M.M. Securities (Pvt.

) Ltd Equity
Synergy of Finance & Opportunities
INITIATING COVERAGE
Sep 24, 2010

AGRITECH LIMITED

We initiate our coverage on AGL with a ‘HOLD’ recommen-

dation and a fair value of PKR 27.8/share based on the Dis- Shahid Ali
counted Cash Flow model. AGL is currently offering upside Senior Research Analyst
potential of 13.6% from our fair value along with attractive shahid@mmsecurities.com.pk
dividend yield of 10.2% FY11E. The scrip is presently trading +92-21-35317703 Ext. 106
at forward FY11 P/Ex of 8.63 as compared to sector P/Ex of
8.04. Our research available on:
Bloomberg
Key Fundamentals of AGL http://www.mmsecurities.com.pk

 AGL plant is strategically located in Punjab which con- Recommendation HOLD

sumes major quantity of fertilizer products of the country.
Current Price - As of Sep 23, 2010 PKR 24.46
Further, company also has an extensive distribution net- Fair Value - (DCF) PKR 27.78
work of 500 dealers which reduces overall distribution Upside Potential % 13.6%
cost of the company. EPS - FY10E PKR 2.51
EPS - FY11E PKR 2.83
 Company offers a balanced portfolio of Nitrogen & Phos- DPS - FY10E PKR 2.00
phate fertilizers; after adding SSP to its product mix by DPS - FY11E PKR 2.50
acquiring HPFL. Div Yield - FY10E % 8.2%
Div Yield - FY11E % 10.2%
P/E - FY10E x 9.62
 AGL is playing vital role to meet the local demand of Di
P/E - FY11E x 8.65
Ammonia Phosphate (DAP) in the country as its import-
ing major quantity of the product, in CY09 company has KATS Code AGL
imported 11.76% of total imports. AGL holds DAP mar- Bloomberg Code AGL.PA
ket share of 3.5% in 7MCY10. Outstanding Shares mn 392.4
Market Capitalization PKR-mn 9,599
 AGL is likely to post PAT of PKR 986mn (EPS: PKR 2.51) Share in KSE 100 Index % -
in FY10 against PKR 885mn and EPS of PKR 2.26 in FY09. 1Yr High - Low PKR 26.9 - 21.9
Furthermore, we expect company will announce final Daily Avg Volume in '000 46
cash dividend of PKR 2.0/share for the year end June’10.

Key Financials
Relative Price Performance—PKR

PKR mn FY08 FY09 FY10E FY11E FY12E AGL KSE Index

30.0
Net Sales 5,701 12,497 11,468 14,061 18,607
25.0
Gross Profit 2,571 3,956 4,329 5,373 6,008
20.0
PAT 1,226 885 986 1,109 1,404
15.0
EPS - PKR 3.12 2.26 2.51 2.83 3.58
10.0
DPS - PKR 1.50 - 2.00 2.50 2.80
5.0
EBITDA Margin 52.52% 31.30% 36.87% 36.13% 29.83%
-
P/Ex N/A N/A 9.62 8.65 6.83
10-May-10

24-May-10
12-Apr-10

26-Apr-10

13-Sep-10
5-Jul-10

19-Jul-10

2-Aug-10
7-Jun-10

21-Jun-10

16-Aug-10

30-Aug-10

P/Bx N/A N/A 0.87 0.85 0.82

Disclaimer: This report has been prepared by MMSPL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good
faith. Such information has not been independently verified and no guaranty, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are
subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not,
and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. MMSPL may, to the extent permissible by applicable law or regulation, use the above material,
conclusions, research or analysis before such material is disseminated to its customers. Not all customers will receive the material at the same time. MMSPL, their respective directors, officers, representatives, employees,
related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase
and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise, either as principal or agent. MMSPL may make markets in securities or other financial instruments de-
scribed in this publication, in securities of issuers described herein or in securities underlying or related to such securities. This document may not be reproduced, distributed or published for any purposes.
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
INITIATING COVERAGE
Sep 24, 2010

Valuation Methodology

We have used Discounted Cash Flow (DCF) based valuation for AGL and derived a fair value of PKR27.8/
share. Our key assumptions for the valuation methods includes, required rate of return of 18.14%, beta,
0.86, risk premium of 6.0% and terminal growth of 4%. At current level we recommend ‘HOLD’ on AGL as
its currently showing upside potential of 13.6% from our fair value.

