FFBL & ENGRO

Fertilizer Sector Fly in the Face of FactsAnalyst: Salman Bashir Memon July 2006

Fauji Fertilizer Bin Qasim: Implanting the Seed of ExpansionWitnessing the agriculture stability, robust demand potential of fertilizer products plus its consumption, and DAP driven fertilizer market, capacity expansion, we recommend to buy Fauji Fertilizer Bin Qasim with a target price objective of PKR 43 on our fundamentally driven DCF based fair value of Rs 41.23 per share. Over the next three years we expect the bottom line of the company to increase by 12% FFBL is currently trading at PKR 29 lower than its calculated DCF fair value, thus offering PKR 14 upside potential. We also believe that the company is going to announce a dividend Rs 2.1 per share for FY06 and hopeful about future earnings

ENGRO Chemical Pakistan: Fly in the Face of FactsAssuming the demand for overall fertilizer products, particularly Nitrogen & Phosphates, has increasing @ 10% CAGR the 4% Agriculture Sector CAGR, 12% Fertilizer Sector CAGR, 10% increase in Fertilizer Demand Potential, & 24% rise in ECPL sales revenue & strengthen product base in locally manufactured and purchased fertilizer products we recommend to Sell on strength ECPL with a target price of Rs185. Over the next year we expect the bottom line of the company to increase by 11%. ECPL is currently trading at Rs174 lower than its calculated DCF fair value of Rs184, thus offering Rs10 upside potential. We also believe that the company is going to announce a dividend of Rs15 of its prospective earnings which leads to an attractive yield of 7% making ECPL even more captivating for medium & long term investment.

Agriculture: Engine For EconomyAgriculture performance improved on account of bumper cotton and wheat crops of about 15 million bales and 21 million tones respectively. A 7.8% rise in cultivated area, use of improved quality pesticide and favorable weather condition are responsible for the rise in cotton production. The rise in support price, adequate and timely supply of inputs including fertilizer, availability of certified the widespread and timely winter rains helped in achieving higher than targeted wheat production. Sugarcane production was down by 15.2 percent due to water shortage during Kharif season. Rice, another water concentrated crop, grew by 2.9 percent over last year. However, at best, a 10% to 12% expansion in water resources can be expected, after 8 to 10 years. We are expecting the 4% per annum sartorial growth for coming three years.

Pakistan Fertilizers Sector Stimulator For ProductivityUrea industry witnessed healthy growth of around 10% as the market grew from 4.7 million tons in 2004 to 5.2 million tons in 2005. Production improved to 4.7 million tons in 2005, registering a growth of 7%. Urea shortage in the country was met by imports of approximately 5.3 million tons by the Government of Pakistan. Overall industry for phosphates grew by 11% to 1.5 million tons. The country continues to face urea scarcity which is expected to increase with the passage of time. Domestic urea production capacity requires enrichment & fortification to accommodate for growing domestic demand and prevent the need for import of urea at excessive cost to the national exchequer.

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FFBL & ENGROFair Value: Rs 41.23 Buy: Rs 30

FFBL Implanting the Seed of ExpansionWitnessing the agriculture stability, robust demand potential of fertilizer products plus its consumption, and DAP driven fertilizer market, capacity expansion, we recommend to buy Fauji Fertilizer Bin Qasim with a target price objective of PKR 43 on our fundamentally driven DCF based fair value of Rs 41.23 per share. Over the next three years we expect the bottom line of the company to increase by 12% FFBL is currently trading at PKR 29 lower than its calculated DCF fair value, thus offering PKR 14 upside potential. We also believe that the company is going to announce a dividend Rs 2.1 per share for FY06 and hopeful about future earnings.

Fauji Fertilizer Bin Qasim OverviewFauji Fertilizer Bin Qasim Limited is a US$ 461 Million Project. One of the largest in private sector in Pakistan, producing both DAP and Granular Urea for the first time in the country. The largest and well-known industrial group of Faujis and Jordan Phosphate Mines Company sponsors the project. The factory is strategically located at Port Qasim, 35 kms south of Karachi City, on the banks of the Port Qasim. The plant is well connected, both by rail and road. The National Highway (NH) from Karachi to other cities of the country separates FFBL from the Bin Qasim.

