pakistan
Customs duty and sales tax 22,207 22,207 40,402 22,207 22,207
Subsidy 0 0 960,492 1,046,779 3,085,352
Sales tax 0 0 0 0 57,135
Others 13,560 13,560 15,409 13,560 14,174
35,767 35,767 1,016,303 1,082,546 3,178,868
Accrued income on deposit / bonds 10,179 5,857 5,737 33,095 30
Receivable from Pension Funds 5,520 0 73,120 17,629 31,187
Worker's Profit Participation Fund 0 0 3,222 0 0
Sales tax / special excise duty
refundable 2,530 0 93,946 200,052 434,914
Less: Provision for doubtful receivable 0 0 140 140 91,231
2,530 0 93,806 199,912 361,726
Fair value of option contracts 0 0 0 2,002,572 347,446
Due from Joint Venture:
Engro Vopak Terminal Limited 215 135,006 90,080 88,931 90,252
Engro Asahi Polymer & Chemical Ltd 41 2,739 0 0 0
Claims on suppliers and companies 10,815 36,689 40,528 103,525 39,333
Less: Provision for doubtful receivable 295 295 731 295 295
55
2004 2005 2006 2007 2008
10,520 36,394 39,797 103,230 39,038
Non Current assets held for disposal 0 0 25,308 0 0
Others 2,612 7,229 17,923 54,219 86,676
Less: Provision for doubtful receivable 49 49 49 49 4,554
2,563 7,180 17,874 54,170 82,122
OTHER RECEIVEABLE & DERIVATIVES 67,335 254,943 1,391,247 3,593,533 8,388,635
Trade Debts
Considered good
Secured 204,606 343,825 682,090 1,551,276 313,060
Unsecured 409,211 343,825 487,791 301,568 445,431
613,817 687,650 1,169,881 1,852,844 758,491
Considered doubtful 8,431 8,447 8,651 17,202 33,541
622,248 696,097 1,178,532 1,870,046 792,032
Less: Provision for doubtful debts 8,431 8,447 8,651 17,202 33,541
TRADE DEBTS 613,817 687,650 1,169,881 1,852,844 758,491
Total Liquid Assets 3,274,160 2,445,028 5,237,631 17,902,196 13,411,808
Stock-in-Trade
Raw material 241,424 810,712 836,224 1,110,088 2,438,019
Work-in-process 2,720 1,032 23,382 45,297 63,381
Finished goods
Own manufactured products 140,262 318,675 956,457 1,194,921 1,445,233
Purchased products 133,754 784,292 487,578 1,431,989 3,185,107
Provision for slow moving inventory 0 0 0 0 -1,833
274,016 1,102,967 1,444,035 2,626,910 4,628,507
STOCK-IN-TRADE 518,160 1,914,711 2,303,641 3,782,295 7,129,907
Stores, Spares, and Loose Tools

Consumable stores 97,381 95,130 89,027 124,882 165,838
Spares 543,476 584,822 735,903 808,651 1,135,194
Loose tools including in transit 3,565 3,260 2,966 3,241 0
644,422 683,212 827,896 936,774 1,301,032
Provision for surplus n slow moving
items -57,134 -17,310 -13,839 -21,390 -28,913
STORES, SPARES, AND LOOSE TOOLS 587,288 665,902 814,057 915,384 1,272,119
Loan, Advance & Prepayment

Loan & advance to employees
considered good 54,371 35,763 55,576 76,513 113,158
Advances and deposits 60,800 140,487 192,490 297,928 628,551
Transaction costs paid for facility 0 0 0 295,300 188,696
Prepaid insurance 135,590 3,074 60,116 174,479 81,820
Prepayments 44,381 57,285 50,428 247,595 148,003
295,142 236,609 358,610 1,091,815 1,160,228
Less: Provision for doubtful receivables 818 818 3,079 4,521 4,521
LOAN,ADVANCE & PREPAYMENT 294,324 235,791 355,531 1,087,294 1,155,707
DEFERRED COMPENSATION EXPENSE 0 0 0 0 103,343
TAXATION 162,399 0 0 592,272 869,056

TOTAL CURRENT ASSETS 4,836,331 5,261,432 8,710,860 24,279,441 23,941,940
56
2004 2005 2006 2007 2008
NON CURRENT ASSET
Long term investment

Joint Venture Companies 1,489,504 1,457,163 469,851 488,517 486,210
Associated companies:
Arabian Sea Country Club Limited 0 0 5,000 5,000 5,000
Agrimall ( Private ) Limited 0 0 0 0 0
LONG TERM INVESTMENT 1,489,504 1,457,163 474,851 493,517 491,210
DEFERRED COMPENSATION EXPENSE 0 0 0 0 101,826
Long term Loan, Receivable & Derivative

Executives 71,783 57,699 101,813 196,510 264,752
Other employees 34,878 14,910 16,728 28,567 163,976
106,661 72,609 118,541 225,077 428,728
Less: Installments recoverable within
twelve months 54,371 35,763 55,576 76,513 97,670
52,290 36,846 62,965 148,564 331,058
Fair value of forward foreign exchange
contract 0 65,117 37,000 11,448 4,297,960
Less: Current portion 0 32,000 26,000 11,448 4,257,966
0 33,117 11,000 0 39,994
Others 0 0 0 5,372 6,340
Long term Loans, Receivable & Derivative 52,290 69,963 73,965 153,936 377,392
TOTAL NON CURRENT ASSETS 1,541,794 1,527,126 548,816 647,453 970,428
FIX ASSETS
Property, Plant and Equipment

10,136,01
Operating assets 6,506,518 6,408,940 6 11,193,382 11,495,113
Capital work in process 615,206 1,158,575 618,213 12,277,606 46,640,640
10,754,22
PROPERTY, PLANT AND EQUIPMENT 7,121,724 7,567,515 9 23,470,988 58,135,753
Biological assets
Dairy Livestock
Mature 0 0 0 9,085 24,238
Immature 0 0 0 980 273,461
0 0 0 10,065 297,699
Crops-feed stock 0 0 0 0 9,127
BIOLOGICAL ASSETS 0 0 0 10,065 306,826
Intangible assets
Software and Licenses 11,466 22,410 22,836 43,778 49,831
Rights for future gas utilization 0 0 0 102,312 102,312
Development cost 3,900 2,700 1,500 300 0
Covenants 0 0 0 611 0
Goodwill 22,854 15,822 15,822 418,690 418,690
INTANGIBLE ASSETS 38,220 40,932 40,158 565,691 570,833
10,794,38
TOTAL FIX ASSETS 7,159,944 7,608,447 7 24,046,744 59,013,412
57
13,538,06 14,397,00 20,054,06
TOTAL ASSETS 9 5 3 48,973,638 83,925,780
2004 2005 2006 2007 2008
SHARE CAPITAL AND RESERVES
Share Capital
Authorized:
300,000,00
Ordinary shares of 10 each 2,000,000 2,000,000 2,000,000 0 300,000,000
Issued, Subscribed and Paid-up
Ordinary shares of 10 each fully paid
in cash 403,520 403,520 556,460 808,811 1,002,280
Ordinary shares of 10 each fully paid
in bonus shares 1,125,880 1,125,880 1,125,880 1,125,881 1,125,881
SHARE CAPITAL 1,529,400 1,529,400 1,682,340 1,934,692 2,128,161
Reserves
Share premium
Balance as at January 1, 0 0 0 1,068,369 3,963,977
Share issued during the year at premium 0 0 1,070,581 2,902,038 3,192,242
Issued cost 0 0 -2,212 -6,430 -3,497
SHARE PREMIUM 0 0 1,068,369 3,963,977 7,152,722
Employee share option reserve

Balance as at January 1, 0 0 0 0 272,990
Amount recognised on grant date 0 0 0 0 59,957
Balance as at December 31, 0 0 0 0 -5,927
EMPLOYEE SHARE OPTION RESERVE 0 0 0 0 327,020
Hedging reserve
Fair values of:
Foreign exchange forward contract 0 0 0 2,002,572 4,297,960
Foreign exchange option contract 0 0 0 0 347,446
Interest rate swap 0 0 0 0 -1,133,364
0 0 0 2,002,572 3,512,042
Arrangement fee 0 0 0 -164,159 -164,159
Deferred tax 0 0 0 -801,027 -1,229,214
Minority interest 0 0 0 0 17,130
HEDGING RESERVE 0 0 0 1,037,386 2,135,799
REVALUATION RESERVES 0 0 197,316 135,304 125,102
GENERAL RESERVES 4,429,240 4,429,240 4,429,240 4,429,240 4,429,240
UNAPPROPRIATED PROFITS 779,566 1,529,146 1,861,933 3,510,345 6,166,472
RESERVES 5,208,806 5,958,386 7,556,858 13,076,252 20,336,355
6,738,206 7,487,786 9,239,198 15,010,944 22,464,516
MINORITY INTEREST 53,101 53,004 556,973 2,995,746 3,113,677
TOTAL SHARE CAPITAL AND RESERVES 6,791,307 7,540,790 9,796,171 18,006,690 25,578,193
58
2004 2005 2006 2007 2008
CURRENT LIABILITIES
Current Portion of:

Long term finance 594,500 0 69,623 35,429 321,915
Obligations under finance lease 2,311 4,215 10,557 17,007 20,038
Deferred liability 22,471 20,230 24,133 20,339 20,023
Redeemable capital 1,089,000 692,500 1,252,500 1,397,080 0
CURRENT PORTION 1,708,282 716,945 1,356,813 1,469,855 361,976
Short Term Borrowings

Financing utilized from banks 31,825 94,161 2,020,372 901,953 4,591,218
SHORT TERM BORROWINGS 31,825 94,161 2,020,372 901,953 4,591,218
Trade & Payable including Derivative

Creditors 336,538 728,680 1,781,694 4,131,909 1,530,954
Accrued liability 322,732 401,199 701,428 1,185,214 1,817,248
Payable to contribution Pension Fund 0 450 3,764 8,703 0
Payable to Provident Fund 0 0 13,828 8,569 0
Advances from customers 592,168 672,980 110,515 616,858 1,331,801
fair value of interest rate swaps 0 0 0 0 155,160
Finance cost accrued on:
redeemable capital and long term loans 40,363 64,154 71,545 465,148 1,006,237
short term borrowings 2,095 26,813 42,245 25,838 222,652
Deposit refundable on termination 6,957 7,486 10,647 13,988 13,063
Contractor's deposits and retentions 8,560 11,282 15,764 138,888 297,530
Worker's profit participation fund 1,594 6,716 0 3,747 18,887
Worker's welfare fund 16,121 27,297 70,216 99,879 115,575
Sales tax payable 0 5,544 9,961 91,502 0
Dividend payable to minority 0 0 19,448 0 0
Provision for infrastructure fee 0 0 0 178,599 260,088
Provision for special excise duty 0 0 0 0 54,929
Others 0 9,263 43,842 71,116 184,291
trade & payable including derivative 1,327,128 1,961,864 2,894,897 7,039,958 7,008,415
UNCLAIMED DIVIDENDS 47,703 77,870 82,360 193,067 318,320
TAXATION 0 56,551 42,999 0 0
TOTAL CURRENT LIABILITY 3,114,938 2,907,391 6,397,441 9,604,833 12,279,929
NON CURRENT LIABILITIES
Long term finance

Obtained from bank 0 0 104,434 35,429 41,060,739
Less: shown under current liabilities 0 0 -69,623 -35,429 -321,915
LONG TERM FINANCE 0 0 34,811 0 40,738,824
59
2004 2005 2006 2007 2008
Redeemable Capital
Redeemable Capital 3,681,500 3,592,500 3,600,000 19,681,342 0
Less: shown under current liabilities -1,089,000 -692,500 -1,252,500 -1,397,080 0
REDEEMABLE CAPITAL 2,592,500 2,900,000 2,347,500 18,284,262 0
Derivatives
Fair value of interest rate swaps 0 0 0 0 1,133,364
shown under current liabilities 0 0 0 0 -155,160
DERIVATIVES 0 0 0 0 978,204
Obligations under finance lease

Present value of minimum lease
payments 6,826 12,301 34,584 47,035 49,423
shown under current liabilities -2,311 -4,215 -10,557 -17,007 -20,038
OBLIGATIONS UNDER FINANCE LEASE 4,515 8,086 24,027 30,028 29,385
Deferred taxation
Credit / Debit balances arising 0n A/c
Accelerated depreciation allowance 1,026,353 1,036,710 1,930,439 2,202,465 2,380,058
Net borrowing cost capitalized 0 0 0 128,079 678,625
Fair value of derivative instruments 0 0 0 691,590 1,119,775
Recoupable carried forward tax losses 0 -9,149 -728,835 -105,727 -231,956
Tax on subsidiary reserves 0 0 25,005 62,906 40,367
Tax on fair value adjustment 0 0 263,088 180,406 166,803
Recoupable minimum turnover tax 0 0 -59,453 -108,077 -93,520
Provision for
-retirement benefits -31,845 -22,132 -20,175 -62,010 -47,153
-inventory & doubtful receivable -23,176 -6,058 -4,383 -7,487 -320,642
-others -5,037 -4,930 -10,662 -4,559 -91,322
DEFERRED TAXATION 966,295 994,441 1,395,024 2,977,586 3,601,035
EMPLOYEE HOUSING SUBSIDY 0 0 0 0 73,319
Deferred liabilities
Deferred income on sales for vehicles 25,480 3,495 3,928 1,103 700
Retirement and other service benefits 43,034 42,802 55,161 69,136 92,746
DEFERRED LIABILITIES 68,514 46,297 59,089 70,239 93,446
MONEY ON PROJECT PAYMENT 0 0 0 0 553,445
TOTAL NON CURRENT LIABILITY 3,631,824 3,948,824 3,860,451 21,362,115 46,067,658
13,538,06 14,397,00 20,054,06

TOTAL EQUITY AND LIABILITY 9 5 3 48,973,638 83,925,780
60
7.2 INCOME STATEMENT

Summarized Profit & Loss Account
(Rs. IN 000)
2004 2005 2006 2007 2008

Sales
13,067,65 18,756,82
Own manufactured products 6 0 13,177,573 22,343,696 35,304,462
Less: Sales tax 0 0 1,046,727 1,938,405 2,156,007
13,067,65 18,756,82
6 0 12,130,846 20,405,291 33,148,455
Purchased product / services rendered 0 0 8,606,068 14,282,058 7,938,161
Less: Sales tax 0 0 496,879 566,738 113,569
0 0 8,109,189 13,715,320 7,824,592
13,067,65 18,756,82
NET SALES 6 0 20,240,035 34,120,611 40,973,047
Cost of Sales
Raw and packing material consumed 2,287,659 3,025,095 3,827,890 9,993,898 16,704,322
Salaries, wages and staff welfare 542,305 543,705 729,817 961,972 1,243,248
Fuel and power 1,460,233 1,655,614 2,129,482 2,209,906 2,954,371
Repair and maintenance 236,462 283,577 276,451 419,736 665,318
Depreciation and amortization 560,912 592,006 694,210 918,207 1,045,361
Consumable stores 76,143 74,824 96,718 144,233 195,965
Staff recruitment, training, staff and other 23,869 31,938 43,434 48,759 68,292
Purchased services 98,569 101,542 100,772 135,205 329,558
Storage and handling 0 0 0 120,277 139,405
Travel 21,245 22,862 49,113 60,748 88,668
Communication and office expenses 29,368 28,971 30,514 76,824 102,284
Insurance 53,756 51,343 62,301 93,721 101,434
Rent, rate and taxes 4,817 4,817 13,454 20,538 69,152
Stock-finished goods written off 0 0 0 1,914 528
Provision against sales tax refundable 0 0 0 0 36,361
Other expenses 25,170 11,751 24,592 21,009 30,188
Manufacturing cost 5,420,508 6,428,045 8,078,748 15,226,947 23,774,455
Add: Opening stock of work in proces 9,668 2,720 14,370 23,382 45,297
Less: Closing stock of work in proces 2,720 1,032 23,382 45,297 63,381
6,948 1,688 -9,012 -21,915 -18,084
Cost manufactured of good 5,427,456 6,429,733 8,069,736 15,205,032 23,756,371
Add: Opening stock of finished goods 156,342 140,262 1,038,745 956,457 1,194,921
Less: Closing stock of finished goods 140,262 318,675 956,457 1,194,921 1,445,550
16,080 -178,413 82,288 -238,464 -250,629
Cost of goods sold
Own manufactured product 5,443,536 6,282,766 8,152,024 14,966,568 23,505,742
Purchased product 3,703,230 7,441,100 6,312,103 10,223,898 5,375,140
Other 184,325 348,966 633,054 947,900 1,230,466
14,072,83
COST OF SALES 9,331,091 2 15,097,181 26,138,366 30,111,348
61
GROSS PROFIT 3,736,565 4,683,988 5,142,854 7,982,245 10,861,699
2004 2005 2006 2007 2008
Selling and distribution expenses

Salaries, wages and staff welfare 243,531 259,342 481,960 857,363 1,098,859
Staff recruitment, training, safety other 17,618 24,680 28,933 54,448 47,214
Product transportation and handling 594,812 802,649 1,014,884 1,322,994 1,320,076
Repair and maintenance 13,607 19,068 16,606 30,144 71,901
Advertising and sales promotion 61,532 62,893 421,487 756,094 831,715
Rent, rate and taxes 32,068 42,411 74,383 138,519 200,045
Communication and office expenses 30,919 27,978 42,346 84,333 132,815
Travel 26,017 34,140 85,535 120,109 176,857
Depreciation / amortization 27,559 26,958 39,885 65,778 104,882
Purchased services 17,388 24,353 36,817 29,489 120,423
Donations 0 0 35,419 42,810 42,316
Others 29,316 51,306 42,669 80,614 106,549
SELLING AND DISTRIBUTION EXPENSES 1,094,367 1,375,778 2,320,924 3,582,695 4,253,652
OPERATIVE INCOME 2,642,198 3,308,210 2,821,930 4,399,550 6,608,047
Other Income
Income on deposits / financial assets 47,162 48,722 50,075 198,096 259,355
Commission income 0 0 250 0 192,094
Service charges 5,653 15,307 2,332 8,346 18,452
Unrealized fair value gain on investment 0 65,117 0 49,135 0
Fair value of interest rate swap 0 24,749 4,675 2,135 407
Reversal of resignation gratuity provision 0 0 0 3,276 0
Gain on defied benefit pension plan 0 0 113,047 17,629 30,997
Negative goodwill recognized 0 0 195,190 227,889 309,157
Profit on disposal of fixed assets 12,816 0 6,575 1,260 71,248
Gain arising from sale cost of bio assets 0 1,425 1,902 0 55,979
Foreign exchange gain 3,501 0 5,000 841 83,624
Others 20 11,417 42,579 1,222 17,001
OTHER INCOME 69,152 166,737 421,625 509,829 1,038,314
Other operating charges

Worker's profits Participation fund:
Holding Company 123,565 171,716 184,778 228,747 279,515
Subsidiary Companies 32,674 0 2,402 30,988 24,625
Worker's welfare fund 0 43,067 67,151 99,879 154,569
Legal and professional charges 0 0 5,944 48,016 131,782
R&D (including salaries and wages) 31,937 68,790 33,954 16,297 3,075
Loss on sales of fixed assets 0 1,431 0 21,687 409
Loss on death / sales of biological assets 0 0 0 2,062 786
Amortization of Goodwill 7,032 7,032 0 0 0
Foreign exchange loss 0 0 0 21,508 230,257
Auditor's remuneration
statutory audit 1,403 1,424 1,849 3,196 4,296
half yearly review 0 0 0 150 300
fee for other services 1,025 603 1,134 3,347 1,678
reimbursement of expenses 247 189 228 983 853
2,675 2,216 3,211 7,676 7,127
Less: Intangible assets/work-in-progress -820 -315 0 0 0
62
1,855 1,901 3,211 7,676 7,127
2004 2005 2006 2007 2008
Professional tax 700 200 250 20 210
Unrealized fair value loss on investment 0 0 0 0 2,352
Others 0 0 0 5,678 134,876
OTHER OPERATING CHARGES 197,763 294,137 297,690 482,558 969,583
Finance cost
Mark-up / interest on:
long term finance 279,853 246,955 340,026 530,446 858,420
short term borrowings 3,947 42,947 78,161 158,047 832,472
Interest on worker's profits participation
fund 30 82 470 0 0
Others 3,964 1,265 19,583 29,165 47,061
FINANCE COST 287,794 291,249 438,240 717,658 1,737,953
485,557 585,386 735,930 1,200,216 2,707,536
Share of income from joint venture

