Analyst:

Muhammad Sarfraz Abbasi

sarfraz.abbasi@atlascapital.com.pk
(+92-21)-111-226-100 (Ext.403)

Morning Pulse Jan 27, 2011

Market Snapshot
Fertilizer Sector: Acquisition on cards immense urea capacity of around 483,000 tons per Index Chg %
annum along with 162,000 tons per annum of SSP KSE 30 12216.99 37.5 0 .31
as FFC gets green signal to acquire KSE 100 12483.34 27.59 0.22
fertilizer.
Agritech business… KSE ALL 8651.24 12.46 0.14
Implication of possible takeover bid…
Synopsis… Post acquisition, FFC is most likely to enjoy increased
Pakistan Research

In continuation of ACM research report (Aug 20, 2010)
on Agritech (AGL) acquisition by FFC, we had informed
that the matter was under consideration of the
Competition Commission of Pakistan (CCP). As per the
news reports, the CCP has confirmed that they have
issued conditional NOC to the FFC to acquire 79.80%
(313m shares) stake in AGL. We believe that the bid
price of PRs26.06 per share would translate deal into
US$94.85m worth. After AGL acquisition the FFC would
likely to have biggest market share of 54.24% in urea
business. In addition to this it could open up
opportunities of new product SSP which is a phosphatic
multi nutrient fertilizer with 14% – 20% of P205 contents
and generally considered a cheaper substitute of DAP.
The main conditions imposed by CCP…
1- FFC shall maintain “Tara” and “SONA” brands
separately for two years and there shell be a price
cap on the price increase of “Tara” product by
FFC for a period of one year.
2- FFC shall maintain transparency for any change in
price in all its fertilizer products and shall for the
period of three years intimate to the CCP any
price escalation along with the reason for such
price increase within seven days of increase.
market penetration and geographical coverage. This is
manifested by the facts: (1) it will have 54.24% of urea
market share followed by ENGRO (2) could open up Market Cap(PRs bn) 103.56
opportunities for new product-SSP is a phosphatic multi- Shares Outstanding (m) 678.5
nutrient fertilizer. However, the major cause of concern Bloomberg FFC.PA
remains the change in the leverage position of FFC. We 12M Avg. Volume (m) 1.05
project that the acquisition is likely to increase overall
leverage of combined entity. Currently, AGL has
around total long term debt and short term debts of
PRs17.67bn including interest payable. In addition to
this, FFC had current and long term debt of PRs10.17bn
at the end of 9MCY10. If FFC acquires AGL, it is very
likely that FFC’s gearing would rise to PRs27.84bn.
Currently FFC has about 4.27bn cash and short-term
investments in its balance sheet. As per our expectation
FFC would make further certain financing
arrangements through the banks which would further
augment its leverage position. We are keeping eyes on
the deal we would come up again after incorporating
details of AGL acquisition shortly with fair value of the
FFC.

AGL business…
Atlas Capital Markets (Pvt.) Ltd
Azgard Nine (ANL) acquired AGL formerly Pak
American Fertilizer Limited back in CY06 at a cost of B-209, Park Towers, Clifton, Karachi
PRs16.5bn (US$272m). ANL currently holds 79.80% stake Equity Research: Equity Sales:
Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
in AGL. AGL manufactures and markets Urea and SSP Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
fertilizers (Single Super Phosphate) and is operating
Money Market: Corporate Finance:
under the brand name of “TARA”. The company’s urea Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
plant is located at Mianwali (Punjab) and SSP plant at Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
Haripur (Khyber Phaktoon) Haripur (KPK). AGL has an Financial Products Distribution:
Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time Tel: 92 (21) 5376125
of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Atlas Capital Markets (Pvt.) Fax: 92 (21) 5376126
Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All
information is provided without warranty and Atlas Capital Markets (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or
completeness of any information hereto contained.