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Fertilizer Industry of Pakistan

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These reports have been made by me and my classmates at IBA Karachi. The sole purpose of putting these reports here is to help the free flow of knowledge .

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Fertilizer Industry of Pakistan

  1. 1. INTRODUCTION OVERVIEW OF PAKISTAN’S ECONOMY
  2. 2. Please Note  We have made our presentation keeping in mind that you have some prior knowledge regarding the Sector. Hence our presentation will not include points that are know to you all  Thank you
  3. 3. Overview and Importance  Agrarian based economy of Pakistan  Significant Contribution to Output  Employment Opportunities
  4. 4. Plantfood…  3.5 million malnourished  Replenishes nutrients  Prevents soil erosion
  5. 5. Plantfood…  Types include :  (a) Nitrogenous (Protein, Color, Growth)  (b) Phosphorous (Root Development, Synthesis of Energy)  (c) Potassium: Resistance to disease
  6. 6. Major Players  Fauji Foundation  Pak China Fertilizer  Engro Chemical  Lyallpur Chemicals & Fertilizer  Dawood Hercules  Pak- Arab Fertilizer  Pak- American Fertilizer
  7. 7. Overview…  LowPenetration of Fertilizers Expected to Improve  Excess Demand Situation-Seller is the King  Low Resource Costs Result in High Profitability
  8. 8. Overview  Expansions May Open Up Attractive Export Avenues  Attractive investment Portfolios-Trading at a Discount  Regional Comparison-Valuations are Low
  9. 9.  Fertilizer Consumption correlated with macroeconomic growth (r=0.9841)  The country's GOP has grown at a CAGR of 7.55% over the past 3 years  Totalagriculture GOP stood at PKR1,095bn
  10. 10. Fertlizer Consumption Vs. Nominal GDP
  11. 11. Improvement in yield/hectare  Irrigation System Improvement  Subsidy to farmers  Encouraging use of fertilizer.  Above average credit disbursements.
  12. 12. World Fertilizer Situation  Consumptionincreased exponentially between 1959-1990  IncreasedFood Demand – Burgeoning Population
  13. 13. World High Yield/hectare through…  Turning more land into arable land through better irrigation  Using High Yielding Seeds (HYS)  Using fertilizers to improve soil content
  14. 14. World Fertilizer Surplus
  15. 15. World’s Fertilizer Situation  Decreased Demand in 1990s due to collapse of Soviet Empire  Annual Demand in 2011 is 163 mntpa.
  16. 16. Cereal Demand
  17. 17. World Consumption
  18. 18. Pricing Analysis  Initiation of Gas Provision for ENGRO; Buoyant Demand to Allow Price Pass- through  We foresee excess demand of 0.41mn tons for urea and 0.76mn tons of DAP  Applicabilityof GST is likely to increase Urea prices by ~13% and DAP prices by ~16%
  19. 19. Pricing Analysis  Main reasons for minimal impact on fertilizer companies stem from improved prices of farm output and substantial differential between imported and locally manufactured urea  With ENGRO finally starting to receive gas for its new urea plant, trial production is to start in the next few days which is to act as a trigger for the stock
  20. 20. Pricing Analysis… Sales Tax  17% ---- likely to take ex-factory urea prices to PKR1,149/bag from current levels of PKR1,020/bag whilst DAP price is estimated to increase to the tune of PKR497/bag (expected to take DAP ex- factory price to PKR3,597/bag)
  21. 21. Pricing -- Subsidies  GoP provides a subsidy of PKR393/bag which effectively results in industry provided subsidy to the tune of PKR361/bag  GSTis an ‘add on tax’, it is unlikely to have an impact on profitability.
