KARACHI: The Fauji Fertiliser Bin Qasim Limited (FFBL), the only fertiliser complex in the country producing DAP fertiliser and granular urea, plans to make the first foray in the food processing industry.

The company announced that it was considering buying out Noon Pakistan Limited (NOPK) – the listed company engaged in the manufacture and sale of Nurpur brand of dairy products. The acquisition is proposed to be either as subsidiary or associate investment.

Analyst Imran Ahmed Patel at Global Securities commented that NOPK’s profitability came under pressure after 2012 because of high input costs that could not be passed on to consumers in the face of teething competition in the dairy segment.

“We believe the likely acquisition of NOPK would be under Fauji Food Limited (FFL), a newly- formed subsidiary of FFBL,” thought Patel.

He said that the company had recently acquired long-term loans of Rs10bn out of which Rs5.5bn was used to retire short-term borrowing and the remaining could be utilised for long-term investment.

According to brokerage Arif Habib Limited, cash and cash equivalents in the books of FFBL as of September 2014 stood at Rs9.125 billion, translating into cash per share at Rs9.77.

On several assumptions, analysts at AHL calculated the acquisition to be in the range of 5.9pc to 8.3pc of total cash available with the company.

The accounts for fiscal year June 30, 2013 of NOPK showed that sales (of milk, butter, cheese, ghee and juices) dropped 11.5pc to Rs2.92bn, from Rs3.31bn the earlier year.

The company with assets at Rs1.37bn, dipped into the red of Rs128m, from profit of Rs36m in 2011-12.

Two majority shareholders, with 74.4pc of the company’s outstanding shares in NOPK, include Malik Adnan Hayat Noon with 48.9pc shares and Salman Hayat Noon with stake at 25.5pc. Although commanding 45pc of the country’s demand of DAP and 13pc of urea, FFBL financials have also been far from rosy, which explains the company’s attempt at diversifying into food processing business.

A couple of years back, FFBL management told an analysts briefing about its plans of export-based meat farm business as company geared itself to take advantage of the largely untapped processed and packaged meat export potential of the country.

Feasibility was finalised in which the company planned a capital expenditure of around Rs4bn. The farm was anticipated to start full production in CY15.

‘Halal’ meat export destinations were targeted by the company as Middle East, Iran and Malaysia.

Visualised as a highly lucrative investment option, there has been little mention of the stage at which the FFL meat project stands at the moment.

Published in Dawn, November 23rd, 2014