Fatima Fertilizers Company Limited: Sensitivity Analysis in Stock Valuation


This was a spreadsheet assignment given to me for the course Financial Management, which I took with Ms. Sana Fatima in Spring 2014. You can refer to the case, its solution at the end and answers to some critical questions in this blog. If you can think of more reasons for the Critical thinking answers, please do share them in the comments.

Spreadsheet Assignment 1

Fatima Fertilizers Company Limited

Sensitivity Analysis in Stock Valuation


Fatima Fertilizer Company Limited, a fully integrated fertilizer complex, was incorporated on 24th December, 2003 as a joint venture between two major business groups of Pakistan: Fatima Group and Arif Habib Group. The Company is listed at all stock exchanges of Pakistan, through a successful initial public offering (IPO) in February 2010 to fund the requirement of the project at the time of the listing.


Fatima Fertilizer currently maintains highest profit margins among its peers due to its diversified product portfolio (urea, CAN and NP) and consistent gas from the dedicated Mari gas field. The companies on the Sui gas network face large unpredictable swings in gas supply leading to detrimental effects on their productivity. These advantages of Fatima will translate into a high sales growth for the next 2-3 years and high operating margins (Exhibit 2).

Arif Habib group has had a history of paying strong dividends in all of their subsidiaries. The management of Fatima will try to reach a payout ratio of 75% as soon as possible; however, it will be difficult to achieve that in near future due to the accelerated debt repayments which they have planning. Fatima plans to achieve a debt free status by 2017 and thus, most of the cash generated from operations will be used to pay off debts in the next five years; hampering their ability to pay high dividends. Once the debt-free status is achieved in CY17, Fatima fertilizer will shift to the desired payout ratio of 75%.


Based on the assumption that in the long run fertilizer demand in Pakistan will be limited by the availability of cultivable land, the terminal growth rate in FCFF is pegged to the GDP growth rate of 3%.


Given the unavailability of gas, Fatima is not expected to expand its production capacity; however, the company will incur maintenance capital expenditure of about PKR500 mn starting from CY14 onwards. The balance sheet and income statement for the year just ended are given in exhibit 1. Market value of company’s long-term debt is same as the book value. Projected financials for the company are given in exhibits 2. The market premium is estimated to be 8% and risk-free rate is 11.5%. Historical beta for Fatima’s stock is 1.15×.


  1. Using the given information, compute the fair price per share of Fatima stock on Dec 31, 2011. Use FCFF valuation Model.
  2. Show how the fair price will change if:

                     i.        The terminal growth rate changes (vary the TG rate from 0% to 10% with intervals of 1%).

                   ii.        The risk-free rate changes (vary the RF rate from 5% to 15% with intervals of 1%).

Exhibit 1: Balance Sheet and Income Statement


     (Millions PKR)

Year-ended December 2011
Net Sales 14,833.343
EBITDA    8,404.245
Depreciation and Amortization        746.378
EBIT    9,150.623
Financial charges    3,063.055
Pre-tax Profit    6,087.568
As of December 2011
Cash 3,839
Trade Debt 196
Inventory 1,215
Other current assets 2,876
Total Current Assets 8,126
Net Fixed Assets 68,221
Total Assets 76,347
Creditors & accruals 7,725
ST Borrowings 0
Current Portion: LT Debt 3,033
Total Current Liabilities 10,758
LT Debt 34,457
Deferred Liabilities 3,077
Total Liabilities 48,292
Paid-up 24,000
Share premium 790
Un-appropriated Profit 3,265
Total Equity 28,055
Additional Data:
Tax rate (%) 35
Interest rate on LT Debt (%) 12
Market Price per share (PKR) 22.92
Number of common shares (million) 2,100


Exhibit 2: Forecasted Financials

2012 2013 2014 2015 2016
Sales Growth 102.22% 19.50% 6.50% 5.00% 5.00%
Operating Margin (EBIT/Sales) 49.39% 50.93% 50.91% 49.92% 48.97%
Depreciation    3,424 3,508 3,533 3,558 3,583
Capital Expenditure 1675 500 500 500 500
Investment in NWC (% of additional sales amount) 20% 10% 10% 10% 10%



2017 2018 2019 2020
Sales Growth 5.00% 5.00% 5.00% 5.00%
Operating Margin (EBIT/Sales) 47.93% 46.81% 37.95% 35.5%
Depreciation 3,608    3,633    3,658 3,683
Capital Expenditure 500 500 500 500
Investment in NWC (% of additional sales amount) 10% 5% 5% 5%


Answers to Critical Thinking Questions:

  1. Why is the DDM model not appropriate for valuing the stock of Fatima?


The following reasons serve why DDM is inappropriate for Fatima:

  1. Because company is not a dividend paying firm, hence DDM model is not applicable here.
  2. The payout ratio is constant at 75%, hence there is no link between the profitability of the company and the dividend payout ratio, hence DDM is inappropriate to apply here.
  3. Also, since the company is observing a group holding structure which gives it a control perspective hence it serves as another reason why DDM is inappropriate here.