Engro Vopak Terminal Limited
Share of income before taxation 585,440 521,176 632,339 360,375 373,211
Share of provision for taxation -211,176 -150,017 -222,771 -116,709 -128,018
Share of income from joint venture 374,264 371,159 409,568 243,666 245,193
PROFIT BEFORE TAXATION 2,600,057 3,260,720 2,917,193 3,952,829 5,184,018
Taxation
Current - for the year 751,671 948,791 863,888 1,125,461 1,181,926
- prior year 0 0 0 53,525 0
Deferred - for the year 117,572 28,146 -85,537 -59,945 -204,598
TAXATION 869,243 976,937 778,351 1,119,041 977,328
PROFIT AFTER TAXATION 1,730,814 2,283,783 2,138,842 2,833,788 4,206,690
Attributable to
-Equity holder of Holding Company 1,719,253 2,278,980 2,106,891 2,876,520 4,125,754
-Minority interest 11,561 4,803 31,951 -42,732 80,936
63
64
TREND PERCENTAGE ANALYSIS
8.1 BRIEF
Comparing analytical data for a current period with similar computation for prior
years afford some basis for judging whether the condition of the business is
improving or worsening. This comparison of data over time is sometimes called
horizontal or trend analysis, to express the idea for reviewing data for a number of
consecutive periods. The changes in financial statement items from a base year to
following years are expressed as trend percentages to show the extent and direction
of change. Two steps are necessary to compute trend percentages.
• First, a base year is selected and each item in financial statement for the
base year is given a weight of 100%.
• Second step is the express each item in the financial statement for following
years as a percentage of its base year amount.
It is distinguished from vertical or static analysis, which refers to the review of
financial information for only one accounting period. In addition to determining
whether the situation is improving or becoming worse, horizontal analysis may aid in
making estimates of future prospects. Because changes may reverse their direction
at any time, however, projecting past trends into the future always involves risk. The
Trend analysis of Engro Chemicals is given on next pages.
65
Trend Analysis Profit & Loss Account
2004 2005 2006 2007 2008
Sales
Own manufactured products 100.00% 143.54% 100.84% 170.98% 270.17%
Less: Sales tax 0.00% 0.00% 100.00% 185.19% 205.98%
100.00% 143.54% 92.83% 156.15% 253.67%
Purchased product / services rendered 0.00% 0.00% 100.00% 165.95% 92.24%
Less: Sales tax 0.00% 0.00% 100.00% 114.06% 22.86%
0.00% 0.00% 100.00% 169.13% 96.49%
NET SALES 100.00% 143.54% 154.89% 261.11% 313.55%
Cost of Sales
Raw and packing material consumed 100.00% 132.24% 167.33% 436.86% 730.19%
Salaries, wages and staff welfare 100.00% 100.26% 134.58% 177.39% 229.25%
Fuel and power 100.00% 113.38% 145.83% 151.34% 202.32%
Repair and maintenance 100.00% 119.92% 116.91% 177.51% 281.36%
Depreciation and amortization 100.00% 105.54% 123.76% 163.70% 186.37%
Consumable stores 100.00% 98.27% 127.02% 189.42% 257.36%
Staff recruitment, training, staff and other 100.00% 133.81% 181.97% 204.28% 286.11%
Purchased services 100.00% 103.02% 102.23% 137.17% 334.34%
Storage and handling 0.00% 0.00% 0.00% 100.00% 115.90%
Travel 100.00% 107.61% 231.17% 285.94% 417.36%
Communication and other office expenses 100.00% 98.65% 103.90% 261.59% 348.28%
Insurance 100.00% 95.51% 115.90% 174.35% 188.69%
Rent, rate and taxes 100.00% 100.00% 279.30% 426.36% 1435.58%
Stock-finished goods written off 0.00% 0.00% 0.00% 100.00% 115.90%
Provision against sales tax refundable 0.00% 0.00% 0.00% 0.00% 100.00%
Other expenses 100.00% 46.69% 97.70% 83.47% 119.94%
Manufacturing cost 100.00% 118.59% 149.04% 280.91% 438.60%
Add: Opening stock of work in process 100.00% 28.13% 148.63% 241.85% 468.53%
Less: Closing stock of work in process 100.00% 37.94% 859.63% 1665.3% 2330.18%
100.00% 24.29% -129.71% -315.4% -260.28%
Cost manufactured of good 100.00% 118.47% 148.68% 280.15% 437.71%
Add: Opening stock of finished goods
manufactured 100.00% 89.71% 664.41% 611.77% 764.30%
Less: Closing stock of finished goods
manufactured 100.00% 227.20% 681.91% 851.92% 1030.61%
100.00% -1109.5% 511.74% -1482% -1558.6%
Cost of goods sold
Own manufactured product 100.00% 115.42% 149.76% 274.94% 431.81%
Purchased product 100.00% 200.94% 170.45% 276.08% 145.15%
Other 100.00% 189.32% 343.44% 514.25% 667.55%
COST OF SALES 100.00% 150.82% 161.79% 280.12% 322.70%
GROSS PROFIT 100.00% 125.36% 137.64% 213.63% 290.69%
66
2004 2005 2006 2007 2008

Staff recruitment, training, safety and other 100.00% 11.38% 11.39% 11.39% 11.40%
Product transportation and handling 100.00% 0.00% 0.00% 0.00% 0.00%
Repair and maintenance 100.00% 1905.9% 3542% 6300.9% 8075.6%
Advertising and sales promotion 100.00% 40.11% 47.02% 88.49% 76.73%
Travel 100.00% 241.74% 1620.0% 2906.1% 3196.8%
Depreciation / amortization 100.00% 153.89% 269.90% 502.63% 725.88%
Donations 0.00% 0.00% 100.00% 120.87% 119.47%
Others 100.00% 91.96% 136.05% 224.38% 357.76%
SELLING AND DISTRIBUTION EXPENSES 100.00% 125.71% 212.08% 327.38% 388.69%
OPERATIVE INCOME 100.00% 125.21% 106.80% 166.51% 250.10%
Other Income
Income on deposits / Other financial assets 100.00% 103.31% 106.18% 420.03% 549.92%
Commission income 0.00% 0.00% 100.00% 0.00% 76837%
Service charges 100.00% 270.78% 41.25% 147.64% 326.41%
Unrealized fair value gain on investment 0.00% 100.00% 0.00% 75.46% 0.00%
Fair value of interest rate swap 0.00% 100.00% 18.89% 8.63% 1.64%
Reversal of resignation gratuity provision 0.00% 0.00% 0.00% 0.00% 0.00%
Gain on curtailed defied benefit pension plan 0.00% 0.00% 0.00% 0.00% 0.00%
Negative goodwill recognized 0.00% 0.00% 0.00% 0.00% 0.00%
Profit on disposal of fixed assets 100.00% 0.00% 51.30% 9.83% 555.93%
Gain arising from sale cost of biological assets 0.00% 100.00% 133.47% 0.00% 3928.3%
Foreign exchange gain 100.00% 0.00% 142.82% 24.02% 2388%
Others 100.00% 57085% 212895% 6110.0% 85005%
OTHER INCOME 100.00% 241.12% 609.71% 737.26% 1501.5%

Holding Company 100.00% 138.97% 149.54% 185.12% 226.21%
Subsidiary Companies 100.00% 0.00% 7.35% 94.84% 75.37%
Worker's welfare fund 0.00% 100.00% 155.92% 231.92% 358.90%
Legal and professional charges 0.00% 0.00% 100.00% 807.81% 2217.0%
R&D (including salaries and wages) 100.00% 215.39% 106.32% 51.03% 9.63%
Loss on sales of fixed assets 0.00% 100.00% 0.00% 1515.5% 28.58%
Loss on death / sales of biological assets 0.00% 0.00% 0.00% 100.00% 38.12%
Amortization of Goodwill 100.00% 100.00% 0.00% 0.00% 0.00%
Foreign exchange loss 0.00% 0.00% 0.00% 100.00% 1070.5%
statutory audit 100.00% 101.50% 131.79% 227.80% 306.20%
half yearly review 0.00% 0.00% 0.00% 100.00% 200.00%
fee for other services 100.00% 58.83% 110.63% 326.54% 163.71%
reimbursement of expenses 100.00% 76.52% 92.31% 397.98% 345.34%
100.00% 82.84% 120.04% 286.95% 266.43%
Less: Intangible assets/work-in-progress 100.00% 38.41% 0.00% 0.00% 0.00%
100.00% 102.48% 173.10% 413.80% 384.20%
67
2004 2005 2006 2007 2008
Professional tax 100.00% 28.57% 35.71% 2.86% 30.00%
Unrealized fair value loss on investment 0.00% 0.00% 0.00% 0.00% 100.00%
Others 0.00% 0.00% 0.00% 100.00% 2375.4%
OTHER OPERATING CHARGES 100.00% 148.73% 150.53% 244.01% 490.28%
Finance cost
long term finance 100.00% 88.24% 121.50% 189.54% 306.74%
short term borrowings 100.00% 1088.0% 1980.2% 4004.2% 21091%
Interest on worker's profits participation fund 100.00% 273.33% 1566.6% 0.00% 0.00%
Others 100.00% 31.91% 494.02% 735.75% 1187.2%
FINANCE COST 100.00% 101.20% 152.28% 249.37% 603.89%
100.00% 120.56% 151.56% 247.18% 557.61%

Share of income before taxation 100.00% 89.02% 108.01% 61.56% 63.75%
Share of provision for taxation 100.00% 71.04% 105.49% 55.27% 60.62%
SHARE OF INCOME FROM JOINT VENTURE 100.00% 99.17% 109.43% 65.11% 65.51%
PROFIT BEFORE TAXATION 100.00% 125.41% 112.20% 152.03% 199.38%
Taxation
Current - for the year 100.00% 126.22% 114.93% 149.73% 157.24%
- prior year 0.00% 0.00% 0.00% 100.00% 0.00%
Deferred - for the year 100.00% 23.94% -72.75% -50.99% -174.02%
TAXATION 100.00% 112.39% 89.54% 128.74% 112.43%
PROFIT AFTER TAXATION 100.00% 131.95% 123.57% 163.73% 243.05%
68
8.1.1 NET SALES
This is the amount of net revenues earned from sales of goods during the particular
period. It is determined by deducting sales tax from own manufactured and
purchased products or services rendered of that period. Fiscal year 2004 is
considered as base for analyzing the net sales which are consider as base for the
analysis.
Amounts
2004 2005 2006 2007 2008

NET SALES 100.00% 143.54% 154.89% 261.11% 313.55%
Graphical Representation
NET SALES
350.00%
300.00%
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
2004 2005 2006 2007 2008
Source: Engro Annual Report
69
Interpretation
Net Sales are showing positive optimistic trend. It’s increasing year by year and
reaches to the 313.55% in FY08 as compared to the FY04 and further explanations
are given as under.
FY2005: Sales of the FY05 grew by 43% mainly due to high phosphate, imported
urea and zerkhez volume and supported by higher unit selling prices of all fertilizers.
FY2006: Sales for the year were grown by 54% supported by higher unit selling
price of urea, phosphate and zerkhez and an increase volume of zerkhez.
FY2007:The FY07 proved to be good one for Engro, Sales for the year 07 higher by
161% as compared to the base year 2004,due to mainly to higher turnover of
Phosphate and Zerkhez ---driven by Increase in crude oil prices emphasis on
cultivation for bio fuels--- and an increase in demand Urea in market. This is mainly
due to the market plan that focused on consumption of fertilizers at grass root level
Field activity include 30 farmer information seminars, and sponsorship at regional
level.
FY2008: Engro delivered strongest results to date in 2008 .Sales of the year 2008,
313% compared with 261% in 2007, Sales did not grow much because of low
phosphate sales -through offset by high phosphate prices driven by change in
demand and demand of food grains and international economic down turn-, however
urea sales were 12% than the last year despite acute shortage. This extra ordinary
growth is attributed to increase in area under BT cotton, requiring more urea, and
negative growth of last year.
70
8.1.2 COST OF GOODS SOLD
This is the amount of purchase price and direct expenses of the merchandise sold
during the particular period. It is determined by adding beginning inventory of
material and net purchases with the deduction of ending inventory from both. Fiscal
year 2004 is considered as base for analyzing the cost of good sold which are
consider as base for the analysis.
Amounts
2004 2005 2006 2007 2008

COST OF GOOD SOLD 100.00% 150.82% 161.79% 280.12% 322.70%
COST OF GOODS SOLD
350.00%
300.00%
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
2004 2005 2006 2007 2008
71
Interpretation
Cost of good Sold are showing healthy trend. It’s increasing year by year and
reaches to the 322.70% in FY08 as compared to the FY04 and further explanations
are given as under.
FY2005: Cost of good sold of the FY05 grew by 50.82% mainly due to high
purchase prices of row material consumed in process, and increase in prices of fuel
at the international level.
FY2006: Cost of good sold for the year was grown by 61% supported by higher unit
price of urea, phosphate and zerkhez and an increase volume of zerkhez.
FY2007: Cost of good sold for the year 07 higher by 61% as compared to the base
year 2004,due to mainly to higher production of Phosphate and Zerkhez ---driven by
Increase in crude oil prices emphasis on cultivation for bio fuels--- and an increase in
demand Urea in market. This is mainly due to the market plan that focused on
consumption of fertilizers at grass root level Field activity include 30 farmer
information seminars, and sponsorship at regional level.
FY2008: Cost of good sold of the year 2008, 322% compared with 280% in 2007,
Cost of good sold grow much because of increase in raw material consumed in
business process and in manufacturing cost -through offset by high phosphate
prices driven by change in demand and demand of food grains and international
economic down turn-, however urea remand were 12% than the last year despite
acute shortage. This extra ordinary growth is attributed to increase in area under BT
cotton, requiring more urea, and negative growth of last year.
72
8.1.3 Gross Profit
It is determined by deduction of Cost of good sold from net sales. It helps to
determine the future prices of merchandise. Fiscal year 2004 is considered as base
for analyzing the cost of good sold which are consider as base for the analysis.
Amounts
2004 2005 2006 2007 2008

Gross Profit 100.00% 125.36% 137.64% 213.63% 290.69%
GROSS PROFIT
300.00%
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
2004 2005 2006 2007 2008
73
Interpretation
Gross profits are showing positive trend. It’s increasing year by year and reaches to
the 290.69% in FY08 as compared to the FY04 and further explanations are given
as under.
FY2005: Gross profit of the FY05 grew by 25% mainly due to high phosphate,
imported urea and zerkhez volume and supported by higher unit selling prices of all
fertilizers.
FY2006: Gross profit for the year were grown by 37.64% supported by higher unit
selling price of urea, phosphate and zerkhez and an increase volume of zerkhez.
FY2007:The FY07 proved to be good one for Engro, Gross profit for the year 07
higher by 113.63% as compared to the base year 2004,due to mainly to higher
turnover of Phosphate and Zerkhez ---driven by Increase in crude oil prices
emphasis on cultivation for bio fuels--- and an increase in demand Urea in market.
This is mainly due to the market plan that focused on consumption of fertilizers at
grass root level Field activity include 30 farmer information seminars, and
sponsorship at regional level.
FY2008: Engro delivered strongest results to date in 2008. Gross profit of the year
2008, 290.69% compared with 213.63% in 2007, Gross profit did not grow much
because of low phosphate sales -through offset by high phosphate prices driven by
change in demand of food grains and international economic down turn, however
CGS handled the situation and leads the Gross profit at the rate of 27% as
compared to the FY2007.
74
8.1.4 Net Profit
The total of all the selling, administrative and general expenses is deducted from
gross profit. The reminder is known as Net profit from operating or net business
income.
Fiscal year 2004 is considered as base for analyzing the cost of good sold which are
consider as base for the analysis.
Amounts
2004 2005 2006 2007 2008

Net Profit 100.00% 131.95% 123.57% 163.73% 243.05%
NET PROFIT
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
2004 2005 2006 2007 2008
75
Interpretation
Net Profits of Engro Chemical Pakistan Ltd are showing healthy optimistic trend. It’s
increasing year by year and reaches to the 243.05% in FY08 as compared to the
FY04 and further explanations are given as under.
FY2005: Net Profits from the operations registered significant increase at 31%
despite of higher gas prices and cost of other inputs, like transportation (due to the
rise of deazal prices) because of volume and average sales price growth. Urea
profitability grew due to better production and better margins. Zarkhez business
continued to benefit from operational efficiency and inventory gains due to timely
purchase of raw materials.
FY2006: Net Profits for the year was grown by 23.57% than 2005 principally
because of higer urea volumes due to better production and capital gain on sale of
land to Engro Asahi of Rs. 131 million.
FY2007: Net Profits at 63% higher than base year principally because of higher
other incomes from joint ventures and subsidies. Increase in selling price fertilizers is
an other reason of increase in net profit of Engro chemical Pakistan Ltd.
FY2008: Net Profits of the year 2008, 243.05% compared with 163.73% in 2007,
Engro delivered strongest results to date in 2008 Net Profits after taxation of
143.05% increase as compared to the initiative date,79.32% increase from 2007
primarily due to increased income from affiliates.
76
Trend Analysis Balance Sheet
(Rs. IN 000)
2004 2005 2006 2007 2008
CURRENT ASSETS
In Banks
Deposit / Saving accounts 100.00% 61.71% 136.82% 114.08% 30.65%
Current accounts 100.00% 138.60% 128.97% 113.81% 782.30%
In Hand
Cash 100.00% 105.31% 147.46% 392.11% 12119.80%
Cheqes / Demand draft / Cash in transit 100.00% 162.17% 211.00% 216.85% 3.29%
CASH AND BANK BALANCES 100.00% 80.08% 143.68% 125.19% 128.98%

Held - to - Maturity
Certificates of Investment 100.00% 0.00% 0.00% 0.00% 0.00%
Available - for - Sale
Financial assets at fair value through P/L
-Govt of Pakistan Special US bonds 100.00% 0.00% 0.00% 0.00% 0.00%
-Certificates of investment 100.00% 0.00% 0.00% 0.00% 0.00%
-Certificates of deposit 100.00% 50.00% 0.00% 0.00% 0.00%
10067.03
-Fixed income / money market funds 100.00% 110.22% 222.86% % 2015.85%
SHORT TERM INVESTMENTS 100.00% 15.52% 25.70% 1160.88% 232.46%
Total Absolute Liquid Assets 100.00% 57.94% 103.22% 480.36% 164.47%