  22. 22. Pricing and Manufacturing Costs
  23. 23. Pricing…
  24. 24. Selling and Distribution Costs
  25. 25. Gas Price Hike
  26. 26. Factor Conditions
  27. 27. Types of Fertilizers DAP Prilled Urea Potash
  28. 28. Prilled Vs. Granular Fertilizers
  29. 29. Capital Intensive Industry
  30. 30. R&D
  31. 31. Feed Stock & fertilizers  190,163 billion Cubic meters  Current Supply 240 711 thousand tones  Current Demand 216 019 thousand tones  World population Growth Rate is 1.14%  Pakistan population growth rate is 2.1%  India Population growth rate 1.3%  Chine Population Growth Rate 0.5%
  32. 32. Natural Gas field Pakistan  Sui Gas field  mari Gas field  Recent Developments 1. enhancement of field production capacity to 500 MMSCF/Day  Makori Gas Field (Under investigation ) Estimated reserves of hydrocarbon reserves with upside touching tens of trillion cubic feet of natural gas
  33. 33. Recent Developments  Thediscoveries of Bhit, Badhra Sawan, Zamzama, Miano, Chanda, Manzalai and Rehmat have been developed, adding around 1.4 BCF per day of new gas into the system and enhanced recoverable gas reserves by 6.8 trillion cubic feet.
  34. 34. Natural Gas [Pakistan]  840.2 Billion Cubic meter  Shortage of Gas in Pakistan  Import of Urea
  35. 35. Is the future promising ?
  36. 36.  Total 725 exploratory wells (since inception) have been drilled till December, 2008 (710 onshore and 15 offshore)  219 oil and gas fields (54 oil and 165 gas and gas/condensate) have been discovered in various basins  Pakistan has a drilling density of 1.99 wells per 1,000 sq.km  and success rate of 1:3.3  Global drilling density of 10 wells per 1,000 sq. km,  the success rate of Pakistan compares favorably with international success rate of 1:10.
  37. 37. DEMAND CONDITIONS
  38. 38. DEMAND CONDITIONS
  39. 39. DEMAND CONDITITONS COMPARISION 10/11
  40. 40. DEMAND CONDITIONS PAKISTAN VS WORLD AVG.
  41. 41. DEMAND CONDITIONS (KG/HECTARE CONSUMPTION) Ger Netherl Year man Japan France Egypt Italy USA Russia India Pakistan ands y 1993-94 560 221 407 237 - 148 108 - 73 97 1994-95 554 240 400 242 304 159 103 12 80 103 1999-00 - 243 - 248 355 - - - 99 117 2000-01 470 232 - 225 - 211 106 - 103 138 2001-02 546 217 282 213 436 - - - 88 133 2002-03 354 216 270 203 373 - - - 100 137 2003-04 438 220 293 216 472 - 122 - 105 148 2004-05 510 216 365 210 548 - 113 14 106 161 2005-06 601 209 251 191 625 - 109 16 121 169 2006-07 419 190 344 178 381 - 143 12 114 159 2007-08 1188 191 321 196 450 136 168 14 133 157 2008-09 261 158 259 138 566 114 101 16 143 157
  42. 42. Firms’ Structure & Rivalry
  43. 43. Urea Market Shares
  44. 44. Government and Chance
  45. 45. Government - OGDCL
  46. 46. Environmental Friendly Practices
  47. 47. Chance
  48. 48. Chance  Record profits due to floods.