DCF Valuation
Required Rate of Return 18.14%
Risk Free Rate 13.00%
Risk Premium 6.00%
Terminal Growth 4.00%
Beta 0.86
Fair Value 27.78

Risk to Our Valuation:

 Gas curtailment to fertilizer sector due to depleting reserves of natural gas in the country or substitu-
tion of gas in favor of other sector.

 Price war between major players due to excess capacity by the beginning of CY11.

2
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED
Sep 24, 2010

Sector Overview

Pakistan is basically known as an agricultural country in the past but now has relatively shifted towards
the balanced economy with services and other commodities producing sectors. Agriculture is one of the
largest income generating sector of the country which contributed 21.5 per cent to the GDP in FY10. It em-
ploys more than 45 per cent of the country's total labor force and supports directly or indirectly about 62
per cent of the population for their provisions.

Many countries including Pakistan are faced with the challenge of producing more food and yarn, while
there is not enough room for expansion in the cultivated area. The productivity levels of all major crops in
our country are generally low as compared to the regional counties due to paucity of irrigation water.
However yields of the major crops can be improve through balanced use of nitrogenous products specially
urea and DAP. However in Pakistan farmers are not applying balanced mixture of Urea and DAP in last
five years average urea: DAP ratio was 4.5:1 as compared to recommended level of 2:1.

International Comparison of Yields of Selected Commodities - Kg/Hectare

Source : Ministry of Agriculture & Cooperation and MMSPL Research

10,000 7,500 Wheat

Paddy/Rice
8,000 6,000
6,000 4,500
4,000 3,000
2,000 1,500
- -
Bangladesh
Bangladesh

Japan

Italy
Brazil

World

USA

Egypt
China

India
World

USA
China

India

Pakistan
Pakistan

10,000 Maize
112,000 Sugarcane
8,000
84,000
6,000
56,000
4,000
28,000
2,000
-
-
Bangladesh

Australia
USA
Brazil

India
World

China

Pakistan

Brazil

World

France
USA
Indonesia

China

India

Pakistan

On the demand side Urea and DAP offtakes has increased with a CAGR of 6.4% and 8.1% respectively in
last five years, while the production of both products did not increase in line with the demand, resulting in
a huge demand supply gap in the country. However, we believe that the country will be able to meet the
local demand of Urea by the end CY10, owing to the expected additional production of 1.3mn tons and
0.5mn tons of Engro and Fatima Fertilizer respectively. Whereas, the deficit of DAP fertilizer will continue
in forthcoming years as there is no expansion of DAP plants in pipeline.

3
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED
Sep 24, 2010

Company Overview

Agritech Limited, formally known as Pak American Fertilizer Limited, is mainly owned by Azgard Nine
Limited (79.87%). However, ANL has finally decided to offload its holding in AGL, FFC is likely to buy
AGL as it has shown its interest in acquisition. AGL has a nameplate capacity of 483K tons of urea after
expansion in FY10. Further, in October 2009, Agritech has acquired Hazara Phosphate Fertilizer Limited
(HPFL) with an investment of PKR1.34bn, which produces Single Super Phosphate (SSP). We can consid-
ered SSP as a substitute product of DAP. Moreover, AGL holds market share of 6%, 7% and 59.5% of urea,
imported DAP and SSP respectively in CY09.

Shareholding Pattern
Source : Company Financials & MMSPL Research
Individuals
4.2%
Institutions
15.9%

ANL
79.9%

AGL Plant is Strategically Located

AGL plant is strategically located in Punjab which consumes major quantity of fertilizer products in the
country, which reduces overall distribution cost of the company. Further, company owns one of the high
quality/efficiency after Fatima Fertilizer plant in the country which gives competitive advantage to AGL
over other peers companies.

