Initiating Coverage

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Fatima Fertilizer 
1  Fertilizer offering since 1996
Recommendation: Buy @ Rs10-11
We initiate our coverage on Fatima Fertilizer Company Limited (FFCL) with a fair value of Rs14 per share and hence recommend investors to participate in the Book Building process as the scrip offers a 40% upside at the floor price of Rs10 per share. FFCL is a joint venture between Arif Habib Group (AHG) and Fatima Group (FG) with a nameplate capacity of 1.58mn tons diversifying in urea as well as other fertilizers (phosphatic, calcium blended and potassium based). This makes FFCL a different player considering the conventional urea and DAP producers. With urea and CAN expected to operate at near full capacity in 2010, the NP plant coming online in 2011 and high margins due to special 10 year subsidy on feedstock gas we expect a 4 year earnings CAGR (2011-15) of 20%. Trading at a post full commissioning 2012F EV/EBITDA of 4.0x and PBV of 0.7x, we recommend investors to bid in the Book building process in the range of Rs1011 per share. The key risks to our thesis are: (1) delays and cost overruns (2) disruption in gas supply (3) lower demand for NP & CAN and (4) integration and regulatory issues. We however, rule out any concerns on excess supply of urea. (For details please refer to page 6).

Target Price: Fertilizer January 2010

Rs14

st

 

JS Global Capital Limited

Floor Price: Rs10 Offer size: Book Building: 150mn shares General Public: 50mn shares Dates: Book Building: 11-13th Jan 2010 General Public: 27-28th Jan 2010

What’s on offer?
FFCL is issuing additional 200mn ordinary shares at a floor price of Rs10 through a combination of 150mn shares (75%) in the Book Building Process (Jan 11-13) to the Institutional Investors and High Net Worth Individuals (HNWI), while 50mn shares (25%) will be issued subsequently to the general public (Jan 27-28) at or below the strike price determined via the Book Building process. Arif Habib Limited is the mandated Lead Manager & Book Runner for the issue.

Valuation: 40% upside at the floor price of Rs10
Using the FCFF methodology with a risk free rate of 11% and WACC of 12%, our fair value of Fatima arrives at Rs14, which implies a 40% upside at the book building floor price of Rs10. Our liking for FFCL is also backed by the company’s attractive 2012F EV/EBITDA and PBV multiples of 4.0x & 0.7x respectively, which implies that FFCL is available at a discount of 67-74% to the fertilizer sector.

Table: Key numbers 2010E 2011F 2012F 2013F 2014F EPS (Rs) PBV (x) PE (x) 0.1 0.9 NM 1.1 0.8 9.5 4.8 369.1 1.3 0.7 7.5 4.0 323.6 1.2 0.7 8.3 3.6 278.4 1.6 0.6 6.1 2.8 225.8

Profits to post a 4 year (2011-15) CAGR of 20%
We project the company’s earnings to grow at a post full commissioning (20112015) CAGR of 20% driven by a combination of gradual production build up with NP plant coming online in 2011 and high margins due to special subsidy on feed stock. Moreover, lower tax expense owing to accelerated capital allowance on the heavy capital expenditure will contribute towards strong earnings.

EV/EBITDA (x) 7.1 EV/ton (US$) 403.9 Source: JS Research

Offer likely to witness a good response
We believe the offer has decent merit at the floor price of Rs10 per share given its attractive fundamental value of Rs14 and the strong goodwill of the AHG, the main sponsor of the company. Moreover, given AHG’s IPO history with regards to previous five offerings (over subscribed in the range of 1.1x-6.2x) and the performance of the last fertilizer IPO, FFBL in 1996 (oversubscribed 2.3x), we expect a positive response for FFCL as well.

Farhan Rizvi, CFA farhan.rizvi@js.com Senior Analyst 92 (21) 111-574-111 (ext. 3096) Bilal Qamar bilal.qamar@js.com Analyst 92 (21) 111-574-111 (ext. 3099)

Completed on Jan 10, 2010 – Distributed on Jan 11, 2010

JS Research is available on Bloomberg, Thomson Reuters and CapitalIQ Please refer to the important Disclaimer on the last page

Fatima Fertilizer Company Limited

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Contents
Valuation: 40% upside at floor price of Rs10 Public offering and our take Fatima Fertilizer – what’s on the table? Profitability; 4 year CAGR (2011-15) of 20% Risks to our thesis About the company Appendices: Appendix I: Income Statement & Balance sheet Appendix II: Ratio Analysis Appendix III: Book Building Procedures Appendix IV: Production flow diagram 12 13 14 17 04 06 07 09 10 11