  49. 49. RELATED AND SUPPORTING INDUSTRIES  COAL INDUSTRY  PESTICIDES  AGRICULTURAL MACHINERY AND TOOLS  OIL AND GAS EXPLORATION  TRANSPORATATION  PACKAGING
  50. 50. Harmful Effects Of Chemical Trace mineral depletion of the soil. Because most Fertilizers  chemical fertilizer programs don't these elements in the  Loss of fertile topsoil soil, they gradually get depleted by crops. Iron and Zinc  Loss of organic humus content in soil deficiencies are common in soil over-loaded with non- dissolving P. Various diseases in livestock including Grass  Reduced porosity of top soil Tetany, Milk fever, Grass staggers, Scouring, Ill Thrift and a whole range of metabolic disorders  Nitrate pollution of waterways  Excessive energy consumption. 2% of the world's entire energy consumption is used to make ammonia, much of  Phosphate pollution of waterways which is used to make N fertilizers  Desertification  Depletion of non-renewable natural resources. Phosphorous comes from rocks which are limited in  Poisoning of people eating plants supply. Nitrogen is made from fossil fuels. Eutrophication of Waterways containing excessive levels of  Loss of biodiversity in the ocean inorganic salts   Soil Acidification  Blue-baby syndrome  Toxic persistent organic compounds - Dioxins, polychlorinated dibenzo-p-dioxins (PCDDs), and (methemoglobinemia) and polychlorinated dibenzofurans (PCDFs) have been miscarriage in pregnant women detected in fertilizers and soil amendments caused by nitrate pollution of drinking  Radioactive poisoning. Highly-radioactive Polonium-210 in phosphate fertilizers water  Increased Greenhouse Gases. Nitrous Oxide is the 3rd most important GHG because of the excessive use of  Heavy metal pollution of soils causing chemical N fertilizers poisoning and cancer -  Increased pest problems caused by excessive nitrogen mercury, lead, cadmium and fertilizer applications Death, injury and environmental damage caused uranium  directly by the manufacture of chemical fertilizers  Fertilizer burn - caused by too much fertilizer being applied, resulting in a drying out of the roots and damage or even death of the plant  Higher than normal rates of Cancer in humans living close to phosphate mining operations
  51. 51. Future Bio Fertilizers
  52. 52. What are Bio Fertilizers  Bio fertilizers are 100% organic nutrition for all crops and products  Advantages  environment friendly, unlike chemical fertilizers that damage the environment  They are comparatively low on cost inputs  Their use leads to soil enrichment and the quality of the soil improves with time Though they do not show immediate results,  Microorganisms convert complex organic materail into simple compounds, so that the plant can easily take up the nutrients  These fertilizers harness atmospheric nitrogen and make it directly available to the plants  They increase the phosphorous content of the soil by solubilising and releasing unavailable phosphorous Bio-fertilizers improve root proliferation due to the release of growth promoting hormones They help in increasing the crop yield by 10-25%
  53. 53. http://www.optidigit.com/TRADEdept/BNbat/PDF/BIOweb-brochure-e-fert.pdf
  54. 54. Progress in India & china  Rhizonik: All types of Rhizobium species infecting cultivating crops. There are seven cross inoculation groups all are available for sale used for legume crops.  Azonik (Azotobacter chroococcum): It is non-symbiotic bacteria used for all cereals.  Spironik (Azospirillum brazilense) : It is associative symbiont and most useful for grasses and similar type of crops.  Phosphonive (Phosphate solubilizing inoculant): This includes bacteria as well as fungi under field condition they solubilize "P" and provide to plants.  Sulphonik (Sulphur oxidising inoculant): This biofertilizer includes bacteria and also fungi. The inoculant enhances the availability of sulphur under field condition. Phospho-Sulphonik: In this unique type of biofertilizer both the types are equally mixed thereby crops are benefited.  Niku-2000- (Decomposing culture): This inoculant degrades all cellylolytic and lignolutic organic matter thereby releasing nutrients to plants.  Trichonik (Trichoderma viridi): It is biological control agent. This biofertilizer restricts the growth of disease producing organism under field condition.  Vermiculture: Best quality vermiculture is produced and it is mixed with N- fixing inoculant and ‘P’ solublizers so that nutrient value is increased.
  55. 55. Pakistan  India started production of it in 1997  Pakistan has a small factory producing 5000 bags a day  Pakistan Agricultural Scientists Chairman Jamshaid Iqbal Cheema said that “ bio-fertilizer will enhance the efficiency of DAP and other fertilizers, as most of their quantity is wasted in the fields. “  He said that DAP or phosphorus efficiency is 15 to 20 percent. In the same way urea  nitrogen effectiveness is up to 40 percent,  Bio fertilizers increasing the production up to 70 percent.  He revealed that when a farmer uses DAP, 80 percent quantity is wasted in the soil.