Customs duty and sales tax 100.00% 100.00% 181.93% 100.00% 100.00%
Subsidy 0.00% 0.00% 100.00% 108.98% 321.23%
Sales tax 0.00% 0.00% 0.00% 0.00% 100.00%
Others 100.00% 100.00% 113.64% 100.00% 104.53%
100.00% 100.00% 2841.45% 3026.66% 8887.71%
Accrued income on deposit / bonds 100.00% 57.54% 56.36% 325.13% 0.29%
Receivable from Pension Funds 100.00% 0.00% 1324.64% 319.37% 564.98%
Worker's Profit Participation Fund 0.00% 0.00% 100.00% 0.00% 0.00%
Sales tax / special excise duty refundable 100.00% 0.00% 3713.28% 7907.19% 17190.28%
Custom duty claim refundable 0.00% 0.00% 0.00% 0.00% 100.00%
Less: Provision for doubtful receivable 0.00% 0.00% 100.00% 100.00% 65165.00%
100.00% 0.00% 3707.75% 7901.66% 14297.47%
Fair value of interest rate swaps 0.00% 100.00% 81.25% 35.78% 0.00%
Current portion of forward contract 0.00% 0.00% 0.00% 0.00% 100.00%
Fair value of foreign exchange option contracts 0.00% 0.00% 0.00% 100.00% 17.35%
41897.67 41363.26
Engro Vopak Terminal Limited 100.00% 62793.5% % % 41977.67%
Engro Asahi Polymer & Chemical Limited 100.00% 6680.49% 0.00% 0.00% 0.00%
Claims on suppliers and insurance companies 100.00% 339.24% 374.74% 957.24% 363.69%
77
2004 2005 2006 2007 2008
100.00% 345.95% 378.30% 981.27% 371.08%
Non Current assets held for disposal 0.00% 0.00% 100.00% 0.00% 0.00%
Others 100.00% 276.76% 686.18% 2075.77% 3318.38%
100.00% 280.14% 697.39% 2113.54% 3204.14%
OTHER RECEIVEABLE & DERIVATIVES 100.00% 378.62% 2066.16% 5336.80% 12458.06%
Trade Debts
Considered good
secured 100.00% 168.04% 333.37% 758.18% 153.01%
unsecured 100.00% 84.02% 119.20% 73.69% 108.85%
100.00% 112.03% 190.59% 301.86% 123.57%
Considered doubtful 100.00% 100.19% 102.61% 204.03% 397.83%
100.00% 111.87% 189.40% 300.53% 127.29%
Less: Provision for doubtful debts 100.00% 100.19% 102.61% 204.03% 397.83%
TRADE DEBTS 100.00% 112.03% 190.59% 301.86% 123.57%
Total Liquid Assets 100.00% 74.68% 159.97% 546.77% 409.63%
Stock-in-Trade
Raw material 100.00% 335.80% 346.37% 459.81% 1009.85%
Work-in-process 100.00% 37.94% 859.63% 1665.33% 2330.18%
Finished goods
Purchased products 100.00% 586.37% 364.53% 1070.61% 2381.32%
Provision for slow moving inventory 0.00% 0.00% 0.00% 0.00% 100.00%
100.00% 402.52% 526.99% 958.67% 1689.14%
STOCK-IN-TRADE 100.00% 369.52% 444.58% 729.95% 1376.00%

Spares 100.00% 107.61% 135.41% 148.79% 208.88%
Loose tools including in transit 100.00% 91.44% 83.20% 90.91% 0.00%
100.00% 106.02% 128.47% 145.37% 201.89%
Provision for surplus and slow moving items 100.00% 30.30% 24.22% 37.44% 50.61%
STORES, SPARES, AND LOOSE TOOLS 100.00% 113.39% 138.61% 155.87% 216.61%
Loan, Advance, Deposit & Prepayment

Loan & advance to executives & employees
considered good 100.00% 65.78% 102.22% 140.72% 208.12%
Advances and deposits 100.00% 231.06% 316.60% 490.01% 1033.80%
Transaction costs paid for un availed facility 0.00% 0.00% 0.00% 100.00% 63.90%
Prepaid insurance 100.00% 2.27% 44.34% 128.68% 60.34%
Prepayments 100.00% 129.08% 113.63% 557.89% 333.48%
100.00% 80.17% 121.50% 369.93% 393.11%
Less: Provision for doubtful receivables 100.00% 100.00% 376.41% 552.69% 552.69%
LOAN,ADVANCE,DEPOSIT & PREPAYMENT 100.00% 80.11% 120.80% 369.42% 392.66%
DEFERRED COMPENSATION EXPENSE 0.00% 0.00% 0.00% 0.00% 100.00%
TAXATION 100.00% 0.00% 0.00% 364.70% 535.14%
TOTAL CURRENT ASSETS 100.00% 108.79% 180.11% 502.02% 495.04%
78
2004 2005 2006 2007 2008
NON CURRENT ASSET

Joint Venture Companies 100.00% 97.83% 31.54% 32.80% 32.64%
Arabian Sea Country Club Limited 0.00% 0.00% 100.00% 100.00% 100.00%
Agrimall ( Private ) Limited 0.00% 0.00% 0.00% 0.00% 0.00%
LONG TERM INVESTMENT 100.00% 97.83% 31.88% 33.13% 32.98%

Executives 100.00% 80.38% 141.83% 273.76% 368.82%
Other employees 100.00% 42.75% 47.96% 81.91% 470.14%
100.00% 68.07% 111.14% 211.02% 401.95%
Less: Installments recoverable within a year 100.00% 65.78% 102.22% 140.72% 179.64%
100.00% 70.46% 120.41% 284.12% 633.12%
Fair value of forward foreign exchange contract 0.00% 100.00% 56.82% 17.58% 6600.37%
Less: Current portion 0.00% 100.00% 81.25% 35.78% 13306.14%
0.00% 100.00% 33.22% 0.00% 120.77%
Others 0.00% 0.00% 0.00% 100.00% 118.02%
Long term Loans, Receivable & Derivative 100.00% 133.80% 141.45% 294.39% 721.73%
TOTAL NON CURRENT ASSETS 100.00% 99.05% 35.60% 41.99% 62.94%
FIX ASSETS

Operating assets 100.00% 98.50% 155.78% 172.03% 176.67%
Capital work in process 100.00% 188.32% 100.49% 1995.69% 7581.30%
PROPERTY, PLANT AND EQUIPMENT 100.00% 106.26% 151.01% 329.57% 816.32%
Biological assets
Dairy Livestock
mature 0.00% 0.00% 0.00% 100.00% 266.79%
Immature 0.00% 0.00% 0.00% 100.00% 27904.18%
0.00% 0.00% 0.00% 100.00% 2957.76%
Crops-feed stock 0.00% 0.00% 0.00% 0.00% 100.00%
BIOLOGICAL ASSETS 0.00% 0.00% 0.00% 100.00% 3048.45%
Intangible assets
Software and Licenses 100.00% 195.45% 199.16% 381.81% 434.60%
Rights for future gas utilization 0.00% 0.00% 0.00% 100.00% 100.00%
Development cost 100.00% 69.23% 38.46% 7.69% 0.00%
Covenants 0.00% 0.00% 0.00% 100.00% 0.00%
Goodwill 100.00% 69.23% 69.23% 1832.02% 1832.02%
INTANGIBLE ASSETS 100.00% 107.10% 105.07% 1480.09% 1493.55%
TOTAL FIX ASSETS 100.00% 106.26% 150.76% 335.85% 824.22%
TOTAL ASSETS 100.00% 106.34% 148.13% 361.75% 619.92%
79
2004 2005 2006 2007 2008
Share Capital
Authorized:
15000.00
Ordinary shares of 10 each 100.00% 100.00% 100.00% % 15000.00%
Ordinary shares of 10 each fully paid in cash 100.00% 100.00% 137.90% 200.44% 248.38%
Ordinary shares of 10 each fully paid in
bonus shares 100.00% 100.00% 100.00% 100.00% 100.00%
SHARE CAPITAL 100.00% 100.00% 110.00% 126.50% 139.15%
Reserves
Share premium
Balance as at January 1, 0.00% 0.00% 0.00% 100.00% 371.03%
Share issued during the year at premium 0.00% 0.00% 100.00% 271.07% 298.18%
Issued cost 0.00% 0.00% 100.00% 290.69% 158.09%
SHARE PREMIUM 0.00% 0.00% 100.00% 371.03% 669.50%

Amount recognized on grant date 0.00% 0.00% 0.00% 0.00% 100.00%
Balance as at December 31, 0.00% 0.00% 0.00% 0.00% 100.00%
EMPLOYEE SHARE OPTION RESERVE 0.00% 0.00% 0.00% 0.00% 100.00%
Hedging reserve
Fair values of:
Foreign exchange forward contract 0.00% 0.00% 0.00% 100.00% 214.62%
Foreign exchange option contract 0.00% 0.00% 0.00% 0.00% 100.00%
Interest rate swap 0.00% 0.00% 0.00% 0.00% 100.00%
0.00% 0.00% 0.00% 100.00% 175.38%
Arrangement fee 0.00% 0.00% 0.00% 100.00% 100.00%
Deferred tax 0.00% 0.00% 0.00% 100.00% 153.45%
Minority interest 0.00% 0.00% 0.00% 0.00% 100.00%
HEDGING RESERVE 0.00% 0.00% 0.00% 100.00% 205.88%
REVALUATION RESERVES ON
COMBINATIONS 0.00% 0.00% 100.00% 68.57% 63.40%
GENERAL RESERVES 100.00% 100.00% 100.00% 100.00% 100.00%
UNAPPROPRIATED PROFITS 100.00% 196.15% 238.84% 450.29% 791.01%
RESERVES 100.00% 114.39% 145.08% 251.04% 390.42%
100.00% 111.12% 137.12% 222.77% 333.39%
MINORITY INTEREST 100.00% 99.82% 1048.89% 5641.60% 5863.69%
TOTAL SHARE CAPITAL AND RESERVES 100.00% 111.04% 144.25% 265.14% 376.63%
80
2004 2005 2006 2007 2008
CURRENT LIABILITIES
Current Portion of:

Long term finance 100.00% 0.00% 11.71% 5.96% 54.15%
Obligations under finance lease 100.00% 182.39% 456.82% 735.92% 867.07%
Deferred liability 100.00% 90.03% 107.40% 90.51% 89.11%
Redeemable capital 100.00% 63.59% 115.01% 128.29% 0.00%
CURRENT PORTION 100.00% 41.97% 79.43% 86.04% 21.19%

Financing utilized from banks 100.00% 295.87% 6348.38% 2834.10% 14426.45%
SHORT TERM BORROWINGS 100.00% 295.87% 6348.38% 2834.10% 14426.45%

Creditors 100.00% 216.52% 529.42% 1227.77% 454.91%
Accrued liability 100.00% 124.31% 217.34% 367.24% 563.08%
Payable to contribution Pension Fund 0.00% 100.00% 836.44% 1934.00% 0.00%
Payable to Provident Fund 0.00% 0.00% 100.00% 61.97% 0.00%
Advances from customers 100.00% 113.65% 18.66% 104.17% 224.90%
Current portion of fair value of interest rate
swaps 0.00% 0.00% 0.00% 0.00% 100.00%
redeemable capital and long term loans 100.00% 158.94% 177.25% 1152.41% 2492.97%
short term borrowings 100.00% 1279.86% 2016.47% 1233.32% 10627.78%
Deposit dealers refundable on termination of
dealership 100.00% 107.60% 153.04% 201.06% 187.77%
Contractor's / suppliers deposits and retentions 100.00% 131.80% 184.16% 1622.52% 3475.82%
Worker's profit participation fund 100.00% 421.33% 0.00% 235.07% 1184.88%
Sales tax payable 0.00% 100.00% 179.67% 1650.47% 0.00%
Dividend payable to minority shareholder 0.00% 0.00% 100.00% 0.00% 0.00%
Provision for infrastructure fee 0.00% 0.00% 0.00% 100.00% 145.63%
Provision for special excise duty 0.00% 0.00% 0.00% 0.00% 100.00%
Others 0.00% 100.00% 473.30% 767.74% 1989.54%
TRADE & PAYABLE INCLUDING DERIVATIVE 100.00% 147.83% 218.13% 530.47% 528.09%
UNCLAIMED DIVIDENDS 100.00% 163.24% 172.65% 404.73% 667.30%
TAXATION 0.00% 100.00% 76.04% 0.00% 0.00%
TOTAL CURRENT LIABILITY 100.00% 93.34% 205.38% 308.35% 394.23%
Long term finance

Obtained from bank 0.00% 0.00% 100.00% 33.92% 39317.41%
LONG TERM FINANCE 0.00% 0.00% 100.00% 0.00% 117028%
81
2004 2005 2006 2007 2008
Redeemable Capital
Redeemable Capital 100.00% 97.58% 97.79% 534.60% 0.00%
REDEEMABLE CAPITAL 100.00% 111.86% 90.55% 705.28% 0.00%
Derivatives
Current portion shown under current liabilities 0.00% 0.00% 0.00% 0.00% 100.00%
DERIVATIVES 0.00% 0.00% 0.00% 0.00% 100.00%

Present value of minimum lease payments 100.00% 180.21% 506.65% 689.06% 724.04%
Current portion shown under current liabilities 100.00% 182.39% 456.82% 735.92% 867.07%
OBLIGATIONS UNDER FINANCE LEASE 100.00% 179.09% 532.16% 665.07% 650.83%
Deferred taxation
Credit / Debit balances arising 0n account of:
Accelerated depreciation allowance 100.00% 101.01% 188.09% 214.59% 231.89%
Net borrowing cost capitalized 0.00% 0.00% 0.00% 100.00% 529.85%
Fair value of derivative financial instruments 0.00% 0.00% 0.00% 100.00% 161.91%
Recoupable carried forward tax losses 0.00% 100.00% 7966.28% 1155.61% 2535.32%
Tax on subsidiary reserves 0.00% 0.00% 100.00% 251.57% 161.44%
Tax on fair value adjustment 0.00% 0.00% 100.00% 68.57% 63.40%
Recoupable minimum turnover tax 0.00% 0.00% 100.00% 181.79% 157.30%
Provision for
-retirement benefits 100.00% 69.50% 63.35% 194.72% 148.07%
-inventory, slow moving store & doubtful
receivable 100.00% 26.14% 18.91% 32.30% 1383.51%
-others 100.00% 97.88% 211.67% 90.51% 1813.02%
DEFERRED TAXATION 100.00% 102.91% 144.37% 308.14% 372.66%
EMPLOYEE HOUSING SUBSIDY 0.00% 0.00% 0.00% 0.00% 100.00%
Deferred income on sales and leaseback for
vehicles 100.00% 13.72% 15.42% 4.33% 2.75%
Retirement and other service benefits 100.00% 99.46% 128.18% 160.65% 215.52%
DEFERRED LIABILITIES 100.00% 67.57% 86.24% 102.52% 136.39%
RETENTION MONEY ON PROJECT PAYMENT 0.00% 0.00% 0.00% 0.00% 100.00%
TOTAL NON CURRENT LIABILITY 100.00% 108.73% 106.30% 588.19% 1268.44%
TOTAL EQUITY AND LIABILITY 100.00% 106.34% 148.13% 361.75% 619.92%
82
8.1.5 TOTAL ASSETS
All the valuables possessed by the Engro Chemical Pakistan Limited are called its
assets. It includes all current assets, non current assets, and fixed assets. Fiscal
year 2004 is considered as base for analyzing the total assets which are consider as
base for the analysis, related amounts and graph is given as under. Further details
are given on next pages.
Amounts
2004 2005 2006 2007 2008

Total Assets 100.00% 106.34% 148.13% 361.75% 619.92%
Total Assets
1400.00%
1200.00%
1000.00%
800.00%
600.00%
400.00%
200.00%
0.00%
2004 2005 2006 2007 2008
TOTAL CURRENT ASSETS TOTAL NONCURRENTASSETS TOTAL FIX ASSETS
83
Interpretation
Total assets are showing positive horizontal trend. It’s increasing year by year and
reaches to the 619.92.55% in FY08 as compared to the FY04 and further
explanations are given as under.
FY2005: Total assets of the FY05 grew by 6%.this little increase mainly due to
decrease in non current assets in 2005 reason behind that is decrease in long term
investments by the Engro chemicals. However current assets and fixed assets are
increased with 6% and 8% respectively.
FY2006: Total assets for the year were grown by 48.13% supported by increase in
current, non current and fixed assets. Absolute liquid assets are increasing by 3%
and liquid assets by 59.97%.
FY2007: The FY07 proved to be good one for Engro, its growth is almost equal to
261.75%.This increase occur mainly due to increase in fixed assets. Specially
increase in biological assets at 100%.
FY2008: Engro delivered strongest results to date in 2008. Total assets reaches at
591% increasing rate as compared to the FY2oo4. This increase occurs mainly due
to the purchase of new technology in the form of fixed assets. Biological assets are
also increased in 2008.
84
8.1.6 TOTAL LIABILITY
The claim of outsiders against the assets of the firm is called liability. It includes
current and non current liabilities for the particular year. Fiscal year 2004 is
considered as base for analyzing the total liabilities which are consider as base for
the analysis.
Amounts
TOTAL LIABILITY 2004 2005 2006 2007 2008

Current Liability 100.00% 93.34% 205.38% 308.35% 394.23%
Non Current Liability 100.00% 108.73% 106.30% 588.19% 1268.44%
Total Liability
1800.00%
1600.00%
1400.00%
1200.00%
1000.00%
800.00%
600.00%
400.00%
200.00%
0.00%
2004 2005 2006 2007 2008
TOTAL CURRENT LIABILITY TOTAL NON CURRENT LIABILITY
85
Interpretation
Total Liability are showing increasing trend. It’s increasing year by year and reaches
to the highest level in FY08 as compared to the FY04 and further explanations are
given as under.
FY2005: Total Liability of the FY05 grew with very low position mainly due to 7%
decrease in current liability and 8% increase in non current liability it means that
overall 1% increase in total liability due to increase in non current liability specially in
redeemable capital.
FY2006: Total Liability for the year was grown by 105% and 6% in current and non
current liability respectively. This happened mainly due to the firm truly focus on
firm’s current liability which were low in last year.
FY2007: The FY07 proved to be good one for Engro, Total Liability for the year 07
higher as compared to the base year 2004, Non current liabilities increased at
499.18% as compared to the 2004.this occur due to the sales of leaseback vehicles
and the amount was still deferred at the time of taking financial reviews.
FY2008: Non current liabilities are the basic reason of increasing total Liability for
the FY08.this increase occurred due to the increase in derivatives and employees
housing subsidy at 100%.
86
8.2 CONCLUSION
The company mainly manufactures and market fertilizers. The analysis of Engro
Chemicals Pakistan limited has shown a modest growth over the past few years
showing healthy increases in the profit of the company.
According to the trend percentage analysis results are Trend analysis shows the
improvement in past year. All the profits are increasing and reach to the 243.05% in
FY08 and increase at the rate of 143.05% as compared to FY04.
Companies Performance is improving and gross profits reach to the 290.69%
coupled with better relative increase in selling, general expenses. Liability is also
increase in last four years. It may create problem in debt management however
assets are also increase so the company have sufficient finance to fulfill the liabilities
hence firm will not face liquidity problems.
And currently despite a year of international economic upheaval Engro’s growth
remains steady, with all expansion projects on track.
87
88
COMPONENT PERCENTAGE ANALYSIS
9.1 BRIEF
Component percentage indicates the relative size of each item included in the total
known as component percentage analysis, It also known as vertical or static
analysis, which refers to the review of financial information for only one accounting
period. This shows quickly the relative importance of particular item as well as the
relative amount of financing required for financing this item. The calculation criteria is
given as under
• For Balance sheet each item could be expressed as a percentage of total
assets.
• For Income statement each item could be expressed as a percentage of total
sales such a statement called as common size statement.
By computing component percentages for several successive financial statements, it
can be conclude that, which items are increasing in importance and which are
becoming less significant.
It is distinguish from horizontal or trend analysis, which refers to the review of
financial information for only base year. Component percentage analysis of Engro
Chemicals limited is given on next pages.
89
Vertical Analysis Balance Sheet
2004 2005 2006 2007 2008

CURRENT ASSETS

In Banks
Deposit / Saving accounts 9.96% 5.78% 9.20% 3.14% 0.49%
Current accounts 1.30% 1.69% 1.13% 0.41% 1.64%
In Hand
Cash 0.02% 0.02% 0.02% 0.03% 0.48%
Cheqes / Demand draft / Cash in transit 1.30% 1.98% 1.85% 0.78% 0.01%
CASH AND BANK BALANCES 12.59% 9.48% 12.21% 4.36% 2.62%

Certificates of Investment 0.18% 0.00% 0.00% 0.00% 0.00%
-Government of Pakistan Special US bonds 5.07% 0.00% 0.00% 0.00% 0.00%
-Certificates of investment 0.18% 0.00% 0.00% 0.00% 0.00%
-Certificates of deposit 0.37% 0.17% 0.00% 0.00% 0.00%
-Fixed income / money market funds 0.76% 0.78% 1.14% 21.08% 2.46%
SHORT TERM INVESTMENTS 6.57% 0.96% 1.14% 21.08% 2.46%
Total Absolute Liquid Assets 19.15% 10.44% 13.35% 25.43% 5.08%