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Valuation: 40% upside at floor price of Rs10
Based on the discount cash flow methodology our fair value for FFCL arrives at Rs14 per share. Hence we recommend investors to bid in the book building at the floor price as it offers an attractive upside of 40%. We have also carried out a sensitivity of valuation multiples at different price levels and recommend investors to subscribe in the range of Rs10-11 per share. Our valuation is based on FCFF version of the DCF methodology with a risk free rate of 11% and WACC of 12%. We have projected the free cash flows till 2020 and have forecasted the terminal value then onwards. The two key reasons for extending our forecast till 2020 are the elimination of the deferred tax credit in 2017 and the expiry of special gas subsidy in 2019. (Please refer to the tables for details on the valuation assumption and calculations).
Table: FCFF projections (Rs m n) Operating cashflow Less:Capex Interest income Tax paid Free Cashflow to the firm Discounted cashflow V aluation P V of cash flows Terminal value Total present value Less: Debt & Pref. shares E quity value No of shares (mn) Target price (Rs) S ource: JS Research
Table: Strike price sensitivity analysis 2010E Rs10 (Floor price) P ri ce to Book (x) P /E ratio (x) E V/EBITDA (x) E V/TON (US$) Rs12 P ri ce to Book (x) P /E ratio (x) E V/EBITDA (x) E V/TON (US$) Rs14 P ri ce to Book (x) P /E ratio (x) E V/EBITDA (x) E V/TON (US$) S ource: JS Research 0.9 NM 7.1 403.9 1.0 NM 7.7 433.5 2011F 0.8 9.5 4.8 369.1 1.0 11.4 5.2 398.1 2012F 0.7 7.5 4.0 323.6 0.9 9.0 4.3 352.0 2013F 0.7 8.3 3.6 278.4 0.8 10.0 4.0 306.3

Table: WACC assumption table Cost of debt K IBOR P remium Tax rate K (d) Weight in WACC Cost of equity Risk free rate Risk premium B eta K (e) Weight in WACC Cost of preference shares K IBOR P remium K (p) Weight in WACC WACC S ource: JS Research 11% 3% 35% 9% 56% 11% 6% 0.8 16% 37% 11% 3% 14% 7% 12%

2010E 6,523 (5,741) 64 846 755 53,749 10,380 64,129 36,473 27,656 2,000 14

2011F 10,067 (400) 103 9,770 7,790

2012F 11,121 (450) 251 10,922 7,776

2013F 10,578 (450) 401 10,529 6,694

2014F 11,276 (600) 511 11,187 6,351

1.2 NM 8.2 463.0

1.1 13.3 5.6 427.0

1.0 10.5 4.7 380.4

1.0 11.6 4.3 334.1

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67-74% discount to peers on 2012F EV/EBITDA and PBV
Pakistan’s listed fertilizer sector (as measured by the JS Universe) is trading at 2012F EV/EBITDA of 4.5x and PBV of 2.6x, while FFCL at its floor price of Rs10 has an EV/EBITDA and PBV multiple of 4.0x and 0.7x respectively. This implies that FFCL trades at 67-74% discount to listed peers on EV/EBITDA and PBV. This reiterates our positive recommendation for FFCL. (Please refer to the graphs below for valuation comparison with listed peers).
G r aph: PBV( x ) c ompar is on 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2010E 2011F 2012F 2013F
So urce: JS Research, *excl. FFCL

G r aph: EV/ton( US$) c ompar is on Engro 1,000 800 600 400 200 2010E 2011F 2012F 2013F
So urce: JS Research, *excl. FFCL

G r aph: EV/EBIT DA( x ) c ompar is on 10.0 8.0 6.0 4.0 2.0 2010E 2011F 2012F 2013F
So urce: JS Research, *excl. FFCL

FFBL FFCL

FFC Sector *

FFBL Engro Sector *

FFC FFCL

FFBL Engro Sector *

FFC FFCL

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Public offering and our take
FFCL is issuing additional 200mn ordinary shares at a floor price of Rs10 through a combination of 150mn shares (75%) via the Book Building Process to the Institutional Investors and High Net Worth Individuals (HNWI), while 50mn shares (25%) will be issued subsequently to the general public at or below the strike price determined in the Book Building Process. Arif Habib Limited is the mandated Lead Manager (LM) & Book Runner (BR) for the issue.

The Book Building mechanism
Book Building is a process whereby investors bid for a specific number of shares at various prices. The LM and the BR with the consent of the company set a floor price which is the lowest price at which investors can bid. An order book is maintained by the BR, which is used to determine the strike price using the “Dutch Auction Method”. Under this methodology the strike price is determined by lowering the price to the extent that the total number of shares subscribed equal those offered by the company. Bidders can submit their bids at the allocated bidding centers in person or through facsimile. A bid by a potential investor can be a “Limit Bid”, “Strike Bid” or a “Step Bid”. (For more details on Book Building process, please refer to Appendix A).

