Pakistan’s Fauji Fertilizer Co. (FFC), that has the highest return on equity among makers of farm chemicals in Asia, plans to set up a plant in Africa as domestic gas shortages curb profits and output at home.
The company has formed a consortium with foreign companies to invest at least $1.25 billion, Chief Executive Officer Naeem Khalid Lodhi, 61, above, said in Rawalpindi yesterday in his first media interview. FFC, which has yet to complete the selection of the site for the facility, plans to start building it in 18 to 24 months, Lodhi said.
Fauji is planning its first overseas venture as the company 44 percent owned by an army foundation braces for its second annual drop in profit in three years in 2014. Pakistan’s gas shortfall has widened to more than 2 billion cubic feet of gas a day, shutting factories and resulting in protests in the nation of more than 196 million people.
“FFC needs to identify projects to increase profitability,” Muhammad Asad, chief investment officer at Al Meezan Investment Management Ltd., which oversees over 58 billion rupees ($587 million) of Shariah-compliant assets,including Fauji Fertilizer, said by phone from Karachi. “Growth depends on whether they can make any concrete diversifications.”
The company’s net income is set to fall this year to its lowest in four years and may also decline in 2015 before stabilizing, Lodhi said. Net income fell 3 percent to 20.1 billion rupees in 2013.
“In the long term, say eight to 10 years from now, unless there are new finds in gas, the fertilizer industry will be hit hard,” he said.
Engro Corp. and Fatima Fertilizer Co. are also looking overseas and diversifying into other areas. Fatima participated in a global consortium to set up a nitrogen fertilizer plant in the U.S.. Engro has expanded its food business to improve profit as gas supplies decline.
FFC’s shares were unchanged at 112.49 rupees on the Karachi Stock Exchange at 1:06 p.m. local time on 9 July. The stock has declined 2 percent in the past year, compared with a 30 percent gain in the benchmark KSE-100 Index.
The company has invested in a plant that will begin commercial operations by early 2015 to freeze fruit and vegetables for local and overseas sales, said Lodhi, a retired army general, who has been CEO since March 2012.
“It’s not a very large project to start but can become our main business in the future if we get more opportunities,” he said. The company first entered into the food business in 2013 when it acquired Lahore-based Al-Hamd Foods, a maker of frozen fruit. FFC has so far invested 6 billion rupees in the food business.
Fauji Fertilizer may also invest $400 million in setting up a coal-fired electricity generating plant or expanding in wind power. The company set up Pakistan’s first wind power project in the southern Sindh province in 2013.
Pakistan’s demand for electricity outpaces supply by 6,000 megawatts a day during the peak summer season. The food and energy units may be listed on the stock exchange when the businesses mature, Lodhi said.
Pakistan’s fertilizer makers produced 4.83 million tons of urea in 2013 against the installed capacity of around 6.9 million tons as gas shortages hurt production. Fauji Fertilizer along with its sister company — Fauji Fertilizer Bin Qasim Ltd. — contributed almost half of the country’s total production.
The Fauji Group was initially set up in 1945 as a fund for war veterans and later transferred to the control of the Pakistan government when the country was formed in 1947. In 1954, it was handed over to the army, which invested in a textile mill, according to the group’s website. Today, the group runs 18 factories and several welfare projects.
Source: By Faseeh Mangi and Augustine Anthony, Bloomberg Businessweek