Customs duty and sales tax 0.16% 0.15% 0.20% 0.05% 0.03%
Subsidy 0.00% 0.00% 4.79% 2.14% 3.68%
Sales tax 0.00% 0.00% 0.00% 0.00% 0.07%
Others 0.10% 0.09% 0.08% 0.03% 0.02%
0.26% 0.25% 5.07% 2.21% 3.79%
Accrued income on deposit / bonds 0.08% 0.04% 0.03% 0.07% 0.00%
Receivable from Pension Funds 0.04% 0.00% 0.36% 0.04% 0.04%
Worker's Profit Participation Fund 0.00% 0.00% 0.02% 0.00% 0.00%
Sales tax / special excise duty refundable 0.02% 0.00% 0.47% 0.41% 0.52%
Custom duty claim refundable 0.00% 0.00% 0.00% 0.00% 0.02%
0.02% 0.00% 0.47% 0.41% 0.43%
Current portion of forward contract 0.00% 0.00% 0.00% 0.00% 5.07%
Fair value of foreign exchange option contracts 0.00% 0.00% 0.00% 4.09% 0.41%
Engro Vopak Terminal Limited 0.00% 0.94% 0.45% 0.18% 0.11%
Engro Asahi Polymer & Chemical Limited 0.00% 0.02% 0.00% 0.00% 0.00%
Claims on suppliers and insurance companies 0.08% 0.25% 0.20% 0.21% 0.05%
90
2004 2005 2006 2007 2008
0.08% 0.25% 0.20% 0.21% 0.05%
Non Current assets held for disposal 0.00% 0.00% 0.13% 0.00% 0.00%
Others 0.02% 0.05% 0.09% 0.11% 0.10%
0.02% 0.05% 0.09% 0.11% 0.10%
OTHER RECEIVEABLE & DERIVATIVES 0.50% 1.77% 6.94% 7.34% 10.00%
Trade Debts
Considered good
secured 1.51% 2.39% 3.40% 3.17% 0.37%
unsecured 3.02% 2.39% 2.43% 0.62% 0.53%
4.53% 4.78% 5.83% 3.78% 0.90%
Considered doubtful 0.06% 0.06% 0.04% 0.04% 0.04%
4.60% 4.84% 5.88% 3.82% 0.94%
Less: Provision for doubtful debts 0.06% 0.06% 0.04% 0.04% 0.04%
TRADE DEBTS 4.53% 4.78% 5.83% 3.78% 0.90%
Total Liquid Assets 24.18% 16.98% 26.12% 36.55% 15.98%
Stock-in-Trade
Raw material 1.78% 5.63% 4.17% 2.27% 2.90%
Work-in-process 0.02% 0.01% 0.12% 0.09% 0.08%
Finished goods
Purchased products 0.99% 5.45% 2.43% 2.92% 3.80%
Provision for slow moving inventory 0.00% 0.00% 0.00% 0.00% 0.00%
2.02% 7.66% 7.20% 5.36% 5.52%
STOCK-IN-TRADE 3.83% 13.30% 11.49% 7.72% 8.50%

Spares 4.01% 4.06% 3.67% 1.65% 1.35%
Loose tools including in transit 0.03% 0.02% 0.01% 0.01% 0.00%
4.76% 4.75% 4.13% 1.91% 1.55%
Provision for surplus and slow moving items -0.42% -0.12% -0.07% -0.04% -0.03%
STORES, SPARES, AND LOOSE TOOLS 4.34% 4.63% 4.06% 1.87% 1.52%

Loan & advance to executives & employees
considered good 0.40% 0.25% 0.28% 0.16% 0.13%
Advances and deposits 0.45% 0.98% 0.96% 0.61% 0.75%
Transaction costs paid for un availed facility 0.00% 0.00% 0.00% 0.60% 0.22%
Prepaid insurance 1.00% 0.02% 0.30% 0.36% 0.10%
Prepayments 0.33% 0.40% 0.25% 0.51% 0.18%
2.18% 1.64% 1.79% 2.23% 1.38%
Less: Provision for doubtful receivables 0.01% 0.01% 0.02% 0.01% 0.01%
LOAN,ADVANCE,DEPOSIT & PREPAYMENT 2.17% 1.64% 1.77% 2.22% 1.38%
TAXATION 1.20% 0.00% 0.00% 1.21% 1.04%
TOTAL CURRENT ASSETS 35.72% 36.55% 43.44% 49.58% 28.53%
91
2004 2005 2006 2007 2008
NON CURRENT ASSET

Joint Venture Companies 11.00% 10.12% 2.34% 1.00% 0.58%
Arabian Sea Country Club Limited 0.00% 0.00% 0.02% 0.01% 0.01%
Agrimall ( Private ) Limited 0.00% 0.00% 0.00% 0.00% 0.00%
LONG TERM INVESTMENT 11.00% 10.12% 2.37% 1.01% 0.59%

Executives 0.53% 0.40% 0.51% 0.40% 0.32%
Other employees 0.26% 0.10% 0.08% 0.06% 0.20%
0.79% 0.50% 0.59% 0.46% 0.51%
Less: Installments recoverable within twelve
months 0.40% 0.25% 0.28% 0.16% 0.12%
0.39% 0.26% 0.31% 0.30% 0.39%
Fair value of forward foreign exchange contract 0.00% 0.45% 0.18% 0.02% 5.12%
0.00% 0.23% 0.05% 0.00% 0.05%
Others 0.00% 0.00% 0.00% 0.01% 0.01%
LONG TERM LOAN,RECEIVEABLE 0.39% 0.49% 0.37% 0.31% 0.45%
TOTAL NON CURRENT ASSETS 11.39% 10.61% 2.74% 1.32% 1.16%
FIX ASSETS

Operating assets 48.06% 44.52% 50.54% 22.86% 13.70%
Capital work in process 4.54% 8.05% 3.08% 25.07% 55.57%
PROPERTY, PLANT AND EQUIPMENT 52.61% 52.56% 53.63% 47.93% 69.27%
Biological assets
Dairy Livestock
mature 0.00% 0.00% 0.00% 0.02% 0.03%
Immature 0.00% 0.00% 0.00% 0.00% 0.33%
0.00% 0.00% 0.00% 0.02% 0.35%
Crops-feed stock 0.00% 0.00% 0.00% 0.00% 0.01%
BIOLOGICAL ASSETS 0.00% 0.00% 0.00% 0.02% 0.37%
Intangible assets
Software and Licenses 0.08% 0.16% 0.11% 0.09% 0.06%
Rights for future gas utilization 0.00% 0.00% 0.00% 0.21% 0.12%
Development cost 0.03% 0.02% 0.01% 0.00% 0.00%
Covenants 0.00% 0.00% 0.00% 0.00% 0.00%
Goodwill 0.17% 0.11% 0.08% 0.85% 0.50%
INTANGIBLE ASSETS 0.28% 0.28% 0.20% 1.16% 0.68%
TOTAL FIX ASSETS 52.89% 52.85% 53.83% 49.10% 70.32%
TOTAL ASSETS 100% 100% 100% 100% 100%
92
2004 2005 2006 2007 2008
Share Capital
Authorized:
Ordinary shares of 10 each 14.77% 13.89% 9.97% 612.57% 357.4%
Ordinary shares of 10 each fully paid in cash 2.98% 2.80% 2.77% 1.65% 1.19%
Ordinary shares of 10 each fully paid in bonus 8.32% 7.82% 5.61% 2.30% 1.34%
SHARE CAPITAL 11.30% 10.62% 8.39% 3.95% 2.54%
Reserves
Share premium
Share issued during the year at premium 0.00% 0.00% 5.34% 5.93% 3.80%
Issued cost 0.00% 0.00% -0.01% -0.01% 0.00%
SHARE PREMIUM 0.00% 0.00% 5.33% 8.09% 8.52%

Amount recognized on grant date 0.00% 0.00% 0.00% 0.00% 0.07%
Balance as at December 31, 0.00% 0.00% 0.00% 0.00% -0.01%
EMPLOYEE SHARE OPTION RESERVE 0.00% 0.00% 0.00% 0.00% 0.39%
Hedging reserve
Fair values of:
Foreign exchange forward contract 0.00% 0.00% 0.00% 4.09% 5.12%
Foreign exchange option contract 0.00% 0.00% 0.00% 0.00% 0.41%
Interest rate swap 0.00% 0.00% 0.00% 0.00% -1.35%
0.00% 0.00% 0.00% 4.09% 4.18%
Arrangement fee 0.00% 0.00% 0.00% -0.34% -0.20%
Deferred tax 0.00% 0.00% 0.00% -1.64% -1.46%
Minority interest 0.00% 0.00% 0.00% 0.00% 0.02%
HEDGING RESERVE 0.00% 0.00% 0.00% 2.12% 2.54%
REVALUATION RESERVES ON COMBINATIONS 0.00% 0.00% 0.98% 0.28% 0.15%
GENERAL RESERVES 32.72% 30.77% 22.09% 9.04% 5.28%
UNAPPROPRIATED PROFITS 5.76% 10.62% 9.28% 7.17% 7.35%
RESERVES 38.48% 41.39% 37.68% 26.70% 24.23%
49.77% 52.01% 46.07% 30.65% 26.77%
MINORITY INTEREST 0.39% 0.37% 2.78% 6.12% 3.71%
TOTAL SHARE CAPITAL AND RESERVES 50.16% 52.38% 48.85% 36.77% 30.48%
2004 2005 2006 2007 2008
93
CURRENT LIABILITIES
Current Portion of:

Long term finance 4.39% 0.00% 0.35% 0.07% 0.38%
Obligations under finance lease 2,311 4,215 10,557 17,007 20,038
Deferred liability 22,471 20,230 24,133 20,339 20,023
Redeemable capital 1,089,000 692,500 1,252,500 1,397,080 0
CURRENT PORTION 12.62% 4.98% 6.77% 3.00% 0.43%

Financing utilized from banks 0.24% 0.65% 10.07% 1.84% 5.47%
SHORT TERM BORROWINGS 0.24% 0.65% 10.07% 1.84% 5.47%

Creditors 2.49% 5.06% 8.88% 8.44% 1.82%
Accrued liability 2.38% 2.79% 3.50% 2.42% 2.17%
Payable to contribution Pension Fund 0.00% 0.00% 0.02% 0.02% 0.00%
Payable to Provident Fund 0.00% 0.00% 0.07% 0.02% 0.00%
Advances from customers 4.37% 4.67% 0.55% 1.26% 1.59%
Current portion of fair value of interest rate 0.00% 0.00% 0.00% 0.00% 0.18%
redeemable capital and long term loans 0.30% 0.45% 0.36% 0.95% 1.20%
Deposit dealers refundable on termination 0.05% 0.05% 0.05% 0.03% 0.02%
Contractor's / suppliers deposits and retentions 0.06% 0.08% 0.08% 0.28% 0.35%
Worker's profit participation fund 0.01% 0.05% 0.00% 0.01% 0.02%
Sales tax payable 0.00% 0.04% 0.05% 0.19% 0.00%
Dividend payable to minority shareholder 0.00% 0.00% 0.10% 0.00% 0.00%
Provision for infrastructure fee 0.00% 0.00% 0.00% 0.36% 0.31%
Provision for special excise duty 0.00% 0.00% 0.00% 0.00% 0.07%
Others 0.00% 0.06% 0.22% 0.15% 0.22%
TRADE & PAYABLE INCLUDING DERIVATIVE 9.80% 13.63% 14.44% 14.37% 8.35%
UNCLAIMED DIVIDENDS 0.35% 0.54% 0.41% 0.39% 0.38%
TAXATION 0.00% 0.39% 0.21% 0.00% 0.00%
TOTAL CURRENT LIABILITY 23.01% 20.19% 31.90% 19.61% 14.63%
Long term finance

Obtained from bank 0.00% 0.00% 0.52% 0.07% 48.93%
Less: Current portion 0.00% 0.00% -0.35% -0.07% -0.38%
LONG TERM FINANCE 0.00% 0.00% 0.17% 0.00% 48.54%
2004 2005 2006 2007 2008
94
Redeemable Capital
Redeemable Capital 27.19% 24.95% 17.95% 40.19% 0.00%
Less: Current portion -8.04% -4.81% -6.25% -2.85% 0.00%
REDEEMABLE CAPITAL 19.15% 20.14% 11.71% 37.33% 0.00%
Derivatives
Current portion shown under current liabilities 0.00% 0.00% 0.00% 0.00% -0.18%
DERIVATIVES 0.00% 0.00% 0.00% 0.00% 1.17%

Present value of minimum lease payments 0.05% 0.09% 0.17% 0.10% 0.06%
Current portion shown under current liabilities -0.02% -0.03% -0.05% -0.03% -0.02%
OBLIGATIONS UNDER FINANCE LEASE 0.03% 0.06% 0.12% 0.06% 0.04%
Deferred taxation
Accelerated depreciation allowance 7.58% 7.20% 9.63% 4.50% 2.84%
Net borrowing cost capitalized 0.00% 0.00% 0.00% 0.26% 0.81%
Fair value of derivative financial instruments 0.00% 0.00% 0.00% 1.41% 1.33%
Recoupable carried forward tax losses 0.00% -0.06% -3.63% -0.22% -0.28%
Tax on subsidiary reserves 0.00% 0.00% 0.12% 0.13% 0.05%
Tax on fair value adjustment 0.00% 0.00% 1.31% 0.37% 0.20%
Recoupable minimum turnover tax 0.00% 0.00% -0.30% -0.22% -0.11%
Provision for
-retirement benefits -0.24% -0.15% -0.10% -0.13% -0.06%
-inventory, slow moving store -0.17% -0.04% -0.02% -0.02% -0.38%
-others -0.04% -0.03% -0.05% -0.01% -0.11%
DEFERRED TAXATION 7.14% 6.91% 6.96% 6.08% 4.29%
EMPLOYEE HOUSING SUBSIDY 0.00% 0.00% 0.00% 0.00% 0.09%
Deferred income on sales and leaseback 0.19% 0.02% 0.02% 0.00% 0.00%
Retirement and other service benefits 0.32% 0.30% 0.28% 0.14% 0.11%
DEFERRED LIABILITIES 0.51% 0.32% 0.29% 0.14% 0.11%
RETENTION MONEY ON PROJECT PAYMENT 0.00% 0.00% 0.00% 0.00% 0.66%
TOTAL NON CURRENT LIABILITY 26.83% 27.43% 19.25% 43.62% 54.89%
TOTAL EQUITY AND LIABILITY 100% 100% 100% 100% 100%
95
9.1.1 TOTAL ASSETS
All the valuables possessed by the Engro Chemical Pakistan Limited are called its
assets. It includes all current assets, non current assets, and fixed assets. Total
assets or relative year is considered as base for analyzing the related assets, related
amounts and graph is given as under. Further details are given on next pages.
Amounts
TOTAL ASSETS 2004 2005 2006 2007 2008

Current Assets 35.72% 36.55% 43.44% 49.58% 28.53%
Non Current Assets 11.39% 10.61% 2.74% 1.32% 1.16%
Fixed Assets 52.89% 52.85% 53.83% 49.10% 70.32%
Total Assets
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2004 2005 2006 2007 2008
TOTAL CURRENT ASSETS TOTAL NON CURRENT ASSETS TOTAL FIX ASSETS
96
Interpretation
Vertical analysis of Current Assets of Engro Chemical Pakistan Ltd shows a
negative trend. The current economic situation has affected its position in FY08 but
firm can easily face this problem because it has enough finance to financing its short
term obligations. This decline occurs due to the increase in total assets and this is
mainly because of fixed assets as 52.89% FY04, 52.85% FY05, 53.83% FY06,
49.10% FY07, and 70.32% FY08.
Non current assets are the investments held by the Engro Chemicals Pakistan Ltd to
earn interest or profit from other organizations. These investments are converted
into cash in case of need; vertical analysis shows a negative trend in past years.
Firm is giving its full concentration toward increasing its fixed assets technology. So
the non current assets become only a small part of total assets as in 2008 its only a
1.16 part of overall assets.
It shows the fixed assets margin fluctuating from 52.89% in FY04 to 69.27% in
FY08. An improvement in fixed assets occurs due to the new technological focus
that changing day by day. This performance improvement coupled with increase in
biological assets from 0.02% in FY07 to 0.37% in FY08. Total assets are considering
as base and assume as 100%. Fixed assets are the big part of Engro’s total assets.
97
9.1.2 TOTAL EQUITY & LIABILITY
The claim of outsiders against the assets of the firm is called liability. It includes
current and non current liabilities for the particular year, and the claim of the owner
against the assets of the firm are called shareholder equity. Total equity and liability
or relative year is considered as base for analyzing the related item, related amounts
and graph is given as under. Further details are given on next pages.
Amounts
NON CURRENT ASSETS 2004 2005 2006 2007 2008

Current Liability 23.01% 20.19% 31.90% 19.61% 14.63%
Non Current Liability 26.83% 27.43% 19.25% 43.62% 54.89%
Total Share Capital & Reserves 50.16% 52.38% 48.85% 36.77% 30.48%
Total Equity & Liability
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2004 2005 2006 2007 2008
CURRENT LIABILITIES TOTAL NON CURRENT LIABILITY TOTAL SHARE CAPITAL AND RESERVES
98
Interpretation
Vertical analysis of Current Liability of Engro Chemical Pakistan Ltd shows a
negative trend in last four years. This decrease mainly due to the decrease in trade
and payables including derivatives specially that’s taken from the creditor, it reaches
to the 1.82% in FY2008 as compared to the FY2007 when its was equal to the
2.49%.Currently the amounts are 23.01%, 20.19%, 31.90%, 19.61% and 14.63%
respectively the reason behind is the company has enough finance to meet its short
term requirements.
Vertical analysis of Non current liabilities are showing positive trend in last years.
This mainly occur due to the increase in Long term finance that taken from bank to
meet the permanent requirements of the firm. It reaches to the 48% of all the liability.
In 2008 interest rate swap is another reason of increase in non current liability.
Furthermore retention money of project money caused the increase of non current
liability. Last four years results are 26.83%, 27.43%, 19.25%, 43.62% respectively
and the current result is 54.89% for 2008.
Total share capital & reserves show fluctuated result in last 5 years. This mainly
occurs due to the fluctuation in reserves of last five years. The results of vertical
analysis of the Engro chemical Pakistan Ltd are 50.16%, 52.38%, 48.85%, 36.77%
and 30.48% respectively.
99
Vertical Analysis Profit & Loss Account
2004 2005 2006 2007 2008

Sales
Own manufactured products - - - - -
Less: Sales tax - - - - -
Purchased product / services rendered - - - - -

Less: Sales tax - - - - -
NET SALES 100% 100% 100% 100% 100%
Cost of Sales
Fuel and power 11.17% 8.83% 10.52% 6.48% 7.21%
Staff recruitment, training, staff and other 0.18% 0.17% 0.21% 0.14% 0.17%
Storage and handling 0.00% 0.00% 0.00% 0.35% 0.34%
Travel 0.16% 0.12% 0.24% 0.18% 0.22%
Insurance 0.41% 0.27% 0.31% 0.27% 0.25%
Rent and taxes 0.04% 0.03% 0.07% 0.06% 0.17%
Stock-finished goods written off 0.00% 0.00% 0.00% 0.01% 0.00%
Provision against sales tax refundable 0.00% 0.00% 0.00% 0.00% 0.09%
Other expenses 0.19% 0.06% 0.12% 0.06% 0.07%
Add: Opening stock of work in process 0.07% 0.01% 0.07% 0.07% 0.11%
Less: Closing stock of work in process 0.02% 0.01% 0.12% 0.13% 0.15%
0.05% 0.01% -0.04% -0.06% -0.04%
Add: Opening stock of finished goods 1.20% 0.75% 5.13% 2.80% 2.92%
Less: Closing stock of finished goods 1.07% 1.70% 4.73% 3.50% 3.53%
0.12% -0.95% 0.41% -0.70% -0.61%
Cost of goods sold
Purchased product 28.34% 39.67% 31.19% 29.96% 13.12%
Other 1.41% 1.86% 3.13% 2.78% 3.00%
COST OF SALES 71% 75% 75% 77% 73%
GROSS PROFIT 29% 25% 25% 23% 27%
2004 2005 2006 2007 2008
100
Staff recruitment, training, safety and other 0.13% 0.13% 0.14% 0.16% 0.12%
Product transportation and handling 4.55% 4.28% 5.01% 3.88% 3.22%
Advertising and sales promotion 0.47% 0.34% 2.08% 2.22% 2.03%
Rent and taxes 0.25% 0.23% 0.37% 0.41% 0.49%
Travel 0.20% 0.18% 0.42% 0.35% 0.43%
Depreciation / amortization 0.21% 0.14% 0.20% 0.19% 0.26%
Donations 0.00% 0.00% 0.17% 0.13% 0.10%
Others 0.22% 0.27% 0.21% 0.24% 0.26%
SELLING AND DISTRIBUTION EXPENSES 8% 7% 11% 11% 10%
OPERATIVE INCOME 20% 18% 14% 13% 16%
Other Income
Commission income 0.00% 0.00% 0.00% 0.00% 0.47%
Service charges 0.04% 0.08% 0.01% 0.02% 0.05%
Unrealized fair value gain on short term investment 0.00% 0.35% 0.00% 0.14% 0.00%
Fair value of interest rate swap 0.00% 0.13% 0.02% 0.01% 0.00%
Reversal of resignation gratuity provision 0.00% 0.00% 0.00% 0.01% 0.00%
Gain on curtailed defied benefit pension plan 0.00% 0.00% 0.56% 0.05% 0.08%
Negative goodwill recognized 0.00% 0.00% 0.96% 0.67% 0.75%
Profit on disposal of fixed assets 0.10% 0.00% 0.03% 0.00% 0.17%
Gain arising from sale cost of biological assets 0.00% 0.01% 0.01% 0.00% 0.14%
Foreign exchange gain 0.03% 0.00% 0.02% 0.00% 0.20%
Others 0.00% 0.06% 0.21% 0.00% 0.04%
OTHER INCOME 0.53% 0.89% 2.08% 1.49% 2.53%