Our take on the offer: Attractive up to Rs11 per share
We believe, the offer has decent merit at the floor price of Rs10 per share given its attractive fundamental value of Rs14 per share (please refer to the Valuation section for more details) and the strong goodwill of the Arif Habib Group, the main sponsor of the company. Moreover, this is a first public offering in the relatively stable Fertilizer sector since 1996, when FFBL shares were offered to the General Public, which were oversubscribed 2.3x. We do however, advise investors to not bid above Rs11 per share as the attractiveness gets diluted above that level.

Arif Habib has a rich history in public offerings
Arif Habib Group is one of the fastest growing blue-chip conglomerates in Pakistan with a rich history and a remarkable repute in the financial markets. The group has a very successful track record in terms of both corporate performance as well as raising money through capital markets. The five previous offerings of the Arif Habib Group were oversubscribed in the range of 1.1x - 6.2x. Thus, we believe that Fatima is likely to receive a positive response in the Book Building process as well.
Table: History of Arif Habib's public offerings (Rs mn) A ri f Habib Securities A ri f Habib Ltd A ri f Habib Bank Thatta Cement A ri f Habib Investment Mgmt S ource: JS Research Year of Listing 2001 2007 2008 2008 2008 Am ount Offered 12.5 500.0 2,514.7 225.0 937.5 Am ount Subscribed 54.3 1,346.3 7,119.9 1,402.6 1,008.3 Over S ubscribed (x) 4.3 2.7 2.8 6.2 1.1

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Fatima Fertilizer – what’s on the table?
FFCL is a joint venture of FG and AHG with a nameplate capacity of 1.58mn tons diversifying in urea as well as other fertilizers (phosphatic, calcium blended and potassium based). More than 65% of the total nameplate capacity is consumed by calcium (CAN), phosphorous (NP) and potassium (NPK) based fertilizer while the rest caters to the orthodox purely ammonia and nitrate based urea fertilizer. Thus, this makes FFCL different from the conventional urea and DAP producers in the country. With the production of CAN and NP, FFCL is allowing farmers to choose substitutes of the traditional fertilizer products (CAN can be substituted for urea while NP can be a partial replacement for DAP).
G r aph: Ins talled c apac ity NPK 19% NP 23% CAN 27% Urea 31%

Capital Structure (debt to asset ratio of 56%)
The project has an estimated cost of Rs59bn, financed by debt of Rs33bn, sponsor equity of Rs24bn and general public equity of Rs2bn which translates to a Debt to Asset Ratio of 56%. The sponsors’ equity includes Rs4bn in convertible preference shares, the issue of which has already been approved by the Board of Directors.

So urce: Co mpany pro spectus

G r aph: C apital s tr uc tur e 41%

Key products & demand outlook
Urea: Offtake to remain robust
FFCL will be adding 500k tons of urea to already installed industrial capacity of 4.6mn tons. Interestingly, while there has been hue and cry regarding excess capacity, the total installed capacity even after the addition of Fatima and the 1.3mn tons by the Engro plant would only reach 6.3mn tons as against the expected demand of 6.5mn tons in 2011. We believe, after the commissioning of Engro’s Plant, the utilization levels for major players such as FFC (120%), Engro (102%) and FFBL (105%) are likely to fall, with a probable quota determination, thus, providing room to each of the companies to have a proportionate share in the demand, based on their respective production capacity. We expect, FFCL’s urea plant to operate near full capacity going forward. Further, if excess supply exists the fertilizer can be exported at the discretion of the government. Despite high urea prices, demand has grown by 12% to 5.6mn tons in 11M2009 and with an annual growth of 3% in the future, we expect urea demand to reach 6.9mn tons by 2013.

56% Sponsors

3% General Public Debt

So urce: Co mpany pro spectus

Graph: Urea demand & s upply (000 t ons )
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2007A 2008A 2009E 2010F 2011F 2012F 2013F Capacity Offtake

