Agritech Limited

Agritech, formerly known as Pak-American Fertilizer Limited, was incorporated in 1959 as a subsidiary of National Fertilizer Corporation. The company was subsequently acquired by ANL with a 100% shareholding for Rs16.1bn (US$269mn) in July 2006. With long term objectives of diversifying its product portfolio, Agritech acquired 100% of HPFL (producer of SSP) for Rs1.3bn (UD$17mn) in November 2008. The combined capacity of the two plants currently stand at 436k tons (346k tons of urea & 90k tons of SSP). Under the Gas Suplly Agreement with SNGPL, the company is allocated 28.5 mm gas. JS Group JS Group currently holds 36% of the total shareholding of ANL. JS Group is one of the most diversified financial services group in the country. The flagship company, JSCL, is one of Pakistans largest listed investment companies. JS Group also has strategic investment in ports telecom, media, transportation, natural resources and real estate businesses. Sheikh Family Sheikh Family is one of the oldest families in South Asia with over hundred years of experience. They are the founders of the Colony Group here in Pakistan and as of today their business portfolio comprises of textile and fertilizer businesses. The offer ANL intends to raise a total of Rs2.37bn through a combination of Pre-IPO Placement to individual investors & high networth individual and IPO of 16.67mn ordianary shares to the general public (on March 11-13, 2010) with an additional GSO of 16.67mn ordinary share. This cumulatively add upto 24.3% of Azgard Nines total holding in the company. To date, 62.3mn ordinary shares have already been subscribed through Pre-IPO while another 16.7mn shares will be issued to the general public at a fixed price of Rs30 per share. The projected receipts from this offering will be Rs2.87bn if the GSO is subscribed. Purpose It was intended that the shareholder base be broadened by offering shares to the general public and to share the future prospects of the company with them. Also the proceeds from the offer from sale are intended to be used ANL to strengthen its financial statements through part repayment of its long-term and short-term debt.

Underwriters Underwriting Agreements between the company and the respective Underwriters were set out as below:
NAMES OF UNDERWRITES ARIF HABIB LIMITED INVEST & FINANCE SECURITIES LIMITED IBL MODARABA MANAGEMENT (PVT) LIMITED KASB SECURITIES LIMITED
SAUDIPAK INDUSTRIAL & AGRICULTURAL INVESTMENT CO. LTD.

NUMBER OF SHARES 10,000,000 2,733,333

AMOUNT PKR 300,000,000 81,999,990

1,466,667 833,334 833,333 800,000

44,000,010 25,000,020 24,999,990 24,000,000

FIRST CREDIT INVESTMENT BANK LIMITED TOTAL

16,666,667

500,000,010

Risks after Issuance: Although, Agritech is expected to perform commendably, we do not rule certain risks attached to the business. Delays in expansion process Any hold ups in the BMR and the expansion project for the SSP plant can add uncertainty to the revenues. Changes to demand supply scenario for SSP SSP is a relatively complex and new product compared to urea and DAP, hence to forecast a demand estimate for the product can be a little optimistic. Lower than anticipated demand for the product is likely to hurt earnings going forward and hence the valuation. Disruption in gas supply As like any other fertilizer business, the risk of disruption in gas supply will add to the costs of the company and hence will hurt earnings in the future. High leverage and interest rate hike Due to companies high leverage ratio, any hikes in the interest rate can dent the earnings going forward. Price War between major players due to excess capacity by the beginning of financial year 11.

Valuation Method:

Price to Book Value Multiple (P/BV) AGRITECH Book Value Per share of September 30,2009

20.47 30.00 1.47 Share Price 104.91 25.2 175.41 BV per Share 19.05 10.44 85.63 P/BV

AGRITECH Offer Price to Book Value (X) FFC 5.51 FFBL 2.41 ENGRO 2.05 Average P/BV for Peer Companies AGRITECH Offer Price to Book Value (X) discount to Average P/BV of Peer Companies

3.32 55.90%

Price to Earnings Multiple AGRITECH Earnings Per Share for the year ended 30 June,2009 AGRITECH Offer Price AGRITECH Offer Price to Earnings (X) Share Price

4.56 30.00 6.58 Earnings per Share 12.96 3.1 14.12 P/E (X)* 8.09 8.13 12.42 9.55 31.10 %

FFC 104.91 FFBL 25.2 Engro 175.41 Average P/E for Peer Companies AGRITECH Offer Price to Earnings (X) discount to Average P/E of Peer Companies

Listing Application has been submitted to KSE for permission to deal in and quotation of the shares of the company. If for any reason, the application for formal listing of the company is not accepted

by the KSE, the offer or undertakes that a notice to that affect will be immediately published in the press, and their after to refund application money to the applicants in pursuance of this OFSD, as required under the provisions of section 72 of the ordinance.

Conclusion: The offer for sale went undersubscribed with only 1100 applications received and the amount subscribed amounted to approx. 115 million which was 23 percent of the intended funds to be raised by the issuance. It was the only issue (till date in 2010) which was undersubscribed with successful subscriptions for the other 3 equity issuance (IPOs) namely, Fatima fertilizer, Safe Mix (construction sector), Amtex (textile sector) earlier in the same year.

Factors for under-subscription were: Company s financial situation: Although the company books were reminiscent that they were profitable, the company had a portion of its debt to be redeemed in the month and lacked the necessary cash flows to make good on its obligation. As it would play out, the company did fail to fulfill its 5th quarterly redemption of its privately placed TFC (0112-08) which meant the Event of Default had been constituted. JS Bank, the trustee bank of TFC issue asked the TFC holders to give their consent for in writing for execution of Notice to the Issuer. On 22nd March, PACRA downgraded ratings of the company and its subsidiary (Hazara Phosphate (Pvt.) Limited) with new long term and short term entity ratings of A- and A2 respectively. Lack of book building: As it would turn out there was asymmetry between the expectations of the issuers and the investors. Via the book building process the issuer would have been able to locate and mitigate that. The subsequent price discovery would help the issuer pricing the share according to its fundamentals and the mood of the market unlike the fixed priced issue in which it is a one way mechanism. Also, issues of Amtex and Fatima Fertilizer had deployed book building for discovering the offer price that the investors were willing to pay. Wrong timing: Like previously stated it is an essential determinant. As far as the market is concerned it was doing well. There had been three successful issuance but shares of all were trading below their offer price indicative of the fact that the subscribers had not made money. The investor enthusiasm for IPOs had been brought down due to high

pricing although the broader market activities were in contrast. During the subscription dates, on March 12th, Lahore witnessed a massive blast, which might have affected adversely in part to the subscription of the issue. Stronger competition: Agritech (Formerly Pak American Fertilizer Limited) had established an 8% market share in the fertilizer market. With Engros expansion plan complete in Dhairki, Sindh, they would face fierce competition to maintain this stake also vying for it with the muscle of duo-companies of Fauji.