Holding Company 0.95% 0.92% 0.91% 0.67% 0.68%
Subsidiary Companies 0.25% 0.00% 0.01% 0.09% 0.06%
Legal and professional charges 0.00% 0.00% 0.03% 0.14% 0.32%
R&D (including salaries and wages) 0.24% 0.37% 0.17% 0.05% 0.01%
Loss on sales of fixed assets 0.00% 0.01% 0.00% 0.06% 0.00%
Loss on death / sales of biological assets 0.00% 0.00% 0.00% 0.01% 0.00%
Amortization of Goodwill 0.05% 0.04% 0.00% 0.00% 0.00%
Foreign exchange loss 0.00% 0.00% 0.00% 0.06% 0.56%
statutory audit 0.01% 0.01% 0.01% 0.01% 0.01%
half yearly review 0.00% 0.00% 0.00% 0.00% 0.00%
fee for other services 0.01% 0.00% 0.01% 0.01% 0.00%
reimbursement of expenses 0.00% 0.00% 0.00% 0.00% 0.00%
0.02% 0.01% 0.02% 0.02% 0.02%
Less: Intangible assets/work-in-progress -0.01% 0.00% 0.00% 0.00% 0.00%
0.01% 0.01% 0.02% 0.02% 0.02%
2004 2005 2006 2007 2008

Professional tax 0.01% 0.00% 0.00% 0.00% 0.00%
101
Unrealized fair value loss on investment 0.00% 0.00% 0.00% 0.00% 0.01%
Others 0.00% 0.00% 0.00% 0.02% 0.33%
Finance cost
long term finance 2.14% 1.32% 1.68% 1.55% 2.10%
Interest on worker's profits participation fund 0.00% 0.00% 0.00% 0.00% 0.00%
Others 0.03% 0.01% 0.10% 0.09% 0.11%
FINANCE COST 2.20% 1.55% 2.17% 2.10% 4.24%
4% 3% 4% 4% 7%

Share of income before taxation 4.48% 2.78% 3.12% 1.06% 0.91%
-
Share of provision for taxation -1.62% 0.80% -1.10% -0.34% -0.31%
SHARE OF INCOME FROM JOINT VENTURE 2.86% 1.98% 2.02% 0.71% 0.60%
PROFIT BEFORE TAXATION 20% 17% 14% 12% 13%
Taxation
Current - for the year 5.75% 5.06% 4.27% 3.30% 2.88%
- prior year 0.00% 0.00% 0.00% 0.16% 0.00%
Deferred - for the year 0.90% 0.15% -0.42% -0.18% -0.50%
TAXATION 6.65% 5.21% 3.85% 3.28% 2.39%
PROFIT AFTER TAXATION 13% 12% 11% 8% 10%
102
9.1.3 CGS, GP & PROFIT
Cost of goods is the amount of purchase price and direct expenses of the
merchandise sold during the particular period. It is determined by adding beginning
inventory of material and net purchases with the deduction of ending inventory from
both. Gross Profit is determined by deduction of Cost of good sold from net sales. It
helps to determine the future prices of merchandise and total of all the selling,
administrative and general expenses is deducted from gross profit. The reminder is
known as Net profit from operating or net business income.
Amounts
NON CURRENT ASSETS 2004 2005 2006 2007 2008

Cost of Sales 71% 75% 75% 77% 73%
Gross Profit 29% 25% 25% 23% 27%
Profit 13% 12% 11% 8% 10%
CGS, GP & PROFIT
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004 2005 2006 2007 2008
COSTOF SALES GROSS PROFIT Net Profit
103
Interpretation
The cost of goods sold per ton for Engro Chemical Pakistan Limited for last five
years is similar. This has more to do with new technical plant with achieving
manufacturing efficiency. Raw material cost is the major fact of same CGS in past
years. It shows efficiency of purchasing department. Manufacturing cost of Engro
chemical has clearly exhibited lower than average industry cost this is due to the fact
that manufacturing process is costlier.
Gross profit shows u shaped trend in last five years is mainly occurring due to the
stability is sales and cost of good sold in last years. I expect gross profit to remain
stable in the near future because of demand of fertilizers in the national and t the
international level.
Engro chemical Pakistan Ltd a fertilizer manufactures saw a rise in last years with a
steep and unprecedented rise in urea and DPA sales per unit. Plant shut down as a
result of fluctuation problems and de-bottlenecking in later CY07 show dismal result
for fertilizer manufacturer, however, in the upcoming years I expected profits to rise.
104
9.2 CONCLUSION
According to the component percentage analysis results are
Component percentage analysis shows the improvement in past year. All the profits
are increasing and reach to the 10% in FY08 0f sales and increase at the rate of 5%
as per industry. Companies Performance is improving and gross profits reach to the
27% coupled with better relative increase in selling, general expenses. Liability is
also increase in last four years. It may create problem in debt management however
105
106
DOLLAR AND PERCENTAGE CHANGES
10.1 BRIEF
The dollar amount of change from year to year is significant, but expressing the
change in percentage terms adds perspective.
The dollar amount of any change is the difference between the amounts for a
comparison year and for a base year. The percentage change is computed by
dividing the amount of the change between years by the amount for the base year.
PERCENTAGE CHANGES = (Current Year – Last year) * 100

Last Year
Evaluating Percentage Changes in Sales and Earnings computing percentage
changes in sales, gross profit, and net income from one year to the next gives
insight into a company’s rate of growth.
If a company is experiencing growth in its economic activities, sales and earning
should increase at more than the rate of inflation. It is probable that the entire
increase in the dollar amount of sales may be explained by inflation, rather then by
an increase in sales volume. Infect, the company may well have sold fewer goods
then in the preceding year.
107
Percentage change Profit and Loss Account
2004 2005 2006 2007 2008
Sales
Own manufactured products 100.00% 43.54% -29.75% 69.56% 58.01%
Less: Sales tax - - 100.00% 85.19% 11.23%
100.00% 43.54% -35.33% 68.21% 62.45%
Purchased product / services rendered - - 100.00% 65.95% -44.42%
Less: Sales tax - - 100.00% 14.06% -79.96%
- - 100.00% 69.13% -42.95%
NET SALES 100.00% 43.54% 7.91% 68.58% 20.08%
Cost of Sales
Fuel and power 100.00% 13.38% 28.62% 3.78% 33.69%
Repair and maintenance 100.00% 19.92% -2.51% 51.83% 58.51%
Consumable stores 100.00% -1.73% 29.26% 49.13% 35.87%
Staff recruitment, training and other expenses 100.00% 33.81% 35.99% 12.26% 40.06%
Purchased services 100.00% 3.02% -0.76% 34.17% 143.75%
Storage and handling - - - 100.00% 15.90%
Travel 100.00% 7.61% 114.82% 23.69% 45.96%
Communication and other office expenses 100.00% -1.35% 5.33% 151.77% 33.14%
Insurance 100.00% -4.49% 21.34% 50.43% 8.23%
Stock-finished goods written off - - - 100.00% -72.41%
Provision against sales tax refundable - - - - 100.00%
Other expenses 100.00% -53.31% 109.28% -14.57% 43.69%
Add: Opening stock of work in process 100.00% -71.87% 428.31% 62.71% 93.73%
Less: Closing stock of work in process 100.00% -62.06% 2165.70% 93.73% 39.92%
100.00% -75.71% -633.89% 143.18% -17.48%
Add: Opening stock of finished goods 100.00% -10.29% 640.57% -7.92% 24.93%
Less: Closing stock of finished goods 100.00% 127.20% 200.14% 24.93% 20.97%
-
100.00% -1209% -146.12% 389.79% 5.10%
Cost of goods sold
Purchased product 100.00% 100.94% -15.17% 61.97% -47.43%
Other 100.00% 89.32% 81.41% 49.73% 29.81%
COST OF SALES 100.00% 50.82% 7.28% 73.13% 15.20%
108
2004 2005 2006 2007 2008
GROSS PROFIT 100.00% 25.36% 9.80% 55.21% 36.07%

Staff recruitment, training and other
expenses 100.00% 40.08% 17.23% 88.19% -13.29%
Product transportation and handling 100.00% 34.94% 26.44% 30.36% -0.22%
Repair and maintenance 100.00% 40.13% -12.91% 81.52% 138.53%
Communication and other office expenses 100.00% -9.51% 51.35% 99.15% 57.49%
Travel 100.00% 31.22% 150.54% 40.42% 47.25%
Depreciation / amortization 100.00% -2.18% 47.95% 64.92% 59.45%
Purchased services 100.00% 40.06% 51.18% -19.90% 308.37%
Donations - - 100.00% 20.87% -1.15%
Others 100.00% 75.01% -16.83% 88.93% 32.17%
SELLING AND DISTRIBUTION EXPENSES 100.00% 25.71% 68.70% 54.37% 18.73%
OPERATIVE INCOME 100.00% 25.21% -14.70% 55.91% 50.20%

Other Income
Commission income - - 100.00% - 100.00%
Service charges 100.00% 170.78% -84.77% 257.89% 121.09%
Unrealized gain on short term investment - 100.00% - 100.00% -
Fair value of interest rate swap - 100.00% -81.11% -54.33% -80.94%
Reversal of resignation gratuity provision - - - 100.00% -
Gain on curtailed defied benefit pension plan - - 100.00% -84.41% 75.83%
Negative goodwill recognized - - 100.00% 16.75% 35.66%
Profit on disposal of fixed assets 100.00% - 100.00% -80.84% 5554.60%
Gain arising from sale cost of biological - 100.00% 33.47% - 100.00%
Foreign exchange gain 100.00% - 100.00% -83.18% 9843.40%
Others 100.00% 56985.00% 272.94% -97.13% 1291.24%
OTHER INCOME 100.00% 141.12% 152.87% 20.92% 103.66%

Holding Company 100.00% 38.97% 7.61% 23.80% 22.19%
Subsidiary Companies 100.00% - 100.00% 1190.09% -20.53%
Worker's welfare fund - 100.00% 55.92% 48.74% 54.76%
Legal and professional charges - - 100.00% 707.81% 174.45%
R&D (including salaries and wages) 100.00% 115.39% -50.64% -52.00% -81.13%
Loss on sales of fixed assets - 100.00% - 100.00% -98.11%
Loss on death / sales of biological assets - - - 100.00% -61.88%
Amortization of Goodwill 100.00% 0.00% - - -
Foreign exchange loss - - - 100.00% 970.56%
109
2004 2005 2006 2007 2008
statutory audit 100.00% 1.50% 29.85% 72.85% 34.42%

half yearly review - - - 100.00% 100.00%
fee for other services 100.00% -41.17% 88.06% 195.15% -49.87%
reimbursement of expenses 100.00% -23.48% 20.63% 331.14% -13.22%
100.00% -17.16% 44.90% 139.05% -7.15%
Less: Intangible assets/work-in-progress 100.00% -61.59% - - -
100.00% 2.48% 68.91% 139.05% -7.15%
Professional tax 100.00% -71.43% 25.00% -92.00% 950.00%
Unrealized fair value loss on investment - - - - 100.00%
Others - - - 100.00% 2275.41%
Finance cost
long term finance 100.00% -11.76% 37.69% 56.00% 61.83%
Interest on worker's profits participation
fund 100.00% 173.33% 473.17% - 100.00%
Others 100.00% -68.09% 1448.06% 48.93% 61.36%
FINANCE COST 100.00% 1.20% 50.47% 63.76% 142.17%
100.00% 20.56% 25.72% 63.09% 125.59%

Share of income before taxation 100.00% -10.98% 21.33% -43.01% 3.56%
Share of provision for taxation 100.00% -28.96% 48.50% -47.61% 9.69%
SHARE OF INCOME FROM VENTURE 100.00% -0.83% 10.35% -40.51% 0.63%
PROFIT BEFORE TAXATION 100.00% 25.41% -10.54% 35.50% 31.15%
Taxation
Current - for the year 100.00% 26.22% -8.95% 30.28% 5.02%
- prior year - - - 100.00% -
Deferred - for the year 100.00% -76.06% -403.90% -29.92% 241.31%
TAXATION 100.00% 12.39% -20.33% 43.77% -12.66%
PROFIT AFTER TAXATION 100.00% 31.95% -6.35% 32.49% 48.45%
110
Percentage change Balance Sheet
2004 2005 2006 2007 2008
CURRENT ASSETS
In Banks
Deposit / Saving accounts 100% -38% 122% -17% -73%
Current accounts 100% 39% -7% -12% 587%
In Hand
Cash 100% 5% 40% 166% 2991%
Cheqes / Demand draft / Cash in transit 100% 62% 30% 3% -98%
CASH AND BANK BALANCES 100% -20% 79% -13% 3%
Certificates of Investment 100% - - - -
-Certificates of deposit 100% -50% - - -
-Fixed income / money market funds 100% 10% 102% 4417% -80%
SHORT TERM INVESTMENTS 100% -84% 66% 4417% -80%
Total Absolute Liquid Assets 100% -42% 78% 365% -66%

Customs duty and sales tax 100% 0% 82% -45% 0%
Subsidy - - 100% 9% 195%
Sales tax - - - - 100%
Others 100% 0% 14% -12% 5%
100% 0% 2741% 7% 194%
Accrued income on deposit / bonds 100% -42% -2% 477% -100%
Receivable from Pension Funds 100% - 100% -76% 77%
Worker's Profit Participation Fund - - 100% - -
Sales tax / special excise duty refundable 100% - 100% 113% 117%
Custom duty claim refundable - - - - 100%
100% - 100% 113% 81%
Fair value of interest rate swaps - 100% -19% -56% -
Current portion of forward contract - - - - 100%
Fair value of foreign exchange contracts - - - 100% -83%
Engro Vopak Terminal Limited 100% 62693% -33% -1% 1%
Engro Asahi Polymer & Chemical Limited 100% 6580% - - -
Claims on suppliers and companies 100% 239% 10% 155% -62%
Less: Provision for doubtful receivable 100% 0% 148% -60% 0%
111
2004 2005 2006 2007 2008
Non Current assets held for disposal - - 100% - -
Others 100% 177% 148% 203% 60%
Less: Provision for doubtful receivable 100% 0% 0% 0% 9194%
100% 180% 149% 203% 52%
OTHER RECEIVEABLE & DERIVATIVES 100% 279% 446% 158% 133%
Trade Debts
Considered good
secured 100% 68% 98% 127% -80%
unsecured 100% -16% 42% -38% 48%
100% 12% 70% 58% -59%
Considered doubtful 100% 0% 2% 99% 95%
100% 12% 69% 59% -58%
Less: Provision for doubtful debts 100% 0% 2% 99% 95%
TRADE DEBTS 100% 12% 70% 58% -59%
Total Liquid Assets 100% -25% 114% 242% -25%

Stock-in-Trade
Raw material 100% 236% 3% 33% 120%
Finished goods
Own manufactured products 100% 127% 200% 25% 21%
Purchased products 100% 486% -38% 194% 122%
Provision for slow moving inventory - - - - 100%
100% 303% 31% 82% 76%
STOCK-IN-TRADE 100% 270% 20% 64% 89%
Consumable stores 100% -2% -6% 40% 33%
Loose tools including in transit 100% -9% -9% 9% -
100% 6% 21% 13% 39%
Provision for surplus and slow moving item 100% -70% -20% 55% 35%
STORES, SPARES, AND LOOSE TOOLS 100% 13% 22% 12% 39%
Loan & advance to executives & employee
considered good 100% -34% 55% 38% 48%
Advances and deposits 100% 131% 37% 55% 111%
Prepaid insurance 100% -98% 1856% 190% -53%
Prepayments 100% 29% -12% 391% -40%
100% -20% 52% 204% 6%
Less: Provision for doubtful receivables 100% 0% 276% 47% 0%
LOAN,ADVANCE PREPAYMENT 100% -20% 51% 206% 6%
DEFERRED COMPENSATION EXPENSE - - - - 100%
TAXATION 100% - - 100% 47%
TOTAL CURRENT ASSETS 100% 9% 66% 179% -1%
112
2004 2005 2006 2007 2008
NON CURRENT ASSET
Joint Venture Companies 100% -2% -68% 4% 0%
Arabian Sea Country Club Limited - - 100% 0% 0%
Agrimall ( Private ) Limited - - - - -
LONG TERM INVESTMENT 100% -2% -67% 4% 0%
DEFERRED COMPENSATION EXPENSE - - - - 100%

Executives 100% -20% 76% 93% 35%
100% -32% 63% 90% 90%
Less: Installments recoverable 100% -34% 55% 38% 28%
100% -30% 71% 136% 123%
Fair value of forward foreign exchange - 100% -43% -69% 37443%
Less: Current portion - 100% -19% -56% 37094%
- 100% -67% - 100%
Others - - - 100% 18%
Long term Loans, Receivable & Derivative 100% 34% 6% 108% 145%
TOTAL NON CURRENT ASSETS 100% -1% -64% 18% 50%
FIX ASSETS
Operating assets 100% -1% 58% 10% 3%
Capital work in process 100% 88% -47% 1886% 280%
PROPERTY, PLANT AND EQUIPMENT 100% 6% 42% 118% 148%
Biological assets
Dairy Livestock
mature - - - 100% 167%
Immature - - - 100% 27804%
- - - 100% 2858%
Crops-feed stock - - - - 100%
BIOLOGICAL ASSETS - - - 100% 2948%
Intangible assets
Software and Licenses 100% 95% 2% 92% 14%
Rights for future gas utilization - - - 100% 0%
Development cost 100% -31% -44% -80% -100%
Covenants - - - 100% -
Goodwill 100% -31% 0% 2546% 0%
INTANGIBLE ASSETS 100% 7% -2% 1309% 1%
TOTAL FIX ASSETS 100% 6% 42% 123% 145%
TOTAL ASSETS 100% 6% 39% 144% 71%
113
2004 2005 2006 2007 2008

Share Capital
Authorized:
Ordinary shares of 10 each 100% 0% 0% 14900% 0%
Ordinary shares of 10 each fully paid in cash 100% 0% 38% 45% 24%
Ordinary shares of fully paid in bonus shares 100% 0% 0% 0% 0%
SHARE CAPITAL 100% 0% 10% 15% 10%
Reserves
Share premium
Balance as at January 1, - - - 100% 271%
Share issued during the year at premium - - 100% 171% 10%
Issued cost - - 100% 191% -46%
SHARE PREMIUM - - 100% 271% 80%
Balance as at January 1, - - - - 100%
Amount recognized on grant date - - - - 100%
Balance as at December 31, - - - - 100%
EMPLOYEE SHARE OPTION RESERVE - - - - 100%
Hedging reserve
Fair values of:
Foreign exchange forward contract - - - 100% 115%
Foreign exchange option contract - - - - 100%
Interest rate swap - - - - 100%
- - - 100% 75%
Arrangement fee - - - 100% 0%
Deferred tax - - - 100% 53%
Minority interest - - - - 100%
HEDGING RESERVE - - - 100% 106%
REVALUATION RESERVES ON COMBINATIONS - - 100% -31% -8%
GENERAL RESERVES 100% 0% 0% 0% 0%
UNAPPROPRIATED PROFITS 100% 96% 22% 89% 76%
RESERVES 100% 14% 27% 73% 56%
100% 11% 23% 62% 50%