Source: JS Research, NFDC Reports

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CAN: Cotton growth to drive demand
With approximately 80% of ammonium nitrate (high nitrogen content), CAN (Calcium Ammonium Nitrate) is regarded as a close alternate for urea. It is composed of nitrogen (27%) and calcium (8% - in calcium carbonate form). It is considered as near-neutral in its effect on the soil’s pH and therefore can be used on soils that have a low pH without affecting it further, allowing the land to maintain its fertility over a long period of time. Due to its lime content, CAN is more useful for crops that grow to a considerable height from the roots (making it difficult for the lime content to affect the fruit). Hence, we opine cotton and perennial fruits will be suitable crops for CAN to be used for. Currently, cotton occupies 11% of the total cultivated land in Pakistan and we therefore consider demand for CAN, (to some extent) can be gauged from cotton production (which rose by 12% in FY10). Taking into account the increased usage of the BT cotton seed, we project a growth of 3-4% in the crop’s yield in FY11; indicative of a commendable CAN offtake going forward. As there is limited knowledge about the product in the local industry we expect FFCL to market the product effectively in order to achieve their target sales. The management already has set an annual marketing budget in excess of Rs1bn for this purpose and is likely to enjoy synergies through joint marketing with already established Pak Arab Fertilizer Company (PAF), parent company of FFCL. Looking at the historic price trend CAN has always been available at cheaper rates than urea. Therefore, we believe the product can capture enough customers in the local market. Keeping in mind the limiting factor of production of ammonia being fixed at 500k tons, we expect a capacity utilization of 90% in the first year (2010) of production and restricting it then on from 2011 to 65%, after the commissioning of the NP plant in 2011. Currently, the CAN production stands at 450k tons (PAF, the sole producer) and additions from this new plant of FFCL’s will add a further 420k tons to the industry’s capacity.

G r aph: CAN offtak e for ec as t 1000 800 000 tons 600 400 200 0 2009E 2010F 2011F 2007A 2008A 2012F Total prod. capacity Offtake

So urce: JS Research, NFDC Repo rts

Nitrogen Phosphate (NP) & Nitrogen Potassium Phosphate (NPK)
The standard Nitrogen Phosphate (NP) uses 23% each of nitrogen and phosphorous. Phosphorous is an important element for the root-growth of the crops. FFCL’s NP plant is scheduled to come online in 2011 and is expected to add 360k tons to the existing industry’s capacity of 305k tons. Due to the presence of phosphorous in NP, it can also be used as a replacement for other phosphate variants like DAP. Given the price differential between DAP and NP and the recent resurgence in phosacid prices (used in DAP), we anticipate a shift in the local farmers’ preferences to NP from DAP. Keeping some buffer for a possible delay in the commissioning of the NP plant we have projected a capacity availability of 85% in 2011 with a utilization level of 75%. The utilization level is likely to reach 85% in 2012. The new technology at the plant has given FFCL an advantage to use the same plant for the production of Nitrogen Potassium Phosphate (NPK) fertilizer as well. NPK is another type of complex fertilizer which consumes all three key components used to manufacture fertilizers. K in the product stands for potassium which adds to the photosynthesis efficiency in turn improving the crop yields. There are many types of potassium nitrates available and generally are denoted by the weights the in the form N-P-K. Due to its limited and specialized demand, we have not incorporated NPK’s production in our valuation. The management has also stated that FFCL will only manufacture NPK if the pricing dynamics are favourable.
G r aph: NP offtak e for ec as t 700 000 tons 500 300 100 2009E 2010F 2011F 2007A 2008A 2012F Total prod. capacity Offtake

So urce: JS Research, NFDC Repo rts

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Profitability; 4 year CAGR (2011-15) of 20%
We project the company’s earnings to grow at a post full expansion (2011-2015) CAGR of 20% primarily driven by the gradual production build up at the NP plant coming online in 2011 and high margins owing to a special subsidy on feed stock. A lower tax expense on account of an accelerated capital allowance on the heavy capital expenditure, will contribute towards strong earnings.

Sustained healthy margins
High urea prices and a commendable offtake for CAN and NP look set to drive revenues to Rs24bn in 2015, a 4 year (2011-2015) CAGR of 9%. Additionally, the company will enjoy a honeymoon period with the feedstock gas available at a discounted fixed rate for a period of 10 years as reported in the Fertilizer Policy. On this note, we expect FFCL to post healthy margins of 46% during this period. Revenues from the sale of Certified Emission Reduction (CER) as part of the Clean Development Mechanism (CDM) project at nitric acid plants will also contribute towards earnings until 2012 when the Kyoto Protocol expires. CDM is an arrangement under the said protocol which aims to combat global warming.
G r aph: Key per for manc e mar gins 70% 60% 50% 40% 30% 20% 10% 0% 2010E 2011F 2012F 2013F 2014F
So urce: JS Research

Gross

Net

EBITDA

Deferred tax payments due to heavy Capex
A major positive for FFCL is the accelerated capital allowance on its Rs59bn capital expenditure which entails that despite making handsome pre tax earnings 2011 onwards, the company will enjoy zero corporate tax liability for the next 5-6 years. Section 23 of the Income Tax Ordinance 2001 allows companies to enjoy the benefit of accelerated capital allowance in the form of an allowance on the first time use of an asset for business purposes. Thus, FFCL will enjoy an initial allowance of 50% on its investments in plant & machinery and buildings in the first year of commercial operation, which in turn would defer its tax payments to future periods. This will help the company better manage its cash flows especially in the earlier years, when it will have to finance heavy interest and principal repayments.

