FATIMA fertiliser company has performed exceptionally well since the initiation of its operations, managing to post an EPS of Rs2.06 for the FY2011, well in line with the expectations. The Board of Directors, showing their delight on this outstanding performance of the company, has announced a dividend of 15 per cent for the same period and this may instigate a rally in the scrip – the price expected to rise up to Rs32 till June 2012. The company enjoys certain benefits which strengthen its case for being the most attractive scrip in the current bullish trend that has impounded the Karachi Stock Exchange. Offering an upside of at least 32 per cent before June, FATIMA will prove to be a safe haven for investors if investments are to be based on fundamentals. Technicals, similarly, advocate the case for investment in FATIMA.
The scrip has consolidated well between the levels of Rs23 and Rs25, opening room for a movement towards Rs27 – its previous high. Breaking that barrier will push the scrip closer to our target price for June. On the operational front, the company receives an incentivised gas tariff for feedstock gas – the main raw material for urea and other fertilisers. The current tariff of $0.77 per MMBTU is at least 78 per cent lower than the regular gas tariff of $3.44. FATIMA will continue to receive gas at this tariff till June 2021, ensuring multiplied gains in the future when capacity utilisation is expected to increase. The state-of-the-art production facility will provide the infrastructure to FATIMA to become the leading manufacturer of fertilisers in Pakistan sooner than later.
Another salient feature for FATIMA is the uninterrupted gas supply that the plant receives from MARI gas network. While the gas curtailment scenario has hampered the profitability of other fertiliser manufacturers, FATIMA’s competitive edge has proven to be a decisive factor in the most competitive sector of the country. The equal sharing of debt-equity in the capital structure of FATIMA has been one point of concern for investors, but increased percentage of cash sales and improved inventory turnover has stamped an expectation for the company to reduce the percentage of debt and hence restructure the capital formation. If this trend continues, dividends are expected to grow in the future.
– FATIMA enjoys an incentivised gas tariff and with a projection of increased sales in the future, the company will enjoy multiplied benefits
– The Board of Directors has announced a 15 per cent dividend in the AGM on March 9, 2012
– The share price has consolidated above the Rs23 mark and is now set to reach its previous high of Rs27
– Surpassing that barrier will open room for the Rs30 mark, crossing which may force the scrip to soar past Rs32
Through DCF method:
Target price till June, 2012:
Rs. 34
Upside on offer: 32 per cent
The writer is senior associate, First National Equities. For comments and queries, write to profit@pakistantoday.com.pk