Investment Justification Proceeding the growth of overall agricultural sector and demand of DAP fertilizer within agriculture community; FFBL seems attractive for medium and short term investment at current level and we believe that FFBL management never makes any mistake for motion of progress. Rehabilitation of FFBLs DAP plant and cheaper raw material plus possible dividend income from Pak Maroc Phosphore explores the confidence of FFBLs management and stakeholders expectations. BMRE project of ammonia plant to increase its production capacity and efficiency further strengthen its position in fertilizer industry, capturing market share thereby increasing wealth of shareholders. FFBL management marching towards sustainable growth and we are confident to say that effect of expansion on profitability margins will be added from CY08 and EPS will increase drastically as DAP production capacity increase up to 50%. We are positive about the future performance of FFBL. The net profit after tax is expected to grow to Rs 2,580 million for FY06 and the expected earning per share for the same period is Rs2.8.

Financial PerformanceFace Value: Book Value (2006F): EPS (2006F): Outstanding Shares (m):

10 8.962.8 934.1

Price PerformanceMarket Capitalization (m): FFBL PE Sector PE Short Term Potential Long Term Potential Average Return Potential

37.45710.94X

9.4X 0.6%45.9% 23.2%

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FFBL & ENGRO

Agriculture Sector Intensification Get NearerAgriculture accounts for nearly 23% of Pakistans GDP and contributes significantly to the countrys economy by employing about 68% of the rural population. Countrys economic expansion continued for the third consecutive year registering an annual growth rate of 8.4% in 2004-05 as against 6.4% last year, widely surpassing the targeted rate of 6.6% and exceeding the 8% mark for the fifth time in the Countrys history. The growth is supported by enhanced performance of 15.4% in large-scale manufacturing, impressive recovery of 7.5% in agriculture and a strong 7.9% growth in the services sector.

Agriculture Sector Growth8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 -2.00% -3.00%

Risk Factors:There are number of risk factor involved in the agriculture production growth such as: limited availability of quality seed, disbursement of agricultural credit, no use of modern technology in agricultural extension, soil degradation (soil salinity, erosion and soil fertility depletion), depletion of water resources, & mismanagement of irrigation systems.

Future & ForecastAgriculture performance improved on account of bumper cotton and wheat crops of about 15 million bales and 21 million tones respectively. A 7.8% rise in cultivated area, use of improved quality pesticide and favorable weather condition are responsible for the rise in cotton production. The rise in support price, adequate and timely supply of inputs including fertilizer, availability of certified the widespread and timely winter rains helped in achieving higher than targeted wheat production. Sugarcane production was down by 15.2 percent due to water shortage during Kharif season. Rice, another water concentrated crop, grew by 2.9 percent over last year. However, at best, a 10% to 12% expansion in water resources can be expected, after 8 to 10 years. We are expecting the 4% per annum sartorial growth for coming three years.

Indicators:Economy Value: PRs1, 034,292 mn Share in GDP: 23.09% Cultivated Area: 22.17 mn hectors Irrigation Sources: Canals Ground water Water Supply: Indus River 60% Rainfall 15% Ground Water 25% Agricultural Products Cotton, Wheat, Rice, Sugarcane, Vegetables, Fruit, Food grain.HT TH

Agri-Credit for Farmers & GrowersAgriculture credit is one of the key factors to boost the agriculture sector. Accessibility of easy and low cost agriculture loans plays an important role in increasing farm output and productivity. Since last couple of years government has been emphasizing on providing agri-loans at affordable interest rates to farmers on regular basis. In this purpose, Rs 130 billion agri-loan target for FY06-07 has been approved, as compared to Rs 100 billion last year

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FFBL & ENGRO

Pakistan Fertilizer Market Keep Abreast OfSector SketchThere are nine fertilizer-producing plants in Pakistan. Five factories are located in the Punjab and two each in Sindh and the Northwest Frontier Province. Out of nine factories, 6 are in private sector whereas 4 are under Federal Government control. The primary criterion for the location of fertilizer plants is access to natural gas. Natural gas and phosphate rock serve as the primary raw material for nitrogen-based and phosphate-based fertilizers. Local fertilizer production is concentrated in nitrogenous fertilizers, which comprises 85% of all fertilizers produced in the country. The main reason for this concentration on nitrogenous fertilizers is that its main raw material i.e. natural gas is cheaply available in the country.