Structure debt servicing for better cash management
An interesting feature in the debt agreements of FFCL is the tailored principal repayment schedule, whereby the company enjoys accelerated principal repayments with low payments in the early years. This enables better cash management as reflected by the following graph.

Graph: Debt s erv ic ing v s Operat ing c as h f lows (Rs mn)
12000 10000 8000 6000 4000 2000 0 2010E 2011F 2012F 2013F 2014F Annual Markup Annual Principal Repayment Net cash from operating activities

Source: JS Research

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Risks to our thesis
Downside risks
Delays and cost overruns - The project is estimated to cost around Rs59bn which is based on certain presumptions. Hence, any change in these assumptions is likely to affect the company’s cash flow. Moreover, any delays in commissioning of the NP plant can also add uncertainty to the revenues of the company. Disruption in gas supply – Gas is one of the major inputs for manufacturing of fertilizers. Any disruptions in gas availability can hamper the performance of the company. Integration risks – Integration of the ammonia plant with production of end products such as urea, CAN, NP and NPK is essential for the company’s operations. Any issues in the process will impact the overall production. Lower than anticipated CAN & NP demand- CAN and NP are relatively complex and less commonly produced/used fertilizers in Pakistan. While, we expect relatively strong demand due to their effective pricing and yield enhancing ability, lower than estimated demand is likely to dent earnings and consequently the valuation. Regulatory issues - Any changes in the regulatory framework by the government can impact the company’s performance.

Upside risks
Kyoto Protocol - Under the Kyoto Protocol, FFCL receives benefits from the CER until 2012. Any revision in the program beyond 2012 can boost revenues going further. Steep decline in interest rate - Due to its massive debt (Rs33bn), the company can also benefit from any steep cut in the interest rates. We are expecting an average KIBOR of 11% for 2010-11, however, a sharper than anticipated decline in interest rates will boost the bottom line of the company.

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About the company
Arif Habib Group along with Fatima Group incorporated Fatima Fertilizer Company Limited on December 24, 2003 as a non-listed public company under the Companies Ordinance, 1984.The objective of the company is to produce and sell two intermediate products, Ammonia and Nitric Acid and four final products which are Nitro Phosphate (NP), Nitrogen Phosphorous Potassium (NPK), Calcium Ammonium Nitrate (CAN) and Urea. The plant is fully integrated and is located at Mukhtar Garh, Sadiqabad, Rahim Yar Khan on an area of 948 Acres of freehold land. The Urea plant includes a 52MW captive power plant in addition to off-sites and utilities. The company has been allocated gas of 110 MMCFD from Mari Gas fields and the gas agreement has already been executed.
Shar eholding patter n Pr e offer ing 8% 13%

79% Directors Friends & Family
So urce: Co mpany pro spectus

Associated Cos.

The Arif Habib Group
The Arif Habib Group is regarded as one of the fastest growing blue-chip conglomerates in Pakistan. The Group operates through Arif Habib Securities Limited (AHSL), which is its holding company. AHSL is one of the top performing companies listed on the Karachi Stock Exchange. On account of its good corporate performance, AHSL has won the prestigious Top Companies Award in each year since its listing at the KSE.

Shar eholding patter n Pos t offer ing 7% 10% 12%

The Fatima Group
The Fatima Group is one of the leading corporate groups in Pakistan with a diversified business portfolio expanding into sugar, textile and energy sectors. Some of the key corporations under the umbrella include Pak Arab Fertilizers Limited, Fatima Sugar Mills Limited, Reliance Weaving Mills Limited, Fazal Cloth Mills Limited, Reliance Commodities (Pvt.) Limited and Fatima Energy Limited.

71% Directors Friends & Family
So urce: Co mpany pro spectus

Associated Cos. Offering

Key personnel
Mr. Arif Habib (Group Chairman)
Mr. Arif Habib is a Commerce graduate and a Fellow Member of the Institute of Chartered Secretaries and Mangers. Along with holding key positions of a chairman and chief executive of AHSL, he also is chairman at Arif Habib Bank Limited, Fatima fertilizer Company Limited, Pak Arab Fertilizers Limited, Thatta Cement Company Limited and Arif Habib DMCC Dubai. He has remained the President/chairman of the Karachi Stock Exchange six times in the past and is one of the founding members of the Central Depository Company of Pakistan Limited.