MINORITY INTEREST 100% 0% 951% 438% 4%
TOTAL SHARE CAPITAL AND RESERVES 100% 11% 30% 84% 42%
114
2004 2005 2006 2007 2008
CURRENT LIABILITIES
Current Portion of:
Long term finance 100% - 100% -49% 809%
Obligations under finance lease 100% 82% 150% 61% 18%
Deferred liability 100% -10% 19% -16% -2%
Redeemable capital 100% -36% 81% 12% -
CURRENT PORTION 100% -58% 89% 8% -75%
Financing utilized from banks 100% 196% 2046% -55% 100%
SHORT TERM BORROWINGS 100% 196% 2046% -55% 100%
Creditors 100% 117% 145% 132% -63%
Accrued liability 100% 24% 75% 69% 53%
Payable to contribution Pension Fund - 100% 736% 131% -
Payable to Provident Fund - - 100% -38% -
Advances from customers 100% 14% -84% 458% 116%
Current portion of fair value of interest rate - - - - 100%
redeemable capital and long term loans 100% 59% 12% 550% 116%
short term borrowings 100% 1180% 58% -39% 762%
Deposit dealers refundable on termination 100% 8% 42% 31% -7%
Contractor's / suppliers deposits and retentions 100% 32% 40% 781% 114%
Worker's profit participation fund 100% 321% - 100% 404%
Worker's welfare fund 100% 69% 157% 42% 16%
Sales tax payable - 100% 80% 819% -
Dividend payable to minority shareholder - - 100% - -
Provision for infrastructure fee - - - 100% 46%
Provision for special excise duty - - - - 100%
Others - 100% 373% 62% 159%
TRADE & PAYABLE INCLUDING DERIVATIVE 100% 48% 48% 143% 0%
UNCLAIMED DIVIDENDS 100% 63% 6% 134% 65%
TAXATION - 100% -24% - -
TOTAL CURRENT LIABILITY 100% -7% 120% 50% 28%
Long term finance

Obtained from bank - - 100% -66% 115796%
Less: Current - - 100% -49% 809%
LONG TERM FINANCE - - 100% - 100%
115
2004 2005 2006 2007 2008
Redeemable Capital
Redeemable Capital 100% -2% 0% 447% -
Less :Current portion 100% -36% 81% 12% -
REDEEMABLE CAPITAL 100% 12% -19% 679% -
Derivatives
Fair value of interest rate swaps - - - - 100%
Current portion shown under current liabilities - - - - 100%
DERIVATIVES - - - - 100%
Present value of minimum lease payments 100% 80% 181% 36% 5%
Current portion shown under current liabilities 100% 82% 150% 61% 18%
OBLIGATIONS UNDER FINANCE LEASE 100% 79% 197% 25% -2%
Deferred taxation
Accelerated depreciation allowance 100% 1% 86% 14% 8%
Net borrowing cost catalyzed - - - 100% 430%
Fair value of derivative financial instruments - - - 100% 62%
Recoupable carried forward tax losses - 100% 7866% -85% 119%
Tax on subsidiary reserves - - 100% 152% -36%
Tax on fair value adjustment - - 100% -31% -8%
Recoupable minimum turnover tax - - 100% 82% -13%
Provision for
-retirement benefits 100% -31% -9% 207% -24%
-inventory, slow moving store 100% -74% -28% 71% 4183%
-others 100% -2% 116% -57% 1903%
DEFERRED TAXATION 100% 3% 40% 113% 21%
EMPLOYEE HOUSING SUBSIDY - - - - 100%

Deferred income on sales and leaseback for
vehicles 100% -86% 12% -72% -37%
Retirement and other service benefits 100% -1% 29% 25% 34%
DEFERRED LIABILITIES 100% -32% 28% 19% 33%
RETENTION MONEY ON PROJECT PAYMENT - - - - 100%
TOTAL NON CURRENT LIABILITY 100% 9% -2% 453% 116%
TOTAL EQUITY AND LIABILITY 100% 6% 39% 144% 71%
116
10.2 CONCLUSION
According to the percentage change analysis results are
Percentage analysis shows the improvement in past year. All the profits are
increasing and reach to the 48% in FY08 and increase at the rate of 16% as per
industry. Companies Performance is improving and gross profits reach to the
36.07% coupled with better relative increase in selling, general expenses. Liability is
also increase in last four years. It may create problem in debt management however
117
118
RATIO ANALYSIS
EXPLAINATION
Ratio analysis is essentially concerned with the calculation of relationships which
after proper identification and interpretation may provide information about the
operations and state of affairs of a business enterprise.
The analysis is used to provide indicators of past performance in terms of critical
success factors of a business. This assistance in decision-making reduces reliance
on guesswork and intuition and establishes a basis for sound judgment.
Financial ratio analysis groups the ratios into categories which tell us about different
facets of a company's finances and operations. An overview of some of the
categories of ratios is given below.
11.1 ANALYSIS OF SHORT TERM FINANCIAL POSITION
11.2 ANALYSIS OF EFFICIENCY
11.3 ANALYSIS OF LONG TERM RISK
11.4 ANALYSIS OF PROFITABILITY
11.5 ANALYSIS OF RETURNS
119
2.1 ANALYSIS OF SHORT TERM FINANCIAL POSITION
TEST OF LIQUIDITY
A Liquidity ratio measures the ability of the unit to meet its short term (generally one
year) obligations and reveals the short term financial strength or weakness.
Or
A firm’s ability to satisfy its short term obligations as they become due is known as
liquidity of the firm. Liquidity refers to the solvency of the firm’s overall financial
position------ the ease with which it can pay its bills.
Liquidity ratios usually consist of:
1. Net Working Capital
2. Current Ratio or Working Capital Ratio
3. Absolute Liquid Ratio or Cash Position Ratio
4. Acid test Ratio or Quick Ratio or Liquid Ratio
Trade creditors; creditor for expenses; commercial banks; short term lenders are
concerned with the short term financial position or liquidity of the unit. Management
is also interested in knowing how efficiently working capital is being utilized by the
business. Shareholders and long term creditors are also interested in studying the
prospectus of dividend and interest payment.
120
11.5.1 ABSOLUTE LIQUID RATIO
Absolute Liquid Ratio relates cash, bank and marketable securities to the current
liability acceptable norm of this ratio is 50%.It means absolute liquid assets worth
one half of the value of current liabilities are sufficient for satisfactory liquid position
of a business. Results of Engro Chemical are
Formula
Absolute Liquid Ratio = Absolute Liquid Assets

Current Liability
Calculation
2004 2005 2006 2007 2008

ABSOLUTE LIQUID ASSETS 2,593,008 1,502,435 2,676,503 12,455,819 4,264,682
CURRENT LIABILITY 3,114,938 2,907,391 6,397,441 9,604,833 12,279,929
ABSOLUTE LIQUID RATIO 0.83 0.52 0.42 1.30 0.35
Absolute Liquid Ratio
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2004 2005 2006 2007 2008
121
Interpretation
Liquidity Ratios have declined, illustrating that the firm may experience problems in
financing its short term obligations given that the net income for the year has also
declined. The Absolute Liquid Ratio decreased from 0.83 in FY2004 to 0.35 in
FY2008. Absolute Liquid assets have increased by 64.47% since 2004 comparative
in current liability by 394.23%. The driver of growth in current liability was unclaimed
dividend and short term borrowings from banks registering an increase in FY08.
Intact other components – trade and payables and current portions of long term
maturity showed negative growth rates improve liquidity of the firm.
The amount of Current Liabilities was increasing in last 5 years however it becomes
lower in FY2008 as compared to the Fast FY2007 as in FY2007 the amount was
24,279,441 And it decreased with the amount of Rs. 337,501 and it becomes of Rs.
23,941,940 In FY2008. The absolute liquid assets are decreasing in last five years,
in the year 2004 the amount of absolute liquid assets was Rs. 2,593,008, and in the
year 2005 it decreased by the amount Rs. 1,090,573. And it becomes Rs.
1,502,435. In the year 2006 absolute liquid assets increased by the amount Rs.
1,585,930 and it becomes Rs. 2,676,503. The increment occurred again in the next
year, an absolute liquid asset becomes Rs. 12,455,819 in the year 2007 and the
difference is Rs. 9,779,316. In the year 2008 absolute liquid assets decreased by
Rs. 8,191,137 and it becomes Rs. 4,264,682. Absolute liquid assets were highest in
the year 2007 and minimum in the year 2005.
122
11.5.2 LIQUID RATIO
Liquid ratio is also known as quick ratio or acid test ratio. It establishes a relationship
between liquid assets and current liabilities. In some businesses a significant
proportion of current assets may comprises of inventory and prepayments. Inventory
and prepayments by nature cannot be converted into ready cash abruptly. Results of
Engro Chemical are
Formula
Liquid Ratio = Quick Assets

Current Liability
Calculation
2004 2005 2006 2007 2008

QUICK ASSETS 3,274,160 2,445,028 5,237,631 17,902,196 13,411,808
LIQUID RATIO 1.05 0.84 0.82 1.86 1.09
Liquid Ratio
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2004 2005 2006 2007 2008
123
Interpretation
Liquidity Ratios show positive trend in last years in FY04 1.05% liquid ratio was
registered, and in FY07 the liquidity ratio was 1.86, however Liquidity Ratios have
declined in FY08, illustrating that the firm may experience problems in financing its
short term obligations given that the net income for the year has also declined. The
Liquid Ratio decreased from 1.86 in FY2007 to 1.09 in FY2008.
Quick Assets have increased by 64.47% since 2004 comparative in current liability
by 394.23%. The driver of growth in Quick Assets was trade debt registering an
increase in FY08. Intact other components – trade and payables and current
portions of long term maturity showed negative growth rates improve liquidity of the
firm.
9,604,833 And it becomes of Rs. 12,279,929 In FY2008. The Quick Assets are
increasing in last five years, in the year 2004 the amount of Quick Assets was Rs.
3,274,160, and in the year 2005 and it becomes Rs. 2,445,028. In the year 2006
Quick Assets increased by the amount Rs. 5,237,631. The increment occurred again
in the next year, Quick Assets become Rs. 12,455,819 in the year 2007. In the year
2008 Quick Assets decreased by Rs. 13,411,808. Quick Assets were highest in the
year 2007 and minimum in the year 2005.
124
11.5.3 CURRENT RATIO
Current ratio is also known as Working capital ratio or 2:1 ratio. Current ratio
indicates the liquidity of current assets or the ability of the business to meet its
maturing current liabilities. Results of Engro Chemical are
Formula
Current Ratio = Current Assets

Current Liability
Calculation
2004 2005 2006 2007 2008

CURRENT ASSETS 4,836,331 5,261,432 8,710,860 24,279,441 23,941,940
CURRENT RATIO 1.55 1.81 1.36 2.53 1.95
Current Ratio
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2004 2005 2006 2007 2008
125
Interpretation
Current Ratios show positive trend in last five years, in FY04 1.55 Current ratio was
registered, and in FY07 the Current ratio was 2.53, however Current Ratios have
declined in FY08, illustrating that the firm may experience problems in financing its
short term obligations given that the net income for the year has also declined. The
Current Ratio decreased from 2.53 in FY2007 to 1.95 in FY2008.
Current Assets have increased by 495.04% since 2004 comparative in current
liability by 394.23%. The driver of growth in Current Assets was trade debt
registering an increase in FY08. Intact other components – trade and payables and
current portions of long term maturity showed negative growth rates improve liquidity
of the firm.
9,604,833 And it becomes of Rs. 12,279,929 In FY2008. The Current Assets are
increasing in last five years, in the year 2004 the amount of Current Assets was Rs.
4,836,331 and in the year 2005 and it becomes Rs. 5,261,432. In the year 2006
Current Assets increased by the amount Rs. 8,710,860. The increment occurred
again in the next year; Current Assets become Rs. 24,279,441 in the year 2007. In
the year 2008 Current Assets decreased by Rs. 23,941,940. Current Assets were
maximum in the year 2007 and minimum in the year 2005.
126
11.5.4 NET WORKING CAPITAL
The difference between the current assets and current liability of Engro chemical
Pakistan Ltd is known as net working capita (NWC), it may be positive or negative.
Grater the NWC lowers the risk of technically insolvency.
Formula
Net Working Capital= Current Assets - Current Liabilities
Calculation
2004 2005 2006 2007 2008

CURRENT ASSETS 4,836,331 5,261,432 8,710,860 24,279,441 23,941,940
NET WORKING CAPITAL 1721393 2354041 2313419 14674608 11662011
Net Working Capital Ratio
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
2004 2005 2006 2007 2008
127
Interpretation
Net Working Capital show positive trend in last years, in FY04 1721393 Net Working
Capital was registered, and in FY07 the Net Working Capital was 14674608,
however Net Working Capital have declined in FY08, illustrating that the firm may
experience problems in financing its short term obligations given that the net income
for the year has also declined. The Net Working Capital decreased from 14674608
in FY2007 to 11662011 in FY2008. Current Assets have increased by 495.04%
since 2004 comparative in current liability by 394.23%. The driver of growth in
Current Assets was trade debt registering an increase in FY08. Infect other
components – trade and payables and current portions of long term maturity showed
negative growth rates improve liquidity of the firm.
9,604,833 And it becomes of Rs. 12,279,929 In FY2008. The Current Assets are
increasing in last five years, in the year 2004 the amount of Current Assets was Rs.
4,836,331 and in the year 2005 and it becomes Rs. 5,261,432. In the year 2006
Current Assets increased by the amount Rs. 8,710,860. The increment occurred
again in the next year; Current Assets become Rs. 24,279,441 in the year 2007. In
the year 2008 Current Assets decreased by Rs. 23,941,940. Current Assets were
maximum in the year 2007 and minimum in the year 2005.
128
11.5.5 CONCLUSION
Liquidity test shows that liquidity of company have declined, illustrating that the firm
may experience problems in financing its short term obligations given that the net
income for the year has also declined.
Liquidity of Engro Chemical Pakistan Limited has remained barely above for the past
couple of years, and actually fell in 2008 compared to 2007. This is because despite
improved profitability on account of strong financial performance the company's cash
outflow remained higher than inflow mainly due to higher income tax, dividend
payment and capital expenditure. Consequently, there was not a significant increase
in the current assets as opposed to the current liabilities.
Liquidity Ratio
2.00 16000000.00
1.80 14000000.00
1.60
12000000.00
1.40
1.20 10000000.00
1.00 8000000.00
0.80 6000000.00
0.60
4000000.00
0.40
0.20 2000000.00
0.00 0.00
2004 2005 2006 2007 2008
Absolute Liqid Ratio Liquid Ratio Current Ratio NWC
129
However overall liquidity position of the Engro Chemical Pakistan Limited is “GOOD”
because its Current growth is greater than the growth of Current Liability, which
shows that company is not risky and may not be insolvent in short term.
The liquidity prospects of the company improving slightly after the passing of current
year's first quarter. Current ratio has shown a nominal increase from 1.95 by the end
of the last financial year to 1.99 in 1QFY09. This was evident considering the
relatively greater growth in current assets of the company, on the back of the
growing trade and other payables of the company, compared to growth in current
liability.
There is an upward trend in future for fertilizers industry. It is expected that company
will reach at 2.78 in its current ratio in 2010.
130
11.6 ANALYSIS OF EFFICIENCY
TESTS OF ACTIVITY
If a business does not use its assets effectively, investors in the business would
rather take their money and place it somewhere else. In order for the assets to be
used effectively, the business needs a high turnover.
Unless the business continues to generate high turnover, assets will be inactive as it
is impossible to buy and sell fixed assets continuously as turnover changes. Activity
ratios are therefore used to assess how active various assets are in the business.
Increased turnover can be just as dangerous as reduced turnover if the business
does not have the working capital to support the turnover increase. As turnover
increases more working capital and cash is required and if not, overtrading occurs.
Liquidity ratios are the crude tests as they fail to throw any light on the efficiency in
the use of working capital or its components. Therefore, turnover ratios should be
supplemented along with liquidity ratios to gain better understanding of the affairs of
business.
Important and useful activity ratios helping in the analysis of liquidity are explained
on next pages.
131
11.6.1 INVENTORY EFFICIENCY
11.6.1.1 STOCK TURNOVER RATIO
Measure the activity, 0r liquidity of the firm’s inventory is called Stock Turnover
Ratio. Following formula and figures are representing the Engro performance.
Formula
Stock turnover ratio = Cost of goods sold

Average inventory
Calculation
2004 2005 2006 2007 2008

COST OF GOOD SOLD 9,331,091 14,072,832 15,097,181 26,138,366 30,111,348
AVERAGE INVENTORY 462519 1216435.5 2109176 3042968 5456101
STOCK TURNOVER RATIO 20.2 11.6 7.2 8.6 5.5
11.6.1.2 AVERAGE AGE OF INVENTORY
It shows how many days were taken to disposal off average inventory. It is known as
Average Age of Inventory (AAI) and it is calculated as
Formula
Average age of inventory = 365

Stock turnover rate
Calculation
2004 2005 2006 2007 2008

STOCK TURNOVER RATIO 20.2 11.6 7.2 8.6 5.5
AAI 18.1 31.6 51.0 42.5 66.1
132
Inventory Efficiency
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2004 2005 2006 2007 2008
Stock Turnover AAI
Interpretation
According to above details, the total assets turnover has decline even more
drastically, because Engro spending on manufacturing increases with higher growth
than average inventory. This increase mainly occurs due to the increase in the
prices of imported raw material as urea and phosphate furthermore increase in the
prices of fuel and powers at international level.
If we consider the days of this dispose of inventory it reaches to the 66 days in FY08
as compared to the 18 days in 2004. These days increases year by year due to the
decrease in stock turnover. This presents a mixed picture about company/s assets
management.
133
11.6.2 DEBT EFFICIENCY
11.6.2.1 DEBTOR TURNOVER RATIO
Measure the activity, 0r liquidity of the firm’s credit sales is called Debtor Turnover
Ratio. Following formula and figures are representing the Engro performance.
Formula
Debtor turnover ratio = Net Credit Sales

Average Trade Debtor
Calculation
2004 2005 2006 2007 2008

NET CREDIT SALES 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
AVERAGE TRADE DEBTOR 754528.5 650733.5 928765.5 1511362.5 1305667.5
DEBTOR TURNOVER RATIO 17.3 28.8 21.8 22.6 31.4
11.6.2.2 AVERAGE COLLECTION PERIOD
It shows how many days were taken to collect trade debt by the company, It is
known as Average Collection Period (ACP) and it is calculated as
Formula
Average Collection Period = 365

Debtor turnover rate
Calculation
2004 2005 2006 2007 2008

DEBTOR TURNOVER RATIO 17.3 28.8 21.8 22.6 31.4
ACP 21.1 12.7 16.7 16.2 11.6
134
Debt Efficiency
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2004 2005 2006 2007 2008
Debtor Turnover ACP
Interpretation
According to above details, the Debtor turnover has improving, because Engro sales
are improving on cash. This increase mainly occurs due to the decrease in average
trade debts. in FY04 the Debtor turnover was 17.3 times while it increase to 28.8
times in 05 but it decrease in FY06 to 21.8, only 1 time increase in FY07 as it reach
to 22.6 a drastic change occur in FY08 and it reach to 31.4.
If we consider the days of this dispose of debts it reaches to the approx 12 days in
FY08 as compared to the 21 days in 2004. These days decrease year by year due
to the increase in debtor turnover. This presents a good picture about company
debts management.
135
11.6.3 CREDIT EFFICIENCY
11.6.3.1 CREDIT TURNOVER RATIO
Measure the activity, 0r liquidity of the firm’s credit purchase is called Creditor
Turnover Ratio. Following formula and figures are representing the Engro
performance.
Formula
Creditor turnover ratio = Net Credit Purchase