  56. 56. Analysis of Stock Market
  57. 57. Brief overview of Stock Market FFBL, FFC, Engro, Dawood
  58. 58. Industry 2007 2008 2009 2010 Industry At a Glance Total Assets 304,833.3 160,397.70 227,111.90 268,109.70 0 Property Plant and 232,053.9 Equipment 107,865.90 148,040.60 206,452.60 0 Stock 17,039.20 17,497.80 20,199.60 20,607.00 Inventory 13,218.30 26,851.20 15,952.40 24,042.00 All figures in Millions of Rs
  59. 59. Significance of Fertilizer 2007 2008 2009 2010 revenue 132,656.2 178,832.5 220,102.9 92,063.30 0 0 0 132,656.2 178,832.5 220,102.9 Total revenue 92,063.30 0 0 0 Total Profit 20,897.20 17,433.00 15,191.70 28,412.10
  60. 60. Net Margin 25% 20% 15% FFC FFBQ 10% Engro Fertilizers 5% 0% 2007 2008 2009 2010
  61. 61. ROA Dawood ENGRO FFBL FFC 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% FFC FFBL ENGRO Dawood ROA 26.3% 20.2% 5.9% 5.2% Debt-Equity Dawood ENGRO FFBL FFC 0 50 100 150 200 250 300 350 FFC FFBL ENGRO Dawood Debt-Equity 59.5 78.4 327.4 25.2
  62. 62. facts  The industry profits have increased even though there was a financial crunch  Expansion was carried out  Assets and profits have increased overtime  Shareholders wealth been maximized
  63. 63. Relevance of Stock Market in analysis  The stock markets reflect performance of the companies  Due to good returns ,private investor will be motivated to invest in the sector  Attracts capital to Pakistan  The structure can change
  64. 64. Recommendations R &d needs to be focused upon  The world is shifting its attention towards Bio fertilizers  Government should encourage off shore drilling & drilling in Baluchistan  Pakistan still can diversify into different fertilizers  Training of Farmers
  65. 65.  Alternatives energy source  Due to inflation ,governments should lower the GST on fertilizers  Government should have a conscious effort in establishing a tractor industry .(cheap and affordable tractors )  Technology should be used in Farms
  66. 66. Things that can be improved  Fertilizer companies should initiate a change in production process.(interviewer negative response)  Fertilizer effect on Indus Dolphin  Elimination of Creeks(Breeding grounds ) and damage to fishing industry  Firms and government should now turn their attention towards KP new gas field .  Alternative Energy Source should be found
  67. 67. Thank you  Questions & Answers session

Editor's Notes

  • As well all know from our discussion in class that fertilizers are of three major types, Urea is nitrogenous, DAP is phosphorus while potash is potassic. These are the three famous kinds of fertilizers. Urea is needed in most quantities in our country while DAP is used to nullify its acidity.Urea is used in plants for it provides them with High Protein Content, Color and growthPhosphorus or DAP is used for root development, maturity expedition and synthesis of enerty regulating substancePotassic is used for disease resistance, growth from root to stack and plumpness..What you see over here is the right way you apply fertilizers, while in ads we usually see farmers spread over the fertilizers from the top like this
  • Now when the farmers throw fertilizers like this, the light weighted prilled fertilizer which is around 1-2mm.. Stays on the leaves.. And cause burn on leaves.. Also, the advantage of granular fertilizers is that not only they fall on groound due to there weight and size of 2 – 4 mm.. They also absorb less water and stay for longer,,, the longer they stay the longer they effect on your crops..
  • %age of skilled labor is 90% while semi skilled are 7% and only 3% are un skilled labor in FFBL. All these plants are imported.
  • National Fertilizer Research Centre, he had absolutely no idea about it. I asked him if they had any contracts with the engineering colleges or anything like that so he said that this is a huge investment, colleges are just not at that level that they can design and build such huge and efficient plants. And it is not only here but all over the world. They lack the capability to make these..Whenever they hire a new employee or engineer, s/he is give on-job-training according to the job they’re handling. There are different plants and different plants require different trainings.In my opinion the only advancement they can get from the factors is in the product… and that is very expensive to do.
  • As we all have discussed earlier in the class that the structure of this sector is oligopolistic in Pakistan. Key players are engro, Fauji fertilizer,
  • So we can see here the major players of this sector Engro, FFBL and FFC… NFML is actually a subsidiary of NFC and USC that handles the distribution of imports. Unofficial statement.
  • about OGDCL which is oil and gas development company limited.
  • ×