Mr. Fawad Ahmad Mukhtar (CEO- Fatima Fertilizer)
Mr. Fawad Ahmad Mukhtar, a graduate from Government College Lahore, is the Chief Executive Officer (CEO) of Fatima Fertilizer. He brings along with him rich experience associated with the manufacturing sector, particularly the fertilizer industry, as he is also the CEO of PAF. Besides holding these key positions in the group companies, he is also the director of Reliance Weaving Mills Limited, Fazal Weavings Mills Limited, Fatima Fibers Limited, Reliance Fibers Limited, Reliance Commodities (Pvt.) Limited, Gadoon Packings (Pvt.) Limited, Farrukh Trading Co. (Pvt.) Limited and Fatima Energy Limited company.

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Appendix I: Income statement & Balance sheet
(Rs m n) Income Statement Net sales COGS Gross profit Operating Profit E BITDA Other income Financial charges P BT Tax P AT Balance Sheet Issued, subscibed & paid -up capital P reference shares Unappropriated profit/(loss) S hareholder's Equity Non current liabilities Current Liabilities Total Liabilities & Equity Operating Fixed Assets Other Assets Total Current Assets Total Assets S ource: JS Research 12,516 6,202 6,314 5,100 7,656 99 5,203 (4) (107) 103 18,098 9,132 8,966 7,587 10,551 158 5,522 2,068 (42) 2,110 20,052 10,121 9,931 8,456 11,490 386 5,101 3,480 806 2,673 20,239 10,696 9,543 7,977 11,034 617 4,612 3,704 1,296 2,407 21,823 11,495 10,328 8,664 11,742 786 3,999 5,069 1,809 3,260 2010E 2011F 2012F 2013F 2014F

20,000 4,000 (502) 23,498 33,003 2,664 59,165 56,342 1,288 1,535 59,165

20,000 4,000 1,048 25,048 30,026 4,014 59,088 54,792 303 3,994 59,088

20,000 4,000 3,182 27,182 27,036 5,009 59,227 52,208 333 6,686 59,227

20,000 4,000 5,069 29,069 23,746 5,827 58,642 49,601 366 8,675 58,642

20,000 4,000 7,809 31,809 20,073 6,874 58,755 47,122 403 11,230 58,755

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Appendix II: Ratio Analysis
2010E Ratio Analysis V aluation E arni ng per share B ook value per share P ri ce to earning ratio (x) P ri ce to Book value (x) E V/EBITDA E V per ton (US$) P rofitability Gross margin Gross margin exclu ding CER Operating margin Net margin S olvency Total debt to total assets Total debt to equi ty Long term debt to equity Interest cover A ssets to equity A ssets turnove r Momentum S ales growth (excluding CER) E BITDA growth Net profit growth S ource: JS Research NM NM NM 46% 38% 1940% 12% 9% 27% 7% -4% -10% 8% 6% 35% 0.6 1.5 1.4 1.0 2.5 0.2 0.6 1.3 1.2 0.7 2.4 0.3 0.6 1.1 1.0 0.6 2.2 0.3 0.6 0.9 0.7 0.6 2.0 0.3 0.6 0.7 0.5 0.4 1.8 0.4 50% 47% 41% 1% 50% 46% 42% 12% 50% 46% 42% 13% 47% 47% 39% 12% 47% 47% 40% 15% 0.05 11.7 NM 0.9 7.1 403.9 1.1 12.5 9.5 0.8 4.8 369.1 1.3 13.6 7.5 0.7 4.0 323.6 1.2 14.5 8.3 0.7 3.6 278.4 1.6 15.9 6.1 0.6 2.8 225.8 2011F 2012F 2013F 2014F

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Appendix III: Book Building Procedures
Book building is a process whereby investors bid for a specific number of shares at various prices. The LM & BR, with the consent of the Company, sets a reference/floor price which is the lowest price an investor can bid at. An order book of bids from investors is maintained by the BR, which is then used to determine the strike price. For determination of the strike price “Dutch Auction Method” will be used. Under the Dutch Auction Method, the strike/ price is determined by lowering the price to the extent that the total number of shares that the Company intends to issue through the Book Building process is subscribed. Bidders can submit their bids at the allocated bidding centers in person or through facsimile. A bid by a potential investor can be a “Limit Bid”, “Strike Bid” or a “Step Bid”, which are explained below. Limit Bid: Limit bid is at the limit price, which is the maximum price an investor is willing to pay for a specified number of shares. In such a case a bidder explicitly states a price at which he is willing to subscribe to the shares. For instance, a bidder may bid for 2 million shares at PKR 15 per share. Since the bidder has placed a limit price of PKR 15 per share, this indicates that he is willing to subscribe at or below PKR 15 per share. Strike Order: A bid for a specified number of shares at the strike price. The bidders explicitly bid that they will be willing to buy say 2.0 million shares at the strike price determined through the Book Building Process. Step Bid: A series of limit bids at different prices. Under this bidding strategy, bidders place a number of limit bids at different price levels. The bidders may, for instance, make a bid for 2.0 million shares at PKR 15 per share, 1.5 million shares at PKR 16 per share and 1.0 million shares at PKR 17 per share. Once the bid period is over and book has been built, the BR determines the strike price. Successful bidders will be intimated about the strike price and number of shares allotted to them within two working days, subsequently successful institutional bidders shall deposit remaining money within three seven working days of closing of the bidding period.