Contemporary SightUrea industry witnessed healthy growth of around 10% as the market grew from 4.7 million tons in 2004 to 5.2 million tons in 2005. Production improved to 4.7 million tons in 2005, registering a growth of 7%. Urea shortage in the country was met by imports of approximately 5.3 million tons by the Government of Pakistan. Overall industry for phosphates grew by 11% to 1.5 million tons. The country continues to face urea scarcity which is expected to increase with the passage of time. Domestic urea production capacity requires enrichment & fortification to accommodate for growing domestic demand and prevent the need for import of urea at excessive cost to the national exchequer.

Urea MarketThe urea market has exhibited tendency towards increase throughout the year as a result of favorable economic conditions. The FY06 commenced with a low inventory of 403 thousand tones which was 5% lower than that of FY05. The fertilizer off-take during month of June 2006 increasing slightly and will increases in the medium term. The domestic production of fertilizer during the first two months (June-July, FY06-07) was up by 7%. On the other hand, the import of fertilizer also increased considerably by 6%, hence total availability of fertilizer was increased by 10% in the current FY. The off-take of fertilizer was therefore, higher by 6.1%.

Spot TrendsNumber of Units Public 4 Private 6 Total 10 Sector Capital: PRs 14,983mn Sector Market Cap: PRs108, 384mn Total Investment: PRs 87bn Installed Capacities (000 Tons) Public Sector 1,373 Private Sector 4,384 Total 5,753 Contribution to GDP 0.40% Weight age in KSE-100 index 6% Employment More than 7,563 Technology High Technology Imported from Italy, England, Denmark, USA, Japan and Local

Phosphates Fertilizers MarketThe industry phosphates fertilizers (DAP, MAP and TSP) sales of 440 thousand tones during the year FY06 (Jan-July) were 7% higher than sales for same period last year. This was in spite of an upward revision in domestic prices resulting from an increase in international prices and local freight cost. Local DAP production of 452 thousand tones during the year was 3% higher as compared to production in FY05. To meet the local requirements 1,415 thousand tones phosphates fertilizers (1,152 thousand tones DAP, 154 thousand tones MAP and 109 thousand tones TSP) were imported. Due to the high level of imports during

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FFBL & ENGROthe last quarter, the year ended with a huge phosphates fertilizer inventory of 200 thousand tones; as compared to an inventory of 50 thousand tones at end December

Manufacturers FFC ENGRO FFBQ NFC DHCL

Urea

Phosphates

Production Capacity (000 MT) 1,904 850 100 550 45092 445 755

Production CapacityThe local fertilizer companies get together almost 80% of Pakistans Fertilizer requirement. The total installed capacity is 5,124 million tones per annum. It mainly comprises of 4,180 million tones for urea and remaining for single super phosphate (SSP), calcium ammonium nitrate (CAN), nitro phosphate (NP) and ammonium sulfate (AS)

Sector Break upDH NFC FFC

Sector BreakupFertilizer sector is comprised of a number of manufacturers which are engaged in the production, marketing and imports of fertilizer products. Currently there are five major fertilizer producing plants in Pakistan.

FFBQ

Market ShareENGRO

The market is divided among five major players which include Fauji Fertilizers, Fauji Fertilizer Bin Qasim, Engro Chemical, Dawood Hercules, and National Fertilizer Company. FFC is certainly the market sales and production leader having production capacity of 1,904 (000MT) which is followed by Engro, FFBQ, NFC, and DHCL. Engro Chemical Pakistan Limited is the second leading producer of Urea fertilizer in Pakistan with production capacity of 850 (000MT) of Urea and opt the 20% market share. Engro accomplished significant progress not only in its base urea fertilizer business but also in diversification projects. Company has made significant progress in developing its own hybrid seeds of maize and sunflower crops and launched two new maize hybrids of imported origin of Bemisal. Fauji Fertilizer Bin Qasim Limited is lead the ways of premium quality DAP manufacturing in Pakistan and it has a 13% market share in fertilizer industry. Being a subsidiary company of FFC overall market share stands 62%.

