Finance ppt

FAUJI FERTILIZER COMPANY LIMITEDBY: Soma , Sunaina Bajaj, Uzma Ali

Vision

• To be a leading national enterprise with global aspirations, effectively pursuing multiple growth opportunities, maximizing returns to the stakeholders, remaining socially and ethically responsible.

Mission

• To provide our customers with premium quality products in a safe, reliable, efficient and environmentally sound manner, deliver exceptional services and customer support, maximizing returns to the shareholders through core business and diversification, providing a dynamic and challenging environment for our employees

Corporate Strategy• Maintaining our competitive position in the core

business, we employ our brand name, unique organizational culture, professional excellence and financial strength diversifying in local and multinational environments through acquisitions and new projects thus achieving synergy towards value creation for our stakeholders

HISTORY

• In June 1982, the Company started marketing its urea under the brand name of "Sona".

• DAWOOD HERCULES, ENGRO, AND FATIMA FERTILIZER COMPANIES ARE MAJOR COMPETITORS.

• FFC is untiringly playing a very vital role in the agricultural development of Pakistan

Financial ratios and its analysisRatios Company

RatiosIndustry Averages

Interpretation

Current Ratio 0.85x 0.86x Current assets to current liabilities ratio of industry average is close to company ratio. This means that the company has little amount of unsold inventory and receivables. Therefore, the company is liquid.

Quick ratio 0.49x 0.32x The industry average quick ratio 0.32 is relatively low than company’s ratio. This means that company has ability to pay off short-term obligations by collecting account receivables with selling of its inventories. So, the company is more liquid.

ROE 41.75% 27.78% The ratio of net income to common equity of industry average is below the company’s ratio. This is somewhat, the company has greater use of debt.

ROA 16.96% 13.62% The ratio of net income to total assets of industry average is well below the company’s ratio. So, the high ratio of company indicates that company has higher return on assets. Higher ROA will result to not use great deal of debt.

Payout ratio 77.64% 49.27% The proportion paid out as dividend to shareholders of industry is well below the company’s ratio. This means that company has paid more dividends in current time from its net income and has not got any profitable project yet. So company’s future growth will be less.

Operating Margin 26.31% 42.52% The profitability of operating income by sales of industry average is relatively greater than company’s operating margin. This means that company’s operating costs are too high. So sales are relatively low to generate net income.

DSO 11.71 days 7.69days The average DSO indicates that some customers are paying on time, but only few must be paying very late, as compare to average industry.

Inventory turn over 8.86x 4.75x This ratio indicates that how many times a particular asset is turned over during the year. The average industry turnover is much lower than company’s turnover. It means that company is not holding too much inventory so company is selling inventory more in current time and getting high rate of return.

Total debt to equity ratio

56.5%

Total asset turn over 0.768x 0.88x This ratio indicates that sales divided by total assets. TATO ratio of industry average is above than the company’s ratio, this indicates that company is not generating enough sales given its total assets. Inventories should be reduced and receivables collected faster, which would improve TATO.

Fixed asset turn over 2.479x measures how effectively firm uses its plant and equipment ratio of sales to net fixed assets.

Times interest earned ratio

9.3x

Ratio measures extent to which operating income can decline before the firm is unable to meet its annual interest cost.

BEP 20.213% This ratio indicate the ability of the firm asset’s to generate operating income. Calculated by dividing EBIT by total asset

P/E 0.114x Ratio of price per share to earning per share. Dollar amount investor will pay for $1 of current earning

Profit margin 22.25% 18.77% This ratio measures NI per dollar of sales. So profit margin of industry average is below the company’s margin. This indicates that company has used less debt and operating cost.

ASSUMPTIONS AND LIMITATIONS of FCF MODEL:

• ASSUMPTIONS:• We have assumed non-constant growth of 9.33% from the formula of {g= (1-

payoutratio) ROE} • As this formula was taken from book. And values of payout ratio and

ROE were taken from Bloomberg. And also because non-constant growth should be below from WACC

• We have also assumed constant growth of 4.5% from non-constant growth (9.33%). We have assumed this growth to generate our intrinsic value (228.2) close to share price value (243.4). Other reason to assume this growth is that constant growth is always below non-constant growth (9.33%) and WACC.

• We have taken market rate from KSE 100 Bloomberg data.• We assumed RFr from 10 year Pakistan investment bond.

LIMITATIONS:

• WACC must be greater than growth• WACC must not be equal to growth.

FCF VALUATION MODEL F/ 2015 F/2016 F/2017 F/2018 F/2019Sales 87340.3

less: Operating cost 56796.7

less: Depreciation expense 2619.9

EBIT 27923.7

EBIT(1-T) 18150.41

EBIT(1-T)+ depreciation and amortization 20770.31

Change in Net Operating Working Capital -5218.5

Gross capital expenditure -2598.6

FCF 15920.18 17405.53 19029.47 20804.92 21741.14Horizon Value 310587.6 Discounted FCF 15920.18 15610.34 15306.54 239066.1 PV Of FCF 285903.2

Less debt 64247.5

Value of equity 221655.7

Number of shares outstanding 1272.2

Price per share 174.2302

RISK PREMIUM 6.5%Risk Free rate 9%

Beta 0.771rs 13.5600%rd 5.10%

wc 75.60%Wd 24.40%

Wacc 11.50%

Terminal Growth rate 4.500%

weight of equity 43.48%

weight of debt 56.52%

Weight of Equity and Weight of Debt

Conclusion

• The Fauji fertilizer Company is undervalued because market share price is below the intrinsic value, this indicates that Investors will invest in common stock of Fauji fertilizer company