Lead manager and book runner
Arif Habib Limited has been mandated by the Company to act as a Lead Manager and Book Runner to this Issue, which is being made through the Book Building Process as laid out in Appendix 4 of the Listing Regulations of the KSE. Arif Habib Limited (“AHL”) is ranked among the premium brokerage houses in Pakistan and its Investment Banking team is among the most active in carrying out financial advisory services in Pakistan’ s capital markets.

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Since 2006, as part of its business expansion strategy, AHL has further strengthened its corporate finance function to offer a fuller range of financial services to clients. The quantum of equity and tender offerings managed by AHL in recent years exceeds PKR 10.7 billion. During CY2007, AHL advised and arranged one-half of all the equity offerings at the KSE. Its expertise and strong delivery capacity act as catalysts in achieving the most value additive investment solutions for clients. The spread of AHL’s corporate finance services includes public and private offerings of debt and equity securities, valuation, risk underwriting, restructurings, syndication, securitization, tender offerings and Sharia compatible instruments. AHL corporate finance team comprises four qualified and well-experienced professionals with a sound project management and advisory record.

Opening and closing of the bidding period
The bidding period shall remain open for 3 working days commencing from the business hours at 09:30 a.m. on 11 January, 2010 and will close at 05:00 p.m. on 13 January, 2010 at the close of business hours. BIDDING PROCESS STARTS ON BIDDING PROCESS ENDS ON *(Both Days Inclusive) 11 January 2010 13 January 2010

Eligibility to participate in bidding
Eligible investors who can place their bids in the Book Building process are “Institutional Investors” and “HNWI”. Institutional Investors include both local and foreign institutional investors. HNWI investors are individual investors who apply or bid for shares of value of PKR 1,000,000/ or above in the Book Building process.

Mechanism for determination of strike price
One Hundred & Fifty (150) million ordinary shares, which constitute 75% of the total issue size, would be offered to Institutional Investors and High Net worth Individuals through the Book Building process. The remaining Fifty (50) million ordinary shares constituting 25% of the total issue size would be offered to the general public at or below the strike price determined through the Book Building process. The bidding period shall last for 5 working days for receiving the bids from potential investors. At the close of the bidding period, the strike price would be determined by the BR in consultation with the Company. The mechanism for determination of strike price can be understood by the following illustration. Quantity of shares being Offered: 150.00 million Ordinary Shares Floor price: PKR 10 per share Bidding Period: December 02, 2009 – December 06, 2009.

January 2010

Fatima Fertilizer Company Limited

Page 16

Bidders Institution A Institution B Institution A HNWI A Institution C Institution E HNWI B Institution B Institution D

Price (PKR Quantity Cumulative per share) (mn shares) # of shares 16.00 14.00 14.00 13.50 12.00 X 11.00 11.00 11.00 25.00 37.50 25.00 43.75 43.75 25.00 56.25 50.00 56.25 25.00 37.50 62.50 106.25 150.00 175.00 231.25 281.25 343.75

Category of order Limit pri ce Step bid Revised bid Limit pri ce Limit pri ce Strike order Limit pri ce Withdrawn Bid Step bid Limit pri ce

Date December 02, 2009 December 03, 2009 December 04, 2009 December 03, 2009 December 04, 2009 December 05, 2009 December 04, 2009 December 05, 2009 December 06, 2009

S TRIKE PRICE DETERMINE D THROUGH DUTCH AUCTION METHOD

TOTAL SHARES SUBSCRIBE D

Setting Strike Price – On the basis of the figures provided in the above illustration, according to the Dutch Auction Method, the strike price would be set at PKR 12/- per share to sell the required number of 150.0 million ordinary shares. At PKR 16 per share, investors are willing to buy only 25 million shares. Since 125 million shares are still available, therefore the price will set lower. At Rs14 per shares, investors are willing to buy 37.50 millions shares. Since 87.50 million shares are still available, therefore, the price will set lower. At Rs13.50 per shares, investors are willing to buy 43.75 millions shares. Since 43.75 million shares are still available, therefore, the price will set lower. At Rs12 per shares, investors are willing to buy 43.75 millions shares. Since after bidding for 43.75 million shares at Rs12 per share no shares will be available, therefore, the strike price will be set at Rs12 per share for the entire lot of 150 million ordinary shares. The bidders, who have submitted bids at prices above the strike price, will be issued shares at the strike price and the differential would be refunded. Investors, who have bid below PKR 12/- per share, do not qualify for allotment and their money would be refunded. For allotment of shares priority will be given to investors who placed higher bids. In case the number of shares bid for at the Strike Price and the number of shares bid for at Strike Order exceeds the available number of shares, then such available shares shall be allotted to the bidders who have made bids for shares at Strike Price and Strike Order, however, preference will be given to the bidder who has made the bid earlier..