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FFBL & ENGROAnother main involvement in the sector is from National Fertilizer Company which has capacity of 438 (000 MT) and 9% market share. Dawood Hercules is the Urea producer and its boilerplate capacity is 445 (000MT) and market share stands at 9%.

Fertilizer Off-takeUrea off-take in June registered a decline of 15.2% as compared with same time frame of last season. 276 thousand tons, against 238 thousand tones in the same month last year while DAP off-take in April remained at 65.5 thousand tones witnessing an increase of 38.5%. Total nutrient off take during June 2006 was about 197 thousand tones, which went down by 9.6% compared with same month of the last year. The total nutrient off-take rose by only 4.7% YoY during JulyJanuary FY06, as compared to a 6.3% YoY rise in FY05.

Fertilizer Supply-Demand 4000 3000 2000 1000 0FY0 102 FY0 2 03 FY0 3 04 FY0 4 05 FY0 506 P FY0 6 07 P

OutlookThe fertilizers industry is in front of capacity constraints. Fertilizer demand has been fundamentally strong on account of improved farm income, and more credit availability to growers. In order to fill the supply/demand gap, around 1.6 metric tons fertilizer was imported during July-January FY06, up 56.7% YoY. Compared with previous years fertilizer manufacturers on the back of enhancement of production capacity and rising urea prices for end users, higher support prices for wheat and cottonseeds and enhanced agriculture credit would be a trigger to high urea off takes.

Domestic Production ('000' N/tons) T otal Sector Import Country Off-take

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FFBL & ENGRO Fauji Fertilizer Bin Qasim An Inside Observation

KATS Code

The PastBy the early nineties, Pakistan was importing almost one million tons of urea and 800,000 tons of DAP per annum. At that time management of Fauji Fertilizer embarked on the FFC-Jordan Fertilizer Project in order to make Pakistan self-sufficient in Urea fertilizer and to drastically reduce the import of DAP fertilizer. After the initial discussions with the Jordan Phosphate Mines Company, a preliminary feasibility was undertaken in 1992 Two other new plants of DAP and urea were installed and the first production of DAP commenced in Nov 1998, followed by Urea in April 1999. The complex is now in normal operation and supplying high quality fertilizer urea (G) and DAP to the farmers of Pakistan.

FFBLCurrent PricePKR 29

52 weeks High-LowRs43.90 Rs25.55

3 months ADV18.5 Million Shares

Shares Outstanding934.11Million Shares

Market CapitalizationRs37, 457Million

Free Float27.56% (approx)

Production CapacityPresently FFBL has capacity to manufacture 551 thousand tones of Urea and 445 thousand tones of DAP annually. The company is in process to increases its design capacity through BMRE. After successful implementation of the project design capacity of ammonia plant will be increased and therefore increases current production capacity of DAP to 681 thousand tones and Urea capacity to 676 thousand tones per annum approximately by 1H07. The completion of revamping process will provide better capacity utilization and enhanced gas efficiencies to the company.

Distribution Cash Dividend:Rs 2.00 (FY05) Rs: 0.50 (1st Interim FY06)P P

Dividend Yield6%

50 45 40 35 30 25 20 15 10 5 0 7/29/2005 8/29/2005 9/29/2005 10/29/2005 11/29/2005 12/29/2005 1/29/2006 2/28/2006 3/29/2006 4/29/2006

Raw Material Get CheaperFor sake of non-stop cheap supply of Phosphoric Acid, which is a basic raw material for producing DAP, a long term agreement was signed between Morocco Phosphorus and, Fauji Group together with Fauji Foundation, FFC and FFBL with 25% equity stake of 800 Million Moroccan Dirhams. This Project would have a production capacity of 375, KT Phosphoric Acid per year by consuming 1,300, KT Phosphate Rock and 370, KT Granular Sulfur. It will meet total requirement of phosphoric acid for the DAP production in FFBL plant at Bin Qasim. At present total demand of DAP in a country stands at 80%. FFBL contribution is 60% in total DAP market.