Extensive Distribution Network

The Company has successfully developed a extensive distribution network of over 500 dealers within a
short time period which indicates aggressive and professionalism of the management. Further it has re-
duces overall distribution cost of the company and giving competitive advantage over its peer companies.

Urea Segment

AGL core business is to produce and sale of Urea in the country. Company owns one of the most efficient
urea manufacturing facility which is operating efficiently. In current year (CY10) company has successfully
upgraded its urea production capacity to 483K tons through BMR project from 352K tons earlier. The pro-
ject cost was ~USD 58mn.

Urea production of the company has increased by ~2% during last four years to 377K tons in FY10 from
354K tons in FY06. However, in FY10 company production decline by 1.7% to 377K from last year mainly
due to lower gas availability. Moreover, urea offtake of the company are expected to registered minor de-
cline of 1.3% over last year to 373K tons owing to lower urea production in current financial year.

4
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED
Sep 24, 2010

Urea Production —k tons

Source : Company Financials & MMSPL Research
390 383
380 377
371 370
370

360 354
350

340

330
FY06

FY07

FY08

FY09

FY10
Urea Market share
During 7MCY10, AGL urea market share has slightly decline to 5.4% from 5.5% in same period last year
owing to entrance of new fertilizer player in the market i.e. FATIMA fertilizer. Further, FFC remained
leader in the urea market with 40.3%, following 20.9%, 16.0%, 8.5%, 6.1%and 2.0% respectively by NFML,
EFL, FFBL, DAWH and FATIMA.

Urea Market Share—7MCY10

Source : NFDC & MMSPL Research

FFBL
8.5% AGL
DAWH
EFL 6.1% 5.4%
16.0% FATIMA
NFML 2.0%
20.9% PAFL
0.9%

FFC
40.3%

Price Differential b/w

Imported v/s Local Urea - PKR/50Kg bag CY10
Source : NFDC & MMSPL Research

Imported Local

1,400
1,200
1,000
800
600
400
200
-
Mar
Jan

May
Feb

Apr

Jun

Jul

5
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED
Sep 24, 2010

DAP Segment—Imported DAP

DAP is one of the prime fertilizer products which have a better soil retention capability as compared to
urea and SSP. However, the demand of the product historically remain very volatile in our country due to
volatility in DAP prices. The reason behind the volatility in DAP prices is the price movement in interna-
tional markets which directly impacts local DAP prices. Presently, in our country we have only one pro-
ducer of DAP i.e. FFBL which caters 47% of total demand while rest of the quantity is fulfilled through im-
ports.

AGL is playing vital role to meet the local demand of DAP in the country as its importing major quantity of
DAP, in CY09 company has imported 11.76% of total imports of DAP which is currently declined to 6.6% in
7MCY10 owing to massive decline in DAP demand due to higher DAP prices and significant lower mar-
gins.
DAP Imports—k tons
Source : NFDC & MMSPL Research
160
138
140
120 105
100
80
60 47
40 24
20
0
FY07

FY08

FY09

FY10

DAP Trading Margins Drastically Declined in 7MCY10

Imported DAP has been reflecting an impressive trading margin in the local markets over the last few
years, ranging from 30% to 45% on an average. During 7MCY10, DAP trading margins has drastically de-
cline to 24.6% as average price of imported DAP were ~USD 485/ton against local DAP prices of ~USD
604/ton primarily due to increasing trend of DAP prices in the international markets, but relatively stable
price of DAP in local market.

Trading Margins of Imported DAP- USD/ton

Source : NFDC & MMSPL Research

300.0 CY09 CY10

250.0

200.0

150.0

100.0

50.0

-
Mar
Jan

May
Feb

Apr

Jun

Jul

6
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED
Sep 24, 2010

Investment in Hazara Phosphate Fertilizer Limited (HPFL)

Agritech has acquired Hazara Phosphate Fertilizer Limited (HPFL) which produces SSP, with an invest-
ment of PKR1.34bn in October 2009. HPFL is one of two produce of SSP in the country with the design ca-
pacity of 130 thousand tons per year (ktpa) out of total industry capacity of 215 ktpa. Moreover, HPFL is
currently investing PKR 300mn for the refurbishment and up gradation project which will further increase
SSP annual production capacity to 162 ktpa.