  1. Why is the FCFE model not appropriate for valuing the stock of Fatima?


  • Since Fatima plans to achieve a debt-free status by 2017, thus changing its capital structure hence the FCFE is not appropriate.
  • The future cash-flows tend to be negative due to the future high repayments, thus making FCFE negative, not reflecting the company’s actual state.


  1. What will happen to the beta value of Fatima stock once it achieves the debt-free status in CY17 as planned?


  • Since the debt to equity ratio will fall, hence beta will also fall.


  1. Is using the single WACC figure appropriate for discounting the FCFFs for all years?


  • Yes, because initially when the company is deciding on the capital structure it is assumed that this is the optimal capital structure for the company, and hence discounting it for long term is appropriate.
  • WACC reflects the cost of the whole company and FCFF reflects the cash to all the capital holders hence it is the appropriate discount rate.


  1. Is an all-equity financing option good for companies? If not, why is Fatima planning to have a no-debt status?


  • Where an all-equity financing option may be less riskier than a loan, may add more credibility to your business, while giving you cash on hand for the expansion of the firm, it also gives you the advantage of not being bound to repay.
  • However, at the same time, it poses the threat of a lifelong obligation to the investors as compared to the debt financing when obligations end as soon as the loan is repaid. It also creates the disadvantage of a loss of control and higher regulations.
  • Hence, a blend of the both the financing options, is optimal.

Fatima is going for a no-debt status because it plans to channel its profits towards capital expenditure.






When people accept me the way I am


Isn’t it a great feeling when people accept you the way you are? It is. When they don’t ask you, ‘theek to ho tum?’, ‘kya hogaya hai tumhe?’ when I act weird. ‘Cause that’s how I am.

Zarak, a freshman, was one of them when I met him. He looks like a kid, actually he is a kid. But the awesome fact about him is I talked to him like for an hour on our first meeting, and I was so happy and amused. I seriously need to meet new people. But yeah, he was really nice. I acted weird, and just the way I am, for about an hour with him, and he tend to accept everything. It was awesome. As soon as I mentioned that I am directing the play, ‘Taleem-e-balighan’, he was quick to recognize and quote from the play. Such a good feeling. Very few people first of all watch such good all time classics and then be able to quote from it. Hey kid, you got me in the first meet. So here’s to Zarak, an awesome freshman I met, good luck for the future ahead!

Sleeping Beauty on Real-time, Ugly Betty in Real life.


So finally I’m done procrastinating even writing the blog post today. Anyhow, immediately to the topic, what I’m going to discuss today is of course me. Sounds dumb? Yeah because I’m happy today.

Okay so, I’ve got a unique feature about my face. It’s simply that if I’m affected by anything in the world, it will affect no other part of my body but my face. Every single fucking thing in the world. I’m tired, it’s on my face. I’m in love, on my face. I’m sick, on my face. I spent the whole day out, on my face. There’s dust, on my face. I’m dying, it’s on my face. So in short, everything’s on my face. And the result is; I’m fucking ugly.

But when I spend my day at home, all cozied up in my comfy and listening to good music, eating good food, having nice naps, it will of course come over my face too and of course I’ll look sensible.

See I’m not a very good looking person, but I’m okayish looking, like okay to look at person. Anyhow however you rate me, I don’t really mind about it, because this is the last thing I care about. Facial beauty? I’d choose brains a hundred times if you ask me to choose between the two. Take my example, my facial attractiveness is simply so fucking temporary that it changes in a single day! In a matter of few hours! For the matter of where I am. Anyhow. So back to the topic, so what happens that usually I plan my outings on weekends, when I’m home, and thus beautiful. Lol.

And so I usually take pictures of myself when I’m looking good, going out, all dressed up with face-painted (you know, the make-up), and hence look uber pretty. Then my sister has a high end camera, which captures me like real nice.

And so people build up their expectations.

Something similar happened to me. So I was upset on an episode in my life, I will tell you about it some other day. But I was upset. So I told my friend Kiran. She suggested me that I talk to a senior of ours who is really nice, Shahrukh. He phoned me, gave me a lot of advice, like seriously a lot of advice, and good advice. I actually felt really good after talking to him. Anyhow, after that he told me that he’ll be coming over this Saturday on campus to meet me. And I got all ready, yes, woohoo.