KSE

FFBL Price

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FFBL & ENGROMoving ahead, being the only manufacturer of DAP in local market FFBL would be in a position to capture the market if growth comes in a particular commodity.U DesignC rea apacity640 620 600 580 560 540 520 500FY02 FY03 FY04 FY05 FY06 FY07 FY08

Fixed Cost108% 106% 104% 102% 100% 98% 96% 94%

Fixed cost of feedstock gives FFBL an edge over its competitors as it enjoys 10-year gas subsidy provided by the government under the fertilizer policy 2001. According to this policy feed stock prices would remain fixed till 2009, which implies that FFBL can reap the maximum benefit of hike in urea prices and stable margin.

U D rea esign C apacity

U tilization (% )

Unique ProductFFBL is the only producer of two distinctive products namely Granular Urea (Sona Urea) and DAP in Pakistan. Granular urea is expanding its base owing to its unique characteristics over the standard prilled urea and brand recognition. Granular urea is the cheapest among all nitrogenous fertilizers based on per unit cost of nutrient, less acidifying than many other nitrogenous fertilizers hence most suited for high pH soils and it is easier to spread in the field with minimum losses in the air. Diammonium Phosphate (DAP) as a fertilizer provides essential nutrients for crops along with an elevated nitrogen level and it is favored on more acidic soils. Added to the soil, DAP provides plant nutrients that are naturally lacking or that have been removed by harvesting or grazing. DAP constitutes 21% of total fertilizer consumption in the market out of which 67% of DAP produced by FFBL, being the only manufacturer in Pakistan. Although currently it produces only 454 thousand tones due to the capacity constraint however with the coming capacity expansion FFBL is well placed to increase the market share and improve the top line growth.

DA DesignC P apacity800 700 600 500 400 300 200 100 FY02 FY03 FY04 FY05 FY06 FY07 FY08

120% 100% 80% 60% 40% 20% 0%

D D AP esign C apacity

U tilization (% )

International DAP/Urea PricesOn account of high demand of urea in country, increasing urea prices are the main driver of the profitability of the urea manufacturing companies. FFBL is the main beneficiary of high prices as it has an advantage of fixed stock prices, this enjoying the comparatively healthy margins.

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FFBL & ENGROProfitability AnalysisSale s25,000 20,000 15,000 10,000 5,000 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08

For the first quarter, FFBL reported 16% decline in gross profit as company earned a gross profit of Rs 758 million, while judge against to Rs 878 million during the same period last year. Owing to the plant shut down for BMR and gas curtailment and higher cost of goods manufactured, during the quarter, urea and DAP production remained low. FFBL has been experiencing a remarkable surge in profitability in the last couple of years. FY05 saw FFBL reap prosperous windfalls on all counts; healthy growth rates in revenues, operating profits, net profits and earnings per share. Further FFBL has been operating at more than 100% capacity utilization rate due to high demand in the country. On account of feed stock subsidy and higher urea prices margins has also improved. Moreover compensation from GOP has resulted in improvement of bottom line growth. On the basis of strong agriculture fundamentals and growing demand of fertilizer nutrients, unique product of Granular Urea (Sona Urea) and DAP in Pakistan. and ammonia plant BMR last 4-years have shown a sustained and stable growth in FFBL production volumes and urea production volumes are remained sustained at cumulative average growth rate 2% and company achieved the 149% CAGR for DAP production volume International prices of urea and DAP likely to grow @ 5% in FY06, 10% in FY07 and FY08 respectively. Volatile behavior of fertilizer prices is the major reason behind FFBL profitability and we believe that increasing trend of international fertilizer prices will remain in coming years FFBLs Gross Profit Margin has strongly improved. Company total sales are increased by 35% on basis of 3-years CAGR and urea sales growth stands at 10% for 4-year CAGR and 161% for DAP. Further more FFBL is the only company in the sector with fixed gas feedstock prices till 2009. As indicated distribution cost is being increased by 17% due to increase in fuel cost (i-e, from Rs 272 million to Rs 317 million).

