1. Foundation Research
Equities
Fauji Fertilizer Bin Qasim
Diversification strategy could be a
game changer
Event
 The recent drive to diversify its business can be a game changer for Fauji
Fertilizer Bin Qasim (FFBL), in our view. After taking exposure in the banking
(AKBL) and power sector (FFCEL), the company plans to take advantage on
domestic demand theme (Food and Power). Recently, the company
announced its intention to enter the dairy business via acquisition of Noon
Pakistan (NOPK) whereas its meat and coal power projects are already
underway. Our preliminary calculations suggest valuation upside of 13% to
our current target price of PKR44/share from aforementioned projects
(excluding NOPK). Sighting potential upside and CY15E DY of 10.0%, we
upgrade our stance from Neutral to Outperform.
Impact
 Significant upside may come from acquisition of NOPK: To further
diversify its product line FFBL has shown its intention to acquire majority
stake of NOPK (both voting and non-voting shares). With FY14 topline of
PKR2.2bn at 7% capacity utilization, NOPK is principally engaged in dairy &
juice business under the brand name of Nurpur. With modalities still to be
decided, NOPK provides an ideal opportunity to take exposure on theme of
domestic demand.
 We have taken a sample of 6 listed food companies comprising Nestle,
Efoods, National Foods, Ismail Industries, Shezan and Quice foods to gauge
the potential impact of the acquisition on FFBL. Though it is premature to
quantify the acquisition impact, our analysis using P/S hints a potential upside
in the range of PKR3-5/sh to our current valuation given yesterday’s closing.
 Footprints in meat business: FFBL is also diversifying itself into meat
business through an investment of US$58mn (debt:equity 70:30) in Fauji Meat
Limited (FML). The core purpose of the project is processing of halal meat,
value added products and by products with special focus on international
markets i.e. UAE, KSA, Qatar, Bahrain, Kuwait, Malaysia and Iran along with
domestic markets.
 The plant would have processing capacity of 100tons per day out of which
85% is of beef while remaining 15% constitutes mutton. In addition, company
is also planning to build a feedlot flattening facility consisting of 3,000-4,000
animals to meet international standards. The project is likely to commence
operations from 4QCY15. As per our assumption, initially FML would operate
at capacity of 30%, which will increase to 90% over the period of six years
(CY17-22). This would generate positive TP impact of PKR2.0/sh on FFBL’s
books.
 Coal power plant to curb gas curtailment: In an environment of poor gas
availability, decision to set up coal power plant of 110MW would not only
provide operational flexibility but also provide dollar dominated return on its
electricity supply to national grid (~70MW). This project would cost around
US$130mn and will likely come online in CY18. Our estimates suggest an
addition of PKR3.5/sh to our current valuations (TP impact of PKR1.3/sh from
PAKISTAN
26 November 2014
FFBL PA Outperform
Stock price as of 25 Nov Rs 42.4
Jun 15 target Rs 44.2
Upside/downside % 4.3%
Valuation Rs 44.2
- SOTP
Fertilizer
Market cap Rs bn 39.6
30-day avg turnover US$m 0.4
Market cap US$m 392
Number shares on issue m 934
Investment fundamentals
Year end 30 Dec 2013A 2014E 2015E 2016E
Total revenue mn 54,455 4 2,171 55,557 6 1,626
EBIT mn 9,877 6 ,183 8,005 8 ,267
EBIT Growth % 19.13 (37.40) 29.48 3 .27
Recurring Profit m 5,613 3 ,172 4,684 4 ,766
Reported Profit m 5,613 3 ,172 4,684 4 ,766
EPS rep Rs 6.01 3 .40 5.01 5 .10
EPS rep growth % 29.39 (43.48) 47.67 1 .75
EPS rec Rs 6.01 3 .40 5.01 5 .10
EPS rec growth % 29.39 (43.48) 47.67 1 .75
PE rep x 7.06 1 2.49 8.46 8 .31
PE rec x 7.06 1 2.49 8.46 8 .31
Total DPS Rs 4.75 3 .25 4.25 4 .25
Total div yield % 11.20 7 .66 10.02 1 0.02
ROA % 14.42 8 .96 13.03 1 2.18
ROE % 42.49 2 3.29 33.62 3 1.94
EV/EBITDA x 4.81 9 .02 6.74 6 .49
Net debt/equity % 112.94 1 46.37 119.86 1 14.22
Price/book x 2.87 2 .94 2.75 2 .57
FFBL PA rel KSE 100 performance
1.60
1.40
1.20
1.00
0.80
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
KSE FFBL
Source: Bloomberg, Foundation Research, November 2014
(all figures in PKR unless noted)
Analyst
Muhammad Awais Ashraf m.awais@fs.com.pk
92 21 5612290 Ext 339
Disclaimer: This report has been prepared by FSL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such
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2. Fauji Fertilizer Bin Qasim November 26, 2014
electricity supply & PKR2.2/sh through fuel stock savings).
Price Catalyst
 Jun-15 price target: PKR44.3/sh based on SOTP valuation method.
 Catalyst: Materialization of acquisition of NOPK along with start operations of FML and coal power plant.
Earnings Revision
 We have revised down our CY14/15 earnings by ~30/4% on the back of subdued margins and fluctuations in income
from associates.
Action & Recommendations
 Sighting potential upside and CY15E DY of 10.0%, we upgrade our stance from Neutral to Outperform. The stock is
currently trading at CY15E and 16E P/E of 8.5x and 8.3x respectively.
2 Foundation Securities (Pvt) Limited

3. Fauji Fertilizer Bin Qasim November 26, 2014
Company Profile
Fauji Fertilizer Bin Qasim is the sole DAP and Granular urea producer in Pakistan. Initially named as
FFC-Jordan Fertilizer Company (FJFC), FFBL was formed on 17th Nov 1993, with FFC (30%), FF
(10%) and JPMC (10%) as main sponsors. The company was formally listed with stock exchanges in
May 1996 and commercial production commenced wef Jan 2000. The company was renamed as Fauji
Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as Jordan Phosphate Mines Co. (JPMC) had sold its entire
equity in the company. FFC currently owns a 51% stake in FFBL. FFBL is listed on all the three stock
exchanges of the country.
3 Foundation Securities (Pvt) Limited