Average Trade Creditor
Calculation
2004 2005 2006 2007 2008

NET CREDIT PURCHASE 3,703,230 7,441,100 6,312,103 10,223,898 5,375,140
AVERAGE TRADE CREDITOR 443176 532,609 1,255,187 2,956,802 2,831,432
CREDITOR TURNOVER RATIO 8.4 14.0 5.0 3.5 1.9
11.6.3.2 AVERAGE PAYMENT PERIOD
It shows how many days were taken to pay trade credit by the company, it is known
as Average Payment Period (APP) and it is calculated as
Formula
Average Payment Period = 365

Creditor turnover rate
Calculation
2004 2005 2006 2007 2008

CREDITOR TURNOVER RATIO 8.4 14.0 5.0 3.5 1.9
APP 43.7 26.1 72.6 105.6 192.3
136
Credit Efficiency
250.0
200.0
150.0
100.0
50.0
0.0
2004 2005 2006 2007 2008
Creditor Turnover APP
Interpretation
According to above details, the Credit turnover has decreasing, because Engro
credit purchases are decreasing. This decrease mainly occurs due to the increase in
average trade credit. It means Engro can enjoy better credit facilities in recent years.
In FY04 the Creditor turnover was 8.4 times while it increase to 14.0 times in 05 but
it decrease in FY06 to 5.0, increase in FY07 as it reach to 3.5 a drastic change occur
in FY08 and it reach to 1.9. If we consider the days of this dispose of credit it
reaches to the approx 192 days in FY08 as compared to the 43 days in 2004. These
days increase year by year due to the decrease in credit turnover. This presents a
good picture about company credit management.
137
11.6.4 CYCLE EFFICIENCY
11.6.4.1 OPERATING CYCLE
The time from the beginning of the production process to the collection of cash from
the sale of finished good is called operating cycle. Following formula and figures are
representing the Engro performance.
Formula
Operating cycle = AAI + ACP
Calculation
2004 2005 2006 2007 2008

AAI 18.1 31.6 51.0 42.5 66.1
ACP 21.1 12.7 16.7 16.2 11.6
Operating Cycle 39.2 44.2 67.7 58.7 77.8
11.6.4.2 CASH CONVERSION CYCLE
The amount of time Engro resources tied up; calculated as
Formula
CCC = AAI + ACP - APP
Calculation
2004 2005 2006 2007 2008

AAI 18.1 31.6 51.0 42.5 66.1
ACP 21.1 12.7 16.7 16.2 11.6
APP 43.7 26.1 72.6 105.6 192.3
CCC -4.5 18.1 -4.8 -46.9 -114.5
138
Cycle Efficiency
100.0
50.0
0.0
2004 2005 2006 2007 2008
-50.0
-100.0
-150.0
Operating Cycle CCC
Interpretation
According to above details, the CCC has decreasing, because Engro credit
purchases are decreasing. This decrease mainly occurs due to the increase in
average trade credit. It means Engro can enjoy better credit facilities in recent years.
It directly affect on the APP which is increasing.
So the greater growth in APP than the growth of ACP and AAI may lead to the
decrease of cash conversion cycle. This presents a good picture about company
credit management.
139
11.6.5 ASSETS EFFICIENCY
11.6.5.1 TOTAL ASSETS TURNOVER RATIO
The total assets turnover indicates that generate company turnover. Here all assets
are compared with its turnover. Normally it calculates by dividing sales from its total
assets. Following formula and figures are representing the Engro performance.
Formula
Total Assets Turnover Ratio = Sales
Total assets
Calculation
2004 2005 2006 2007 2008

Sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Total Assets 13,538,069 14,397,005 20,054,063 48,973,638 83,925,780
Assets Turnover Ratio 1.0 1.3 1.0 0.7 0.5
11.6.5.2 FIXED ASSETS TURNOVER RATIO
The fixed assets turnover indicates that generate company turnover. Here fixed
assets are compared with its turnover. Normally it calculates by dividing sales from
its total fixed assets. Following formula and figures are representing the Engro
performance.
Formula
Fixed Assets Turnover Ratio = Sales

Fixed assets
Calculation
2004 2005 2006 2007 2008

Sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Fixed Assets 7,159,944 7,608,447 10,794,387 24,046,744 59,013,412
Fixed Assets Turnover 1.8 2.5 1.9 1.4 0.7
140
Assets Efficiency
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2004 2005 2006 2007 2008
Total Assets Turnover Fixed Assets Turnover
Interpretation
According to above details, the total assets turnover has decline due to the
combination of an increase in fixed assets by 724% in FY08 as compared to the
2004 and increase in sales at 213%, this unfavorable change create the change in
fixed asset turnover.
The total assets have declined even more drastically, however the rate of decline is
lower in FY08. The reasons are same as in fixed assets turnover.
This presents a good picture about company credit management.
141
11.6.6 WORKING CAPITAL EFFICIENCY
11.6.6.1 WORKING CAPITAL TURNOVER RATIO
It creates a relationship between cost of sales and net working capital. As working
capital has direct and close relationship with cost of sales, therefore the ratio provide
useful idea of how effectively and actively working capital is being used.
Where the difference between the current assets and current liability of Engro
chemical Pakistan Ltd is known as net working capita (NWC), it may be positive or
negative. Grater the NWC lowers the risk of technically insolvency.
Following formula and figures are representing the Engro performance.
Formula
Working Capital turnover Ratio = Cost of Sales

Net working capital
Calculation
2004 2005 2006 2007 2008

Cost of Sales 9,331,091 14,072,832 15,097,181 26,138,366 30,111,348
Net Working Capital 1721393 2354041 2313419 14674608 11662011
Working Capital Turnover 5.4 6.0 6.5 1.8 2.6
142
Working Capital
Efficiency
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2004 2005 2006 2007 2008
Interpretation
According to above details, the working capital turnover has decline occurs due to
the increase in the prices of imported raw material as urea and phosphate
furthermore increase in the prices of fuel and powers at international level.
The total assets have declined even more drastically, however the rate of decline is
lower in FY08. The reasons are same as in fixed assets turnover. This is the main
reason of decrease in Working Capital.
This presents a good picture about company credit management.
143
11.6.7 CONCLUSION
The operating cycle takes 78 days against the industry average is 82 days.
Consequently the turnover ratios are higher than the industry average. This shows
that the Engro has an efficient working capital cycle. The cash is not tied up for long
period and collected in a son able period. Hence firm will not face liquidity problem.
Efficiency Ratio
80.0 250.0
60.0 200.0
150.0
40.0
100.0
20.0 50.0
0.0 0.0
2004 2005 2006 2007 2008
AAI ACP APP W CT
However overall liquidity position of the Engro Chemical Pakistan Limited is “GOOD”
because its Current growth is greater than the growth of Current Liability, which
shows that company is not risky and may not be insolvent in short term. The liquidity
prospects of the company improving slightly after the passing of current year's first
quarter. Current ratio has shown a nominal increase from 1.95 by the end of the last
financial year to 1.99 in 1QFY09.
144
11.7 ANALYSIS OF LONG TERM RISK
TESTS OF SOLVANCY
The long-term financial soundness of any business can be judged by its long-term
creditors by testing its ability to pay interest charges regularly and its ability to repay
the principal as per schedule.
Thus long-term financial soundness (or solvency) of any business is examined by
calculating ratios popularly, known as leverage of capital structure ratios. These
ratios help us the interpreting repays long-term debt as per installments stipulated in
the contract.
The following are the important solvency ratio.
Proprietary ratio
Capital gearing ratio
Solvency ratio
145
11.7.1 PROPRIETARY RATIO
Proprietary ratio establishes relationship between proprietor’s funds to total
resources of the unit. Where proprietor’s funds refer to equity share capital and
Reserves, surpluses and Total resources refer to total assets.
(Also known as Equity Ratio or Net worth to total assets or shareholders equity to
total equity)
Formula
Proprietor Ratio = Proprietor’s fund

Total Assets
Calculation
2004 2005 2006 2007 2008

Proprietor’s fund 6,791,307 7,540,790 9,796,171 18,006,690 25,578,193
Total Assets 13,538,069 14,397,005 20,054,063 48,973,638 83,925,780
Proprietor Ratio 0.50 0.52 0.49 0.37 0.30
PROPRIETORY RATIO
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2004 2005 2006 2007 2008
146
Interpretation
Proprietary ratio is a relationship between the assets and proprietor fund, where total
assets include current assets, non current assets, and fixed assets, whereas
proprietor fund include Share capital, Reserves and Minority Interest.
The relationship highlights the fact as to what is the proportion of proprietors and
outsiders in financing the Engro business.
Proprietary ratio shows a negative trend that is not favorable for the Engro because
it increases the degree of risk as well as higher potentials return. It reaches to the
30% in 2008 which means that 70% of the total funds have been supplied by the
outside creditors.
From 2004 to 2008 the calculations are 0.50 in 2004, 0.52 in 2005, 0.49 in 2006,
0.37 in 2007 and 0.30 in 2008 these calculations show negative trends these
decreases occurred mainly due to the increase in total assets as compared to the
proprietor funds.
The examination of proprietor ratio of Engro shows that higher portion of investment
is contributed by the outside creditors as compared to the internal investment by
stakeholders.
147
11.7.2 CAPITAL GEARING RATIO
It is the ratio between the capitals plus reserves i.e. equity and fixed cost bearing
securities. Fixed cost bearing securities include debentures, long-term mortgage
long etc. In a company from of organization, real risk is borne by equity shareholders
because they are entitled to whatever residue is left after all others have been paid
at the contracted rate.
Formula
Capital Gearing Ratio = Equity

Fixed Interest bearing debts
Calculation
2004 2005 2006 2007 2008

Equity 6,791,307 7,540,790 9,796,171 18,006,690 25,578,193
Fixed Interest bearing debts 2,665,529 2,954,383 2,465,427 18,384,529 40,861,655
Capital Gearing Ratio 2.55 2.55 3.97 0.98 0.63
CAPITAL GEARING RATIO

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2004 2005 2006 2007 2008
148
Interpretation
Capital gearing ratio is a relationship between equity and fixed cost bearing
securities, where equity include share capital, reserves, and minority interest,
whereas fixed cost bearing securities include Long term Finance, Finance lease,
deferred liability and Redeemable capital.
This ratio measure the extent of capitalization by the funds rose by the issue of fixed
cost securities. Capital gearing ratio shows a negative trend that is not favorable for
the Engro because it increases the degree of risk as well as higher potentials return.
It reaches to the 0.63 in 2008.
From 2004 to 2008 the calculations are 2.55 in 2004, 2.55in 2005, 3.97 in 2006, 0.98
in 2007 and 0.63 in 2008 these calculations show negative trends these decreases
occurred mainly due to the increase in fixed interest bearing securities.
These low geared of Engro means lowered proportion of equity as compared to the
fixed cost bearing capital so Engro cannot better able to fulfill it interest obligations.
149
11.7.3 SOLVENCY RATIO
Solvency is the term which is used to describe the financial position of any business
which is capable to meet outside obligations in full out of its own assets. So this ratio
establishes relationship between total liabilities and total assets.
Formula
Solvency Ratio = Total liabilities

Total Assets
Calculation
2004 2005 2006 2007 2008

Total liabilities 6,746,762 6,856,215 10,257,892 30,966,948 58,347,587
Total Assets 13,538,069 14,397,005 20,054,063 48,973,638 83,925,780
Solvency Ratio 0.50 0.48 0.51 0.63 0.70
SOLVANCY RATIO
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2004 2005 2006 2007 2008
150
Interpretation
It measures the proportion of total assets financed by the firm’s creditors. The higher
the proportion, the greater the amount of other people’s money being used to
generate the profit.
Solvency ratio is a relationship between the Assets and Liability, where total assets
include current assets, non current assets, and fixed assets, whereas Total Liability
includes current and non current Liability. The relationship highlights the fact as to
what is the proportion of outsiders in financing the Engro business.
This ratio shows a positive trend that is not favorable for the Engro because it
increases the degree of risk as well as higher potentials return. It reaches to the 70%
in 2008 which means that 70% of the total funds have been supplied by the outside
creditors. From 2004 to 2008 the calculations are 0.50 in 2004, 0.48 in 2005, 0.51 in
2006, 0.63 in 2007 and 0.70 in 2008 these calculations show positive trends these
increase occurred mainly due to the increase in total assets as compared to the total
liability.
The examination of Solvency ratio of Engro shows that higher portion of investment
is contributed by the outside creditors as compared to the internal investment by
stockholders.
11.7.4 CONCLUSION
151
The solvency ratio has shown an increasing trend over the past years. Proprietary
ratio shows a negative trend that is not favorable for the Engro because it increases
the degree of risk as well as higher potentials return. It reaches to the 30% in 2008
which means that 70% of the total funds have been supplied by the outside
creditors.
SOLVANCY RATIO ANALYSIS
5.00 0.80
0.70
4.00 0.60
3.00 0.50
0.40
2.00 0.30
1.00 0.20
0.10
0.00 0.00
2004 2005 2006 2007 2008
Proprietory Ratio Capital gearing Ratio Solvancy Ratio
Capital gearing ratio shows a negative trend that is not favorable for the Engro
because it increases the degree of risk as well as higher potentials return. It reaches
to the 0.63 in 2008. Solvency ratio shows a positive trend that is not favorable for the
Engro because it increases the degree of risk as well as higher potentials return. It
reaches to the 70% in 2008 which means that 70% of the total funds have been
supplied by the outside creditors.
152
11.8 ANALYSIS OF PROFITABILITY
TESTS OF PROFITABILITY
The main objective of a business concern is to earn profit. In general terms,
efficiency in business is measured by profitability.
A low profitability may arise due to the lack of control over expanses. Banker’s
financial institutions and other creditors look at the profitability ratios as an indicator
whether or not the firm earns substantially more than it pays interest for the use of
borrowed funds and whether the ultimate repayment of their debt appears
reasonably certain.
Owners are also interested to know the return which they can get on their
investments.
The following are the important profitability ratio.
Percentage change Ratio
Gross Profit Ratio
153
11.8.1 PERCENTAGE CHANGE
The percentage change is the difference between the amount for a comparison year
and for a base year. The two most important percentage changes are
 NET SALES
 NET INCOME
11.8.1.1 NET SALES
The percentage change of net sales is the difference between the amount for a
comparison year and for a base year.
FORMULA
Net sales percentage change = Amount of change * 100
Amount in earlier year
Calculation
2004 2005 2006 2007 2008

Net sales percentage change 100% 44% 8% 69% 20%
NET SALES
20% NET SALES
69% 100%
8%
44%
2004 2005 2006 2007 2008
154
11.8.1.2 NET INCOME
The percentage change of net income is the difference between the amount for a
comparison year and for a base year.
FORMULA
Net income percentage change = Amount of change * 100
Amount in earlier year
Calculation
2004 2005 2006 2007 2008

Net income percentage change 100% 32% -6% 32% 48%
NET INCOME
48%
NET INCOME
100%
32%
-6%
32%
2004 2005 2006 2007 2008
INTERPRETATION
155
The percentage change in net sales shows a negative trend and percentage change
in net income shows a positive trend these changes occur due to the fluctuation in
amounts in last years from 2004 to 2008.
11.8.2 GROSS PROFIT RATIO
Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns.
The ratio thus reflects the margin of profit that a concern is able to earn on its trading
and manufacturing activity. It is the most commonly calculated ratio. It is employed
for inter-firm and inter-firm comparison of trading results.
FORMULA
Gross profit Ratio = Gross profit * 100
Net sales
Calculation
2004 2005 2006 2007 2008

Gross profit 3,736,565 4,683,988 5,142,854 7,982,245 10,861,699
Net sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Gross profit Ratio 29% 25% 25% 23% 27%
Graphical
GROSS Representation
PROFIT RATIO
156

30%
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
Interpretation
Gross profits margin are showing positive trend. It’s increasing year by year and
reaches to the 27% in FY08 and further explanations are given as under.
FY2004: Gross profit ratio of the FY04 grew by 29%.
FY2005: Gross profit ratio of the FY05 reached by 25% mainly due to high cost of
good sold this increase occur due to the increase in prices of raw material as well as
prices of fuel at international level.
FY2006: Gross profit for which year were stable at 25%.
FY2007:The FY07 proved to be good one for Engro, Gross profit for the year 07
higher by 113.63% as compared to the base year 2004,due to mainly to higher
turnover of Phosphate and Zerkhez ---driven by Increase in crude oil prices
emphasis on cultivation for bio fuels--- and an increase in demand Urea in market.
This is mainly due to the market plan that focused on consumption of fertilizers at
157
grass root level Field activity include 30 farmer information seminars, and
sponsorship at regional level.
FY2008: Engro delivered strongest results to date in 2008. Gross profit of the year
2008, 290.69% compared with 213.63% in 2007, Gross profit did not grow much
because of low phosphate sales -through offset by high phosphate prices driven by
change in demand of food grains and international economic down turn, however
CGS handled the situation and leads the Gross profit at the rate of 27% as
compared to the FY2007.
11.8.3 NET PROFIT RATIO
Net profit ratio expresses the relationship between net profit after taxes and sales.
This ratio is the measure of the overall profitability. Net profit is arrived at after taking
into account both the operating and non-operating items of incomes and expenses.
The ratio indicates what portion of the net sales is left for the owners after all
expenses have been met.
FORMULA
Net profit Ratio = Net profit * 100

Net sales
Calculation
2004 2005 2006 2007 2008

Net profit 1,730,814 2,283,783 2,138,842 2,833,788 4,206,690
Net sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Net profit Ratio 13% 12% 11% 8% 10%
158
NET PROFIT RATIO
14%
12%
10%
8%
6%
4%
2%
0%
2004 2005 2006 2007 2008
Interpretation
Net Profits of Engro Chemical Pakistan Ltd are showing healthy optimistic trend. It’s
increasing year by year further explanations are given as under.
FY2004: Net profit ratio stood at 13%.
FY2005: Net Profit ratio from the operations registered at 12% decrease occurred
due to of higher gas prices and cost of other inputs, like transportation (due to the
rise of diesel prices). Urea profitability grew due to better production and better
margins. Zarkhez business continued to benefit from operational efficiency and
inventory gains due to timely purchase of raw materials.
159
FY2006: Net Profits margin for the year was 11% principally because of higher cost
of good sold of own manufactured products.
FY2007: Net Profits at 63% higher than base year principally because of higher
other incomes from joint ventures and subsidies. Increase in selling price fertilizers is
another reason of increase in net profit of Engro chemical Pakistan Ltd.
FY2008: Net Profits of the year 2008, 243.05% compared with 163.73% in 2007,
Engro delivered strongest results to date in 2008 Net Profits after taxation of
143.05% increase as compared to the initiative date, 79.32% increase from 2007
primarily due to increased income from affiliates.
11.8.4 OPERATING PROFIT RATIO
Operating net profit ratio is calculated by dividing the operating net profit by sales.
This ratio helps in determining the ability of the management in running the
business.
FORMULA
Operating profit ratio = Operating profit * 100

Net sales
Calculation
OPERATING PROFIT RATIO
2004 2005 2006 2007 2008
Operating profit 2,642,198 3,308,210 2,821,930 4,399,550 6,608,047
Net sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Operating profit ratio 20% 18% 14% 13% 16%
160

25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
INTERPRETATION
The Operating profit ratio shows an increasing trend. It is expected that it will
increase more in next future because of Engro’s expansion plan and increasing
demand of fertilizers in all over the world.
11.8.5 OPERATING (COST) RATIO
FORMULA
Operating (Cost) Ratio = Operating cost * 100
Net sales
Calculation
2004 2005 2006 2007 2008

Operating cost 10,425,458 15,448,610 17,418,105 29,721,061 34,365,000
Net sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Operating
Operating (Cost) Ratio (Cost)80%
Ratio 82% 86% 87% 84%
161
88%
86%
84%
82%
80%
78%
76%
2004 2005 2006 2007 2008
INTERPRETATION
Operating ratio shows a negative tend in FY08, lower the operating ratio, the better
is the position because greater is the profitability and management efficiency of the
concern. In last years ratio was higher as in FY07 ratio was 87% in FY06 86% it was
less favorable situation for the company because there will be smaller margin of
profit available for purpose of payment of dividend and creation of reserves.
11.8.6 EXPENSES RATIO
FORMULA
Expenses Ratio = Selling and distribution expenses * 100