PAT Grow th

1.5 1 0.5 0 02 03 04 05 06 07 08 -0.5 FY FY FY FY FY FY FY -1Growth in PAT Excluding GoP Compensation Growth in PAT Including GoP Compensation

Retention ratio26% 25% 24% 23% 22% 21% 20% FY02 FY03 FY04 FY05 FY06 FY07 FY08

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FFBL & ENGROWe expect that margins will decreased by 10% during FY06.Financial cost increased by 98%, (i-e from Rs 50 million to Rs 99 million) and its percentage of sales is 2% mainly due to higher interest and KIBOR rates. We are expecting further increase in financial charges as company borrowed heavily due of under going expansion plan. However, six years other income CAGR is 46% which is a remarkable growth in dividend income and it is increased from (Rs 87 million to Rs 137 million) due to increased profit rates, while contrast to 1QFY05.We foresee FFBL will maintain bottom line growth at the constant pace but due 27 days production shut down for BMR they will unable to achieve any remarkable growth. Average (FY02-05) was 27.6% and it is being increased 1% in FY05 as compared o FY04.

EPS3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 FY02 FY03 FY04 FY05 FY06 FY07 FY08

DPS3.00 2.50 2.00 1.50 1.00 0.50 0.00 FY02 FY03 FY04 FY05 FY06 FY07 FY08

RecommendationsWe are positive about the future performance of FFBL. The net profit after tax is expected to grow to Rs 2,580 million for FY06 and the expected earning per share for the same period is Rs 2.8. We are also positive about the dividends. The company has maintained a good payout ratio of 75% percent. Keeping in view a 5 percent increase in EPS, we expect 20 percent final dividend for the company to be announced for FY06.

P t Ratio ayou90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08

ValuationsWe have assumed a 3 percent risk premium for our valuations. The risk free rate is assumed at 9.35 percent in line with current PIB yields. Our calculated beta is 0.81 and our rate of return on equity is thus calculated as 11.79 percent. With these variables, our calculation of the weighted average cost of capital reveal a rate of 5.5 percent. After discounting the projected free cash flows we have calculated the firm's cost of capital in which each category of capital is proportionately weighted. All capital sources, common stock, and long-term debt are included in a WACC calculation. With our calculated WACC and keeping in view the growth rate, we have arrived at a fair value of Rs 41.23 for FFBL. On the basis of this fair value, we recommend a buy for the company scrip. The upside potential is currently around Rs 30 and the potential return is 37 percent at current levels.HT TH HT TH

Dividend Yield9% 8% 7% 6% 5% 4% 3% 2% 1% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08

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FFBL & ENGRO

7-Years at a Glance FY023,953

FY035,167

FY0411,462 2,240 2,150 1133 1,833 1,017 574 580 380 381 836 934.1 2.0 2.0 7.65 7.65 26% 8% 12% 11% 3,170.1 53% 126% 53% 122% 124% 49% 0%

FY0514,254 3,191 3,217 1752 2,452 1,465 588 588 454 430 64 934.1 2.6 2.6 2.00 2.00 8.27 8.27 32% 10% 16% 15% 24% 76 4,130 34% 55% 34% 24% 30% 34% 8%

FY0616,179 3,429 3,241 1880 2,580 1,361 588 593 454 434 64 934.1 2.8 2.8 2.07 2.07 8.96 8.96 31% 10% 17% 15% 25% 75 4,302.5 5% 7% 5% 14% 4% 5% 8%

FY0717,597 3,519 3,428 2057 2,657 1,371 676 605 681 447 65 934.1 2.8 2.8 2.22 2.22 9.59 9.59 30% 11% 18% 18% 22 78 4,393.0 3% 9% 3% 9% 2% 3% 7%

FY0819,514 3,903 3,840 2304 2,904 1,536 676 623 681 469 69 934.1 3.1 3.1 2.42 2.42 10.27 10.27 30% 12% 21% 19% 22 78 4,756.3 9% 12% 9% 11% 8% 9% 7%

Net Sales Revenue 435 499 Operating Profit 154 367 PBT 1133 502 PAT 2,133 1,202 PAT Incl: Compensation 979 135 Taxation Production/Sales Performance (000 Tones) 547 560 FFBL Urea Production 530 575 FFBL Urea Sales 73 FFBL DAP Production 71 FFBL DAP Sales 947 FFBL DAP Import Sales Financial Performance 809.9 909.9 Total Number of Shares 2.6 1.3 EPS 2.3 1.3 EPS - Adjusted DPS DPS - Adjusted 4.70 6.60 BVPS 4.08 6.43 BVPS- Adjusted ROE ROA ROFA ROCE Retention ratio Payout Ratio EBITDA Growth PAT Growth PAT Growth Excluding GoP Compensation PAT Growth Including GoP Compensation Sales Growth EBITDA Growth EPS Growth Sustainable Growth56% 11% 13% 13% 1,353.0 20% 6% 7% 7% 1,417.3 -44% -56% -44% 31% 5% -50% 0%