Okay, but what I was definitely expecting from him, and not only him, like he’s not the first person doing this, but it always happens to me, is that the jump or the shock on the face after seeing me in reality, ‘you are zeerak?!’ I mean I thought you’d be that pretty sexy sissy you looked like in your profile picture on Facebook or whatsapp, but you’re just plain ugly and look quite strained. Ha-ha.

Same happened with Shahrukh and I guess it’s fine. ‘Cause they expected big and in the end it was like shit.


Temper, Temper: Email to employees about technology failures.


Dear fellows,

It has come to our notice that some of the team members are dealing with anger management issues at the workplace, several of which include damaging the workplace equipment.

Technology and the like equipment are prone to failures. This can be a norm, since they are machines, contrary to which humans have control over how they can behave. At such circumstances, it is expected from our fellows that they control their actions.

In an event of any technological failure Mr. Bart Stone can be immediately contacted and notified, while for that time you can go downstairs to take a nice short walk or have a cup of coffee in the café. Meanwhile, you can also come and talk to me about any workplace related issue that you might want to get your heads off.

Considering the recent developments of events in the public sphere, as part of the organization, we absolutely understand that we are in a course of dealing with strained times, however, to stay resilient and strong to them are the only way we can deal with them.

Looking forward to your continued cooperation (or may be a coffee together?),


Assistant Manager,

Human Resources Department,

Metro Power.

Not this time: Letter denying debit adjustments to a Union Bank of California customer.


Margaret Caldwell,
2789 Aviara Parkway, Carlsbad,
CA 92008.

Dear Ms. Caldwell,

This is in regard to your claim number: 7899 concerning the debit transactions through your account with the reference number: 1440022-22839837109. We would like to inform you that after confirming with Wilson’s Gourmet and considering the different hours when the transactions were processed, it is most likely that there were multiple transactions that were processed the same day for which the same reference number was generated for the day and thus the matter doesn’t concern an ATM error.

We regret to inform you that we will not be able to credit your account for the specified amounts. If you have any other queries, I’m always at your disposal.

Thank you for continuing business with us. We look forward to continue serving you in future.

Best regards,

Operations Manager
ATM Error Resolution Department
Union Bank of California

On losing your own personality and friends


While being with Kiran, did give me a hope, it did give me the support I needed when everyone else at school left me, it did give me a longed friend I needed, at the same time I feel that my own personality is getting lost somewhere. That her world is becoming mine, that her friends are becoming my friends, that her interests are somehow forcefully becoming mine. That I want to please her all the time, no matter how I actually feel. More like Benjamin Franklin effect in work. I have this constant fear of losing Kiran, and so I blindingly accept everything she says, I blindingly agree to whatever she talks about, to whatever her interests are. I’ve lost people earlier, and I can’t really identify the pattern of how to deal with people, what makes them stick with me, happy with me and what makes them suddenly go awry.

Also, I’m not very good at verbal communication. Lots of tongue slips and twisters, they’ve become second nature to me. Also, over the time, I’ve come to like ‘Listening’ more than speaking and writing more than blabbering, which has contributed significantly to my verbal communicating skills going haywire.

Right now, all I have are hopes, bright hopes. Hopes of becoming a better person, hopes of acceptance  and acceptance without change, and hopes of not losing some friends again.

Wisdom for the Seeker


Wisdom for the Seeker is a compilation of letters written by Shaykh Zulfiqar Ahmad Naqshbandi. The letters are simple and succinct but comprehensive, covering all the aspects of life ‘deeni’ as well as worldly. The common subject of the letters is to advise the addressee and remind him/her about the teachings of Quran and Sunnah in a simple and philosophical language. Below are the summaries of the selected letters:

Concerning the Enemy Within:

The letter addresses one of sheikh’s students. In this letter, sheikh advices that the ‘nafs’ (self) is the enemy within more devious than the Satan itself. This nafs can trick human in to worshiping itself and its desires. Hence it is upon a person not to forget that his ultimate purpose in life is the love of God and to earn good deeds. Also, not to advertise your good deeds. The letter then gives a list of advices on how to build your character and how to lead a pious life, to read about your great elders, not to laugh pointlessly, to observe Tahajjud prayers, and to keep yourself busy in work. Lastly in this letter Shaykh advices to build a good character and to respect and be kind to others.

Concerning Islamic Law (Shariah) and the Heart:

In this letter Shaykh advices upon two topics; Shariah and Purification of Heart, this is because once you start observing Shariah, the process of purification of your soul, heart and being starts.

Shaykh begins by advising to observe Islamic Law that is Shariah, in every aspect of life if one wants to illuminate one’s life and purify one’s heart. Also, to purify one’s being, avoidance of such acts that incur guilt is necessary. The letter closes with Shaykh advising to prostrate Allah with absolute humility and with the hope of being forgiven.