Basis of allotment of shares
After the closure of bidding period, the BR will analyze the demand generated at various price levels. Only successful bidders shall be eligible for allotment of shares. Shares to successful bidders, out of the book building portion, shall be dispatched/credited shares at the time of the dispatch/credit of shares out of the public portion.

Refund of margin money
Investors who have bid lower than the strike price are not eligible for allotment of shares. Margin money of the unsuccessful bidders shall be refunded within three (3) working days of the close of the bidding period.

January 2010

Fatima Fertilizer Company Limited

Page 17

Appendix IV: Production flow diagram

Source: European Fertilizer Manufacturing Association

January 2010

Research Team
Muzzammil Aslam Farhan Rizvi, CFA Umer Bin Ayaz Syed Atif Zafar Mustufa Bilwani Bilal Qamar Raheel Ashraf Adeel Jafri Rabia Mansoor Angela Yousuf Sana Hanif Muhammad Furqan Economy & Politcs Banks, Strategy & Insurance E&P, Refinery & Power OMCs, Cement, Autos & Chemicals Banks, Telecom & Paper&Board Fertilizer & Textile Technical Analyst Database Manager Research Trainee Research Trainee Research Trainee Librarian (92-21) 111574111 (ext. 3035) (92-21) 111574111 (ext. 3096) (92-21) 111574111 (ext. 3103) (92-21) 111574111 (ext. 3118) (92-21) 111574111 (ext. 3100) (92-21) 111574111 (ext. 3099) (92-21) 111574111 (ext. 3098) (92-21) 111574111 (ext. 3098) (92-21) 111574111 (ext. 3119) (92-21) 111574111 (ext. 3097) (92-21) 111574111 (ext. 3102) (92-21) 111574111 (ext. 3105) muzzammil.aslam@js.com farhan.rizvi@js.com umer.ayaz@js.com atif.zafar@js.com mustufa.bilwani@js.com bilal.qamar@js.com raheel.ashraf@js.com adeel.jafri@js.com rabia.tariq@js.com angela.memon@js.com sana.hanif@js.com muhammad.furqan@js.com

Equity Sales
Junaid Iqbal Atif Malik Raza Abbas Faiza Naz Muzammil Mussani Sameer Danawala Asim Ali Samar Iqbal Irfan Iqbal Ahmed Abdul Rauf Abdul Aziz Irfan Ali (92-21) 32799511 (92-21) 32799513 (92-21) 32799563 (92-21) 32799505 (92-21) 32799508 (92-21) 32799569 (92-21) 32799509 (92-21) 32800152 (92-21) 32799502 (92-21) 32799518 (92-21) 32799507 (92-21) 32462567 junaid.iqbal@js.com atif.malik@js.com raza.abbas@js.com faiza.naz@js.com muzammil.mussani@js.com sameer.danawala@js.com asim.ali@js.com samar.iqbal@js.com irfan.iqbal@js.com ahmed.rauf@js.com abdul.aziz@js.com irfan.ali@js.com

Main Office
6th Floor, Faysal House, Main Shahrah-e-Faisal Karachi. Pakistan Tele: 92-21-111-574-111 Fax: 92-21-32800163-66 Website: www.js.com

KSE Office
2nd Floor, Room No. 75, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tele: 92-21-32425692 (2427458) Fax: 92-21-32418106

Lahore Office
307 – Upper Mall, Lahore – 54000 Pakistan Tele: 92-42-111-574-111 Fax: 92-42- 5789109

Islamabad Office
Chaudhary Plaza, 65 West, Fazal-e-Haq Road, Blue Area Islamabad, Pakistan. Tele: 92-51-111-574-111 Fax: 92-51-2806328

JS Global Capital Limited
ANALYST CERTIFICATION We, Farhan Rizvi, CFA and Bilal Qamar, the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our 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 for information purposes by the Research Department of JS Global Capital Limited. The information and data on which this report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors who should seek further professional advice or rely upon their own judgment and acumen before making any investment. This report should also not be considered as a reflection on the concerned company’s management and its performances or ability, or appreciation or criticism, as to the affairs or operations of such company or institution. JS Global does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Warning: This report may not be reproduced, distributed or published by any person for any purpose whatsoever. Action will be taken for unauthorized reproduction, distribution or publication.

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