-

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FFBL & ENGROShare holder value FY02EPS DPS GCFPS FCFPS BVPSEBITDA Per Share Profitability 2.63 0.00 3.77 1.25 4.70 1.45 26% 11% 34% 11% 54% 1.36% 0% 11.77 8.23 24.09 6.60

FY031.32 0.00 2.33 0.84 6.60 1.52 23% 10% 27% 10% 23% 3.20% 0% 23.47 13.30 35.81 6.60

FY041.96 0.00 2.96 4.30 7.65 3.39 28% 20% 28% 20% 16% 26.6% 0% 15.80 10.48 7.02 4.05

FY052.62 2.00 3.63 3.62 8.27 4.42 32% 22% 29% 22% 17% 12.% 7% 11.81 8.54 8.34 3.75

FY062.76 2.07 3.70 1.59 8.96 4.6131% 21% 27% 21% 16% 9.23% 7% 10.94 9.70 1.12 8.39 18.95 3.46

FY072.84 2.22 3.78 4.38 9.59 4.7031% 20% 25% 20% 15% 13.02% 7% 8.20 6.90 3.23

FY083.11 2.42 4.02 2.96 10.27 5.0932% 20% 24% 20% 15% 24.94% 8% 7.71 10.20 3.02

Gross Margin Operating Margin EBITDA Margin EBIT Margin Net Margin Interest Cover Dividend Yield Equity Valuation PE (x) PE Market (x) PE relative to market (%) P/GCFPS (x) P/FCFPS (x) P/BVPS (x) DuPont Analysis EBIT Margin 1 - tax rate 1 - (1/ interest cover) Assets Turnover Financial Leverage Return on Equity Return on Assets

11% -535% 26% 4.92 56% 11%

10% 63% 69% 3.22 20% 6%

20% 53% 96% 3.07 26% 8%

22% 54% 92% 3.18 32% 10%

21% 58% 89% 3.04 31% 10%

20% 60% 92% 2.65 30% 11%

20% 60% 96% 2.49 30% 12%

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FFBL & ENGRO

Sell on StrengthFair Value: Rs

Fly in the Face of FactsRecommendationsAssuming the 4% YoY Agriculture Sector Growth, 6% Fertilizer Sector YoY Growth, 10% Fertilizer products, particularly Nitrogen & Phosphates Demand, & 24% ECPL sales revenue & strengthen product base in locally manufactured and purchased fertilizer products we recommend to Sell on Strength ECPL with a target price of Rs185 over the next three years we expect the bottom line of the company to increase by 11% ECPL is currently trading at Rs 174 lower than its calculated DCF fair values Rs184 thus offering of Rs10 upside potential. We also believe that the company is going to announce a dividend of Rs16 of its prospective earnings which leads to an attractive yield of 7% making ECPL even more captivating for medium & long term investment.

184

ENGRO CHEMICAL PAKISTAN OverviewEngro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in Pakistan. The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited until 1991, when Exxon decided to divest their fertilizer business on a global basis and sold off its equity of 75% shares in our company. The Employees of Engro, in partnership with leading international and local financial institutions bought out Exxons equity and the company was renamed as Engro Chemical Pakistan Limited. Engro is a public limited company listed on the Stock Exchanges of Karachi, Lahore and Islamabad.