HPFL is Producing Premier Brand of SSP

HPFL is producing premier brand of SSP i.e Granulated by using combination of indigenous phosphate
rock from the local mines and imported rock. SSP can be considered as a substitute of DAP and is relatively
undersupplied. In FY10, company has achieved highest level of SSP production in its history and produced
103K tons of SSP up by 16% over last year mainly due to higher demand of SSP during the year.

HPFL Plant is Operating Smoothly

HPFL production plant is operating smoothly, SSP production during last four year increased at 4 Yr
CAGR of 2.0% to 95.2k tons in FY10 from 80k tons in FY06. Further, company caters major share 59.5% of
SSP fertilizer in the country in CY09 and market share is expected to increase in upcoming years due to
forthcoming expansion of 35 ktpa in SSP plant.
SSP Production —k tons
120 Source : Company Financials & MMSPL Research
95
100 88 90
82
77
80

60

40

20

0
FY06

FY07

FY08

FY09

FY10

Better Expectation from HPFL in Future...

Going forward, we expect HPFL will play a vital role in the profitability of AGL in forthcoming years as
SSP is considered a substitute product of DAP and the prices of DAP are continuously increasing so farm-
ers may prefers to shift SSP from DAP. However, the effectiveness of DAP is much better than SSP.

AGL FY10 Earnings Expectation….

We expect profitability of the company will significantly improve (+ 11.37% YoY) in FY10 against corre-
sponding period last year mainly due to better contribution of SSP margins. We estimate that the company
will announce PAT of PKR 986mn (EPS: PKR 2.51) in FY10 against PKR 885mn and EPS of PKR 2.26 in
FY09. Furthermore, company is likely to announce final cash dividend of PKR 2.0/share for the year end
June’10.

However, top line of the company is likely to decline by 8.2% in FY10 to PKR 11.46bn from PKR 12.49bn
last year primarily due to lower offtake of imported DAP (down by 24.1% YoY) along with lower DAP
prices during the year.

7
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED
Sep 24, 2010

Financial Highlights
P & L Statement
PKRmn FY09A FY10E FY11E FY12E FY13E FY14E
Net Sales 12,497 11,468 14,061 18,607 20,789 25,714
Cost of Sales 8,541 7,139 8,688 12,599 14,463 18,375
Gross Profit 3,956 4,329 5,373 6,008 6,326 7,339
Distribution Costs 243 367 536 709 1,081 1,412
Administrative Expenses 171 183 227 230 297 388
Finance Cost 2,430 2,607 3,028 3,039 2,546 2,200
Other Expenses 131 45 47 49 62 80
Other Income 124 149 172 180 216 221
PBT 1,106 1,277 1,706 2,161 2,557 3,479
Tax 220 291 597 756 895 1,218
PAT 885 986 1,109 1,404 1,662 2,261
EPS (PKR) 2.26 2.51 2.83 3.58 4.24 5.76
DPS (PKR) - 2.00 2.50 2.80 3.50 4.25

Balance Sheet
PKRmn FY09A FY10E FY11E FY12E FY13E FY14E
Property, Plant & Equipment 12,336 12,326 12,744 13,017 13,270 13,506
Long Term Investments 1,676 4,463 4,463 4,463 4,463 4,463
Current Assets 4,780 5,615 6,053 7,414 6,677 7,992
Total Assets 25,685 31,033 30,144 31,517 30,978 32,199
Equity 7,130 10,903 11,227 11,651 12,214 13,102
Redeemable capital - Secured 10,138 8,004 6,005 4,005 2,006 -
Long term loan - Secured 1,794 2,808 2,358 4,092 3,825 5,158
Total non-current Liabilities 14,590 12,845 10,968 10,429 7,754 6,904
Current Liabilities 3,965 7,284 7,949 9,437 11,010 12,193
Total Equity & Liabilities 25,685 31,033 30,144 31,517 30,978 32,199