Net sales
Calculation
Expenses Ratio
2004 2005 2006 2007 2008

Selling and distribution expense 1,094,367 1,375,778 2,320,924 3,582,695 4,253,652
Net sales 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047
Expenses Ratio 8% 7% 11% 11% 10%
162

12%
10%
8%
6%
4%
2%
0%
2004 2005 2006 2007 2008
INTERPRETATION
Expense ratio of selling and distribution expense shows a negative trend that directly
affect on the position of operating ratio. Lower the expense ratio lowers the
operating ratio results. It is expected that it will be decrease in near future because
of better facilities provided by the Government.
163
11.8.7 Conclusion
The gross profit ratio shows an increasing trend. This increase occurs due to the
increase in net sales as compare to the cost of sales. The growth rate of net sales is
6% while the growth rate of cost of sales is 3.5%.This increase leads to the
company’s gross profit at 27% in FY08 as compared to the 23% in 2007.
The Net profit ratio shows a mixed trend. This situation occurred due to the increase
in net profit. The growth rate of net profit as is 2% while the growth rate of sales is
6%.This increase leads to the company at 10% in FY08 as compared to the 8% in
2007. These changes in growth rate affect on the position of profit.
The Operating profit ratio shows an increasing trend. It is expected that it will
increase more in next future because of Engro’s expansion plan and increasing
demand of fertilizers in all over the world. Expense ratio of selling and distribution
expense shows a negative trend that directly affect on the position of operating ratio.
Lower the expense ratio lowers the operating ratio results.
Operating ratio shows a negative tend in FY08, lower the operating ratio, the better
is the position because greater is the profitability and management efficiency of the
concern. In last years ratio was higher as in FY07 ratio was 87% in FY06 86% it was
less favorable situation for the company because there will be smaller margin of
profit available for purpose of payment of dividend and creation of reserves.
164
11.9 ANALYSIS OF RETURNS
TESTS OF INVESTMENT RETURN
Basic purpose of this test is to assist decision maker in efficiently allocating and
using economic resources. In deciding where to invest their money, equity investor
wants to know how efficiently companies utilize resources. The most common
method of evaluating with which financial resources are employed to compute the
rate of return earned on the resources. This test of investment return include
 Return on investment
 Return on Equity
 Return on assets
Return on investment indicates the percentage of return on the total capital
employed in the business.
Return on assets is used to evaluate whether management has earned a reasonable
return with the assets under the control. Return on assets measure the efficiency
with which the management has utilized the assets under its control, regardless of
whether these assets were financed with debt or equity capital.
The Return on Equity ratio looks only at return earned by management on the
shareholder investment.
165
11.9.1 RETURN ON INVESTENT
FORMULA
Return on investment = EBIT * 100
Capital Employed
Calculation
2004 2005 2006 2007 2008

EBIT 2,600,057 3,260,720 2,917,193 3,952,829 5,184,018
Capital Employed 6,791,307 7,540,790 9,830,982 18,006,690 66,317,017
Return on investment 38% 43% 30% 22% 8%
Return on investment
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
INTERPRETATION
ROI shows a negative trend it reaches to the 8% in 2008. This decrease occurs due
to the higher interest rate that is 35% than the ROA. The whole situation concludes
that ROI is decreasing year by year due to the lower returns than the total capital
employed in business.
166
11.9.2 RETURN ON EQUITY
FORMULA
Return on equity = EAIT * 100
Shareholder’s fund
Calculation
2004 2005 2006 2007 2008

EAIT 1,730,814 2,283,783 2,138,842 2,833,788 4,206,690
Shareholder’s fund 6,791,307 7,540,790 9,796,171 18,006,690 25,578,193
Return on equity 25% 30% 22% 16% 16%
Return on equity
35%
30%
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
INTERPRETATION
167
ROI shows a negative trend which is consistent at 16% from last 2 years, although
the earnings increased in last two years but the shareholder funds also increased at
the same proportion.
168
11.9.3 RETURN ON ASSET
FORMULA
Return on asset = Operating income * 100

Average total assets
Calculation
2004 2005 2006 2007 2008

Operating income 2,642,198 3,308,210 2,821,930 4,399,550 6,608,047
Average total assets 13281224 13967537 17225534 34513851 66449709
Return on asset 20% 24% 16% 13% 10%
Return on Assets
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
INTERPRETATION
ROA shows a negative trend it reaches to the 10% in 2008 which is lowest in last 5
years. This decrease occurs due to the increase in total assets specially fixed assets
169
while operating income is low. This is mainly due to the poor equipment and
obsolete technological equipment used in process.
170
11.9.4 CONCLUSION
Return on investment indicates the percentage of return on the total capital
employed in the business.
Return on assets is used to evaluate whether management has earned a reasonable
return with the assets under the control.
The Return on Equity ratio looks only at return earned by management on the
shareholder investment.
Return On Investment
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
ROI ROE ROA
171
ROI shows a negative trend. This decrease occurs due to the higher interest rate
that is 35% than the ROA. The whole situation concludes that ROI is decreasing
year by year due to the lower returns than the total capital employed in business.
ROI shows a negative trend which is consistent at 16% from last 2 years, although
the earnings increased in last two years but the shareholder funds also increased at
the same proportion.
ROA shows a negative trend it reaches to the 10% in 2008 which is lowest in last 5
years. This decrease occurs due to the increase in total assets specially fixed assets
while operating income is low. This is mainly due to the poor equipment and
obsolete technological equipment used in process.
Overall analysis shows that the company give low returns than the last years
returns…… but it is expected that in next future Engro will give better returns on the
capital employed in the business process.
172
173
CROSS-SECTIONAL ANALYSIS
12.1 BRIEF
Cross-sectional analysis involves the comparison of different firms’ financial ratios at
the same point in time. Analysts are often interested in how well a firm has
performed in relation to other firms in its industry. Frequently, a firm will compare its
ratio values to those of a key competitor or group of competitors that it wishes to
emulate. This type of cross-sectional analysis, called benchmarking, has become
very popular.
Definition
Comparison of different firms financial ratios at the same point in time, involves
comparing the firm’s ratios to those of other firms in its industry or to industry
averages.
Criteria
Comparison of different fertilizer firm as Engro Chemical Pakistan Limited, Fauji
Fertilizer Company Limited and Fauji Fertilizer Bin Qasim Limited financial ratios at
the same point in time from FY04 to FY08, involves comparing the firm’s ratios to
those of other firms in its industry or to industry averages.
Actual calculations are as under…..
174
12.2 INCOME STATEMENT
Cross sectional analysis of Income statement focuses on sales, Cost of Good sold
and net profit.
Amounts
2004 2005 2006 2007 2008

SALES
ECPL 13,067,656 18,756,820 20,240,035 34,120,611 40,973,047 Best
FFBQL 13,255 14,255 14,707 14,385 19,188
FFCL 22,461,969 25,481,121 29,950,875 32,439,973 39,515,782
CGS
ECPL 9,331,091 14,072,832 15,097,181 26,138,366 30,111,348 Better
FFBQL 8,989 9,692 10,023 9,685 11,049
FFCL 19,432,565 16,293,642 20,242,194 22,430,218 25,029,588
Net Profit
ECPL 1,730,814 2,283,783 2,138,842 2,833,788 4,206,690 Better
FFBQL 1,999 2,449 2,445 2,500 4,515
FFCL 2,545,777 4,897,336 4,636,144 4,955,579 5,115,586
Graphically
Sales
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
2004 2005 2006 2007 2008
ECPL FFBQL FFCL
Source: Annual Report
175
CGS
40,000,000
30,000,000
20,000,000
10,000,000
0
2004 2005 2006 2007 2008
ECPL FFBQL FFCL
Net Profit
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2004 2005 2006 2007 2008
ECPL FFBQL FFCL
INTERPRETATION
Cross sectional analysis shows that engro has a good position in market on the
basis of its income e statement as compare to the other market players. It stands 1 st
on the basis of sales and 2nd on the basis of CGS and profits.
176
12.3 BALANCE SHEET
Cross sectional analysis of balance sheet focuses on Current assets, Long term
loans and equity.
Amounts
2004 2005 2006 2007 2008

Current
Assets
ECPL 4,836,331 5,261,432 8,710,860 24,279,441 23,941,940 Best
FFBQL 8,878 9,267 11,323 6,606 7,853
FFCL 11,778,553 11,464,577 9,764,587 8,529,568 8,958,546
Long term
loans
ECPL 0 0 34,811 0 40,738,824 Worst
FFBQL 4,675 7,130 6,482 5,834 5,186
FFCL - - - - -
Equity
ECPL 13,538,069 14,397,005 20,054,063 48,973,638 83,925,780 Better
FFBQL 6,678 7,728 8,530 8,472 9,951
FFCL 120,657,989 124,409,08 129,565,43 136,566,23 152,439,993
Graphically
Current Assets
30,000,000
20,000,000
10,000,000
0
2004 2005 2006 2007 2008
ECPL FFBQL FFCL
177
Long term Finance
60000000
40000000
20000000
0
2004 2005 2006 2007 2008
ECPL FFBQL FFCL
Equity
200,000,000
150,000,000
100,000,000
50,000,000
0
2004 2005 2006 2007 2008
ECPL FFB QL FFCL
INTERPRETATION
basis of its Balance sheet as compare to the other market players. It stands 1 st on
the basis of current Assets and long term finance and 2nd on the basis of Equity.
178
12.4 SHORT TERM FINACIAL POSITION
Cross sectional analysis of short term financial position focuses on Current ratio,
Absolute Liquid ratio and quick ratio.
Amounts
200
2004 2005 2006 2007 8
Current Ratio
ECPL 1.55 1.81 1.36 2.53 1.95 Best
FFBQL 1.46 1.46 1.34 1.27 1.32
FFCL 0.91 0.90 0.95 1.03 1.06
Industry 1.48 1.48 1.48 1.48 1.48
Absolute
Liquid Ratio
ECPL 0.83 0.52 0.42 1.30 0.35 Better
FFBQL 0.15 0.24 0.32 0.42 0.29
FFCL 1.11 0.83 0.89 0.74 0.49
Industry 0.86 0.86 0.86 0.86 0.86
Quick Ratio
ECPL 1.05 0.84 0.82 1.86 1.09 Better
FFBQL 0.83 0.86 0.81 0.85 0.92
FFCL 1.30 1.25 1.10 1.14 1.09
Industry 1.10 1.10 1.10 1.10 1.10
Graphically
Current Ratio
3
2.5
2
1.5
1
0.5
0
2004 2005 2006 2007 2008
FFBQL FFCL ECPL Industry
179
Absolute Liquid Ratio
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2004 2005 2006 2007 2008
Quick Ratio
2
1.5
1
0.5
0
2004 2005 2006 2007 2008
FF B QL FFCL E CP L Indus try
INTERPRETATION
basis of its Liquidity as compare to the other market players. It stands 1 st on the
basis of current Ratio and 2nd on the basis of absolute Liquid ratio and Quick Ratio.
The analysis is conducted with comparison of market player and industry averages.
180
12.5 PROFITABILTY ANALYSIS
Cross sectional analysis of profitability position focuses on gross profit margin and
net profit margin and operating profit margin.
Amounts
200
2004 2005 2006 2007 8
GP Margin
ECPL 29% 25% 25% 23% 27% Bad
FFBQL 32% 32% 31% 42% 47%
FFCL 36% 32% 35% 36% 35%
Industry 29% 29% 29% 29% 29%
Profit Margin
ECPL 13% 12% 11% 8% 10% Better
FFBQL 10% 12% 10% 7% 8%
FFCL 15% 11% 12% 9% 9%
Industry 10% 10% 10% 10% 10%
Operating
profit Margin
ECPL 20% 18% 14% 13% 16% Better
FFBQL 9% 10% 10% 10% 10%
FFCL 26% 23% 26% 27% 17%
Industry 16% 16% 16% 16% 16%
Graphically
Gross profit Margin
50%
40%
30%
20%
10%
0%
2004 2005 2006 2007 2008
181
Profit Margin

20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
182
Operating Profit Margin
30%
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
INTERPRETATION
Cross sectional analysis shows that engro has a better position in market on the
basis of its profitability as compare to the other market players. It stands last on the
basis of GP margin and better on the basis of Net profit and operating profit. The
analysis is conducted with comparison of market player and industry averages.
11.10LONG TERM FINACIAL POSITION
Cross sectional analysis of long term financial position focuses on solvency ratio.
Amounts
200
2004 2005 2006 2007 8
Solvency
Ratio
ECPL 0.52 0.48 0.51 0.63 0.70 Better
FFBQL 0.92 0.69 0.56 1.1 1.15
FFCL 0.56 0.56 0.52 0.47 0.64
Industry 0.56 0.56 0.56 0.56 0.56
183
Graphically
Solvency Ratio
1.5
0.5
0
2004 2005 2006 2007 2008
INTERPRETATION
basis of its solvency as compare to the other market players. The analysis is
conducted with comparison of market player and industry averages. It is expected
that solvency ratio will be increased in next future.
12.6 RETURN ANALYSIS
Cross sectional analysis of return on investment position focuses on ROI, ROE and
ROA.
Amounts
200
2004 2005 2006 2007 8
ROI
ECPL 38% 43% 30% 22% 8% Bad
FFBQL 32% 32% 28% 28% 17%
FFCL 36% 32% 15% 16% 15%
Industry 29% 29% 29% 29% 29%
184
ROE
ECPL 25% 30% 22% 16% 16% Better
FFBQL 10% 12% 10% 7% 8%
FFCL 39% 39% 45% 28% 19%
Industry 22% 22% 22% 22% 22%
ROA
ECPL 20% 24% 16% 13% 10% Better
FFBQL 9% 10% 10% 10% 10%
FFCL 17% 16% 20% 21% 18%
Industry 16% 16% 16% 16% 16%
Graphically
ROI
50%
40%
30%
20%
10%
0%
2004 2005 2006 2007 2008
185
ROE
40%
30%
20%
10%
0%
2004 2005 2006 2007 2008
ROA
25%
20%
15%
10%
5%
0%
2004 2005 2006 2007 2008
186
INTERPRETATION
Cross sectional analysis shows that engro has not a better position in market on the
basis of its returns as compare to the other market players. It stands last on the
basis of ROI margin and better on the basis of ROE and ROA. The analysis is
conducted with comparison of market player and industry averages.
12.7 CONCLUSION
According to the component percentage analysis results are
Cross sectional analysis shows that engro has a better position in market on the
basis of its returns as compare to the other market players. All the profits are
increasing as per industry. Companies Performance is improving and gross profits
capture industry average coupled with better relative increase in selling, general
expenses. Returns are decreasing. It may create problem in management however
187
188
189
CONCLUSION
Engro knows better about business perspectives understand its business
requirements and invest successfully in its portfolio. It is hoped that all its efferts will
bear fruit.
For Investors:
I have concluded that to invest in Engro Chemical Pakistan Limited, although firm
has not giving handsome return on investment but it is expected that firm will
generate more returns on its investment because of its more command on its
business strategy and its current expansion plan which will be completed in 2010.
For Lenders
To sum up I can say that there are better opportunities for short term lenders to
provide funds to Engro because short term debt paying ability of firm is GOOD while
the Long tern Lender will also get benefit because the debt rate of the firm is 35%
which will be sustained in future.
190
191
FUTURE PERSPECTIVE
It is expected that the company will be able to perform well because of its future
expansion plan which will increase the market share from current 20% to 45%.
Analysis is also showing the increasing trend. One more thing which is favorable for
company is its diversification projects and investment horizon. If the company would
be able to continue its current stability and investments in profitable projects then the
company would be able to increase its market share as well as Profitability.
In the year 2009, the company will maintain its focus on timely and flawless
implementation of the significant growth initiatives in all business taking place in its
fertilizer, food, energy, chlor-vinyl, chemical storage and industrial automation
businesses. Engro has put in places plans to continue to source and retain quality
people to sustain its growth ambition. The Engro continue to take proactive measure
to mitigate potential risks and cope with challenges to company’s profitability arising
from the current economic climate.
Engro will become the largest urea manufacturer in the country in 2010, Urea
demand is expected to remain rebuts while phosphates demand is expected to
strengthen subsequent to relative normalization of international prices. To facilitate
exports, they need to establish their own affiliates instead of using other independent
distributors.
192
193
RECOMMENDATIONS
On the basis of SOWT analysis and other firm analysis these recommendation are
generated.
⇒ The level of training is lower so they hiring the services of foreigners, they need
to train their own employees so they could save the cost and utilize the human
resources in a proper manner.
⇒ It is needed to be focus toward new technology and modern gadget to fulfill the
future needs of industry at national as well as international level.
⇒ Focus toward expansion project……expansion may open up attractive export
avenues.
⇒ To reduce the higher cost of production, Try to use the subsidiary in efficient way
provided by Government to reduce the cost per unit and try to avoid wastage of
row material by using them again in the production of some other products.
⇒ Lack of online market facility to access international buyers in the organization so there
is a need to focus the sales force automation.
⇒ Starting new research and development program in the organization for
introducing the new fertilizers that increase the production as well as less
dangerous for human health.
194
195
ANNEXURE
All information’s are gathered from annual reports of Engro Chemical Pakistan
Limited……
196

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1

Pakistan is an agricultural country. In the past decades, Pakistan has progressed

from a purely agriculture based economy to a relatively balanced economy

dependent on services and other commodity producing sectors as well. Although

agriculture continues to perform an important role in the overall GDP, however in

employing 44 percent of the workforce, whereas industrial sector contributed about

rising henceforth as the population demand for food rises.

Fertilizer consumption world wide is highly correlated with macroeconomic growth of

accompanied by an increase in agriculture growth, per acre yield and resultant

weather conditions and crop spoilage. The government is committed to improve

agriculture performance through the following measures:

i. Irrigation system improvement

As a result of these policies, yield per hectare of Pakistan is showing gradual

improvement although it is low as compared to the other countries. Currently it

stands at 1.44tn per hectare.

Fertilizer consumption in Pakistan stands at 162.5kg/hectare.

enable them to improve yields. It encourages manufacturers to invest in the country

demand for it.

Generally, fertilizer consumption closely follows production in a country subject to

consumption and economic growth.

1.3.1 CONSUMPTION AND PRODUCTION

World fertilizer consumption increased exponentially in the period of 1950_1990.

through three ways:

i. Turning more land into arable land through better irrigation

ii. Using High Yielding Seeds (HYS)

iii. Using fertilizers to improve soil content

Moreover, it has gained widespread use as food demand rises.

economic problems. However, post that brief downturn, growth in fertilizer

According to the IFA estimates, world fertilizer consumption is expected reach

163.7mntpa in 2011 from 143.3mntpa in 2007.

view. From a 12:88 ratio of developing : developed nations’ consumption in early

1960’s has now become 65:35.

namely China and India. Hence, Production of fertilizers becomes concentrated in

countries, who are also the users.

natural gas reserves, therefore, facilities production.

Because of the relative location of producing and consuming countries, large

quantities of fertilizer materials are shipped internationally. As a proportion of world’s

usage and production. Following estimates are taken from IFA:

developing countries will demand a substantial increase in global cereal production.

Problem in supply-demand are likely to occur because agricultural production in

developing countries is not keeping pace with this increase in demand.

certainly require increased use of fertilizers.

Growth in production is expected to outpace fertilizer consumption. According to IFA

estimates world urea supply is expected to reach 178.8mntpa in 2011 from

145.2mntpa in 2008.Most of the forecasted increase in fertilizer capacity is expected

to arise from China and Saudi Arabia.

Pakistan’s economy is agro-based; however our cultivable land is deficient in

province-wise distribution of units confirms that 5 units are located in Punjab, 3 in

Sindh and 2 in the NWFP.

Fertilizer production is concentrated in nitrogenous fertilizers, which comprises 85%

remaining for NP, DAP, CAN and SSP.

Sector Fertilizer Industry

Type of Industry Growth Industry

• Dawood Hercules Company Ltd,

Inflation rate, Interest rate, Environmental problems,

1.4.2 MARKET DYNAMICS

1.4.2.1 Demand – Supply situation

i. Fauji Fertilizers Company Limited

ii. Engro Chemical Pakistan Limited

iii. Fauji Fertilizers Bin Qasim Limited

iv. Dawood Hercules Company Limited

exploiting their market power to arrange price setting agreement.