Concerning pleasing others:

According to me, this was one of the most influential letters in the compilation. The letter begins with laying out the aim of Tassawwuf. Tassawwuf cleanses the heart, and such a heart then cares for the creation of human beings. This is the highest aim of Tassawwuf. If you cannot make anyone happy, at least don’t hurt them, whether with your actions or with your words.

A darkened heart is one which is diseased with hurting others. There are three signs of a Darkened heart; conceit, pride and performing acts in order to impress others. However, they can be removed if you repent to Allah with all your heart. A proof of darkening of the heart is running after your desires.

In the end, Shaykh advises that all the diseases of the heart can be cured by remembrance of Allah.

Concerning Adherence to the Sunnah:

In this It is mandatory on every believer to adhere with the way of Messenger that is the Sunnah. Leading life as per the Sunnah way ensures the acceptance of the person in the curt of Allah, since what Messenger’s way was, was in pursuit of the command of Allah.

Concerning Loaned Goods:

In this letter by loaned goods what it meant is; our wealth and belongings. Shaykh advises us not to fall in love with these materialistic objects, since they all are given to us by Allah. Hence, all of these objects should be seen as a loan to us.

Rather than falling in love with these perishable objects, we should identify the real Creator of these things and understand His greatness and wisdom. This opens the heart and transcends the veil of ignorance from it.

In the end Shaykh advises one to value one’s time and consume it in the remembrance of Allah.

Concerning Good Deeds:

There can be two pursuits for humans in this world, either to accumulate wealth or to accumulate good deeds. Wealth might help in this world, but is perishable. It may be a way to rule people but certainly not a way to rule their hearts. The only way to rule people’s heart as well as to win the pleasure of Allah is by gathering good deeds, and considering it your wealth. Since only the wealth of good deeds is the wealth that is permanent and will not perish.

Concerning Ten Signs of Good Etiquette:

One of the signs of perfect faith, honor, blessing and happiness is having a good etiquette. A good etiquette is displayed when one causes no harm or pain to others. The ten signs of having a good etiquette as per spiritual teachers are:

  1. Meeting people with cheerful attitude
  2. Empathizing with others
  3. Helping others
  4. Don’t obstruct people’s god actions and intentions.
  5. Don’t speak ill of others or pick out faults in them.
  6. Find your own faults and notice others’ goodness.
  7. Treat kindly even those who wrong you
  8. Accept the apology of others who have wronged you
  9. Choose moderation
  10. Stay away from worthless pursuits

For a Sufi it is his/her foremost duty to build his character and improve his etiquette if he really wants to get counted in the file of true Sufis of Allah.

Concerning Work:

The first step in anyone’s practical life is when you start your work. To work, you must be steadfast and determined to it. If you’re a hard worker, you can move mountains. But if you’re a procrastinator, even moving pebbles will seem deadly to you. Shaykh advises, that stop looking for opportunities, rather create them. To attain honor, expertise in the field that you pursue is required. Recognize bad company and stay away from them, but also recognize those who are stuck in bad company and help them to get out of it. Shaykh then advises n guarding your obligations, waking up early and offering the Tahajjud prayers.  Lastly Shaykh lists down mistakes that are very imminent to humans in these times. They include falling in to the delusion of being ever-young, of leaving a sin once you have done it repeatedly, of the fact that people tell their secrets to others and think that others will not disclose them. They also advise that you should attend to your parents if you want your children to attend to you. Don’t procrastinate, form an opinion about someone by how they look, and don’t waste time on re-examining what has been examined by elders.

Concerning Early Morning:

In this letter Shaykh advises his daughter to offer Tahajjud prayers as offering Tahajjud is a sign of higher piety and the way of devout elders. He also advises that along with tahajjud prayers; send salutations on Prophet (Sallalaho-Alaihe-Wassalam) to multiply the reward hereafter. Next, ask repentance from God for your sins, and then do zikr and murqabah. After the Fajr prayers, the routine should be to recite the Holy Quran. The Sunnah is to take a short nap after lunch in the afternoon, in order to make the waking for and praying of Tahajjud easier.

Concerning Ill Will:

A sign of perfect faith is your good etiquette and character. One of the prime objectives of having a good etiquette is to be kind to the creation of Allah, and to be kind, hide faults of other people, forgive them for their wrong and accept others apologies. How you behave with the creation of Allah, Allah will behave the same swiftly with you on the Day of Judgment. With vices like jealousy, hatred, ill will and envy, the heart becomes utterly disturbed all to the dismay of the owner of the heart. The only creature rightly deserving of your hatred is Satan an your nafs (desires), so direct your hatred towards them. Lastly before picking faults in anyone, drag yourself in front of you for accountability and you will rightly understand who is better or who is faultier.



(And Allah knows better).