Key Ratios
FY09A FY10E FY11E FY12E FY13E FY14E
EPS (PKR) 2.26 2.51 2.83 3.58 4.24 5.76
DPS (PKR) - 2.00 2.50 2.80 3.50 4.25
BVPS (PKR) 18.17 27.78 28.61 29.69 31.12 33.39
PEx N/A 9.62 8.65 6.83 5.78 4.24
PBVx N/A 0.87 0.85 0.82 0.79 0.73
Dividend Yield N/A 8.3% 10.2% 11.4% 14.3% 17.4%
EV/EVA N/A 19.55 16.00 12.66 13.91 10.86
EV/EBITDA N/A 4.72 3.28 2.89 2.81 2.36
ROE 12.41% 9.04% 9.88% 12.05% 13.61% 17.26%
ROA 3.45% 3.18% 3.68% 4.46% 5.36% 7.02%
EBITDA Margin 31.30% 36.87% 36.13% 29.83% 26.26% 23.49%
GP margin 31.66% 37.75% 38.21% 32.29% 30.43% 28.54%
Net margins 7.08% 8.59% 7.89% 7.55% 7.99% 8.79%

8
 M.M. Securities (Pvt.) Ltd Equity
Synergy of Finance & Opportunities
AGRITECH LIMITED

Research Team

Amjad Nazir Chief Operating Officer & Head of Research coo@mmsecurities.com.pk +92-21-35396983
Shahid Ali Senior Research Analyst shahid@mmsecurities.com.pk +92-21-35317703
Muhammad Mohsin Ali Research Analyst research@mmsecurities.com.pk +92-21-35317704

Sales Team

Saqib Hussain Head of Sale & Portfolio Management saqib@mmsecurities.com.pk +92-21-35313911

Sania Zulfiqar Sales Coordinator sania@mmsecurities.com.pk +92-21-35313912

Salma Aamir Sales Coordinator salma@mmsecurities.com.pk +92-21-35317706
Rana Saghir Ahmed Sales Coordinator rana@mmsecurities.com.pk +92-21-35317705
Shahzada Haris Rashid Sales Coordinator hairs@mmsecurities.com.pk +92-21-35388719
Muhammad Imran Alvi Sales Coordinator imran@mmsecurities.com.pk +92-21-35396982
Muhammad Farhan Sales Coordinator farhan@mmsecurities.com.pk +92-21-35897063
Asif Raza Rawjani Sales Coordinator raza@mmsecurities.com.pk +92-21-35313913

Contact us:

M.M. Securities (Pvt.) Ltd.

M. M. Tower, 3 – C,
Khayaban-e-Ittehad,
Phase – II, Extension,
Defence Housing Authority,
Karachi – 75500, Pakistan.
P.O.Box # 12414
Tel : +9221-35317703-04
Fax: +9221-35895328
http://www.mmsecurities.com.pk
E-mail: research@mmsecurities.com.pk

Group:
http://www.mmgoc.com.pk

Analysts’ Certification:

I, Shahid Ali, the author of this report, hereby certify that all of the views expressed in this research report accurately reflect my personal views
about any and all of the subject issuer(s) or securities. I also certify that no part of my compensation was, is, or will be directly or indirectly related
to the specific recommendation(s) or view(s) in this report.

Disclaimer: This report has been prepared by MMSPL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good
faith. Such information has not been independently verified and no guaranty, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are
subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not,
and should not be construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. MMSPL may, to the extent permissible by applicable law or regulation, use the above material,
conclusions, research or analysis before such material is disseminated to its customers. Not all customers will receive the material at the same time. MMSPL, their respective directors, officers, representatives, employees,
related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase 9
and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise, either as principal or agent. MMSPL may make markets in securities or other financial instruments de-
scribed in this publication, in securities of issuers described herein or in securities underlying or related to such securities. This document may not be reproduced, distributed or published for any purposes.