Fertilizer Industry Essay

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Investment Requirements Capital Intensity Fertilizer industry is highly capital intensive, as a lot of capital is required to finance plant, property and equipment (PPE). PPE in the fertilizer industry accounts for roughly 40% of total assets. The PPE of the all the major players is about Rs. 108 billion (FFC: Rs. 21 billion, FFBL: Rs. 11 billion, Engro: Rs. 70 billion and Fatima Group: Rs. 5 billion) Debtors’ Credit Norms Mostly, the sales transactions take place on cash basis. Whenever a credit sales occurs the companies can secure bank guarantees with no risk exposure. Therefore, the account receivables are less. The proportion of cash sales vs. credit sales is 94%-6%, clearly showing that fertilizer industry primarily runs on cash basis. …show more content…

Availability of Finances Suppliers’ Credit Norm Mostly, purchases from suppliers are done on credit. Fertilizer companies are on long-term contract with Government of Pakistan over the supply of natural gas. Account payable days lie in a range of 60 to 80 days. About Rs. 4.3 billion worth of funding comes from accounts payable, representing 7% of liabilities and equities or total assets. Other Funding Sources & Financial Leverage Other major sources of funding include long-term and short-term borrowings, deferred government assistance, and finance under mark-up arrangement and other credit facilities. Typical leverage of the industry is 2.18 and debt ratio stands at 54% Regulatory & Policy Framework Policies Affect on the Industry Agriculture sector is the nation’s largest employer and there its backbone. Fertilizer industry plays a vital role in driving the agriculture sector. Therefore, the government offers subsidies and relaxed policies for the players to make it feasible for farmers to grow …show more content…

Also, it is being very expensive to import natural gas. The good news is that the government of Pakistan has now signed a 15-year agreement with Qatar. Pakistan would import nearly 3.75 million tons of Liquefied Natural Gas (LNG) per year. This is a very good news for the fertilizer industry of Pakistan which was being greatly affected by the shortage of natural gas. Since one fourth of Pakistan’s GDP comes from this industry and Pakistan is primarily an agricultural economy, its fertilizer sector plays an essential role in enhancing our agricultural output, to produce numerous high-volume export goods, like; Textiles, Wheat, Sugar, etc. For many years now, the robust fertilizer industry has been suffering due to insufficient supply of Natural Gas – which is used as an important raw material for producing fertilizer. According to media reports, the first LNG terminal in Pakistan which has the capacity to re-gasify 600-630mmcfd gas was commissioned in 2013. This was a great initiative by the

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