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The Pakistan Credit Rating Agency Limited

Date
19-Apr-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Sanna Khan
sanna.khan@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16)
  • Correlation between Long-term and Short-term rating (Jun 16)
  • Sukuk Rating (Jun 16)
  • Corporate Rating (Jun 16)
  • , ()

Related Research

  • Sector Study | Fertilizer (Oct 16)
  • , ()
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This press release is being
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media. The press release may be used
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PACRA Maintains Ratings of Engro Fertilizers Limited
 Rating Type Entity Debt Instrument
Current
(19-Apr-2017)
Previous
(18-Nov-2016)
Current
(19-Apr-2017)
Previous
(18-Nov-2016)
 Action Maintain Maintain Maintain Maintain
 Long Term AA- AA- AA- AA-
 Short Term A1+ A1+
 Outlook Stable Stable Stable Stable
 Rating Watch - - - -

The ratings take into account sustained operations of the company; capacity utilization at both plants remained high on the back of continued gas supply from Mari and other. The risk of gas curtailment has diminished with strengthening of local reservoirs and continued import of RLNG. Better availability of gas has improved overall availability of urea in the market. This, along with declining international prices, has kept local prices under check. Lately, higher inventory levels forced competitive price reduction, in turn reduction in margins. Industry’s ability to manage high business risk is dependent on price induced local demand increase; the recent approval for the export of excess inventory should help towards supply-demand equilibrium in the market. Wherein, any further reduction may force price cut. EFert business fundamentals remain largely in line with industry dynamics. It has experienced squeeze in margins and, in turn, cashflows. The financial risk profile of the company is characterized by moderate leveraging. EFert continues to derive strength from its association with Engro Corporation – a corporate conglomerate.

The ratings are dependent on sustained risk profile of the company. Any constraint to perceived ability to keep business and financial risk in respective matrix may impact the ratings.

About the Entity
EFert is 56.45% owned by Engro Corporation Limited (ECorp), a corporate conglomerate with a consolidated asset base of PKR 290bln and revenue base of PKR 157bln at end-Dec16.

ECorp is majority (37.2%) owned by Dawood Group (DG). EFert's urea plants (base 975k MT, Enven 1,300k MT) and NPK plant are located at Daharki and Port Qasim, respectively. EFert's board comprises three Engro executives, one DG representative, and four independent directors. Mr. Ghias Khan, the CEO of the parent company, is the Chairman of board. Mr. Ruhail Muhammad, the CEO of EFert, is a seasoned professional enjoying a long association with Engro group.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.