Investment FoundationThe year 2006 brings inspiring opportunities for the country. Improvement in the economic fundamentals and the attitude of hopeful agriculture augmentation, growing fertilizer make use of and scene of better water accessibility for irrigation in this angle ENGRO Chemical would play a dynamic role in upcoming years. ENGRO effectively materialize a diversification strategy which will generate profits and operating strategies focal point is to acquire dependability, good organization and productivity to humanizing the production methodology. To envisage the elevated demand of fertilizer, ECPL has been on track with respect to twofold the existing capacity all the way through establishing the state of the art ammonia plant. Engro chemical as part of its vision to diversify its business has successfully launched of its first product UHT milk under the brand name OLPERS. We seem that Pakistan dairy industry is less saturated and Engro foresees great opportunities in the dairy market industry. In the medium and longer term EFLs business is expected to be a high growth and profitable business. We are positive about the future performance of ECPL The net profit after tax is expected to grow to Rs million for FY06 and the expected earning per share for the same period is Rs28.89.

Financial PerformanceFace Value: Book Value (2006F): EPS (2006F): Outstanding Shares (mn): 10 74 26.9 152.94

Price PerformanceMarket Capitalization (mn): ECPL PE Sector PE ECPL PB Sector PB

21.7946.5X 12.7X 3.37X 5.20X

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FFBL & ENGRO

ENGRO CHEMICAL PAKISTAN LIMITED Historical Events The construction of a urea plant was started with the annual capacity of 173,000 tons in 1966. The construction of a urea plant was completed and commissioned at a cost of US$ 43 million in 1968. A full-fledged marketing organization was established and given the important task of effective marketing and commencing agronomic programs to educate the farmers of Pakistan in 1968. The plant capacity was debottlenecked in low cost steps to 268,000 tons in 1990. The Pakven Project was launched, to increase its capacity to more than double i.e. 600,000 tons in 1993. This also helped to relocate urea/ammonia plants from UK/USA, with an investment of US$ 130 million. The plant capacity was further increased to 750,000 tons per annum with an investment of US$ 23 million in 1995. Engro entered into first 50/50 joint venture with Royal Vopak of Netherlands to form and built a fully-integrated state-of-the-art jetty and bulk liquid chemical and LPG storage facility at a cost of US$ 65 million in 1995. The company successfully engineered and implemented an expansion program that gave a major boost to the urea production and its capacity increased to 850,000 ton per annum in 1996. On October 10th 1997, entered into its second 50/50 joint venture called Engro Asahi Polymer & Chemical Limited (EAPCL) Company in collaboration with Asahi Glass Company and Mitsubishi Corporation of Japan to build the first world scale PVC resin manufacturing facility at a cost of US$ 80 million. Another innovative and modernization project called Energy Conservation and Expansion Strep (ECES-850) was successfully implemented in 1998.The project was constructed at a cost of US$ 72 million and had increased Engros annual urea production capacity from 750,000 to 850,000 tons. On March 9, 1999 the Prime Minister of Pakistan Mian Muhammad Nawaz Sharif formally inaugurates the 850KT expansion project at Daharki urea plant. On February 9th, 2000 General Parvez Musharaf, the Chief Executive of Pakistan inaugurates Engro Asahi Polymer & Chemicals PVC resin manufacturing plant at Port Qasim. On August 9th, 2002 Engros NPK fertilizer plant at Port Qasim inaugurated by two Federal Ministers and on October 9th, Engro signs an MoU with Oman Oil Company to build an ammonia urea fertilizer complex in Oman. April 28, 2003 Engro acquired controlling interest in the Automation & control Division of Innovative Private Ltd. (INET). The new company will be called Innovative Automation & Engineering (Private) Limited headquartered in Lahore. Engro Foods (Private) Limited launched UHT Milk under the brand name of Olper's in first quarter 2006. The plant has been erected at Sukkur at a cost of approximately Rs 1 Billion. Engro Energy (Private) Limited formed. The plant capacity is expected to be approximately 200 MW. Gas allocation has been made by the government from Qadirpur field.P P

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FFBL & ENGROProduct CategoriesEngro Urea is an excellent source of Nitrogen for the vast majority of cultivated soils of Pakistan.HU

Subsidiaries, Joint Ventures & Diversification PlansEngro Vopak Terminal Limited (EVTL) is a 50/50UH

Engro DAP contains 46% P2O5 and 18% N. On an overall basis it suits to about 90% soils of the country Engro Zorawar is one of the highest grade phosphate fertilizers. It is a good fertilizer for all crops on all soils of Pakistan and produces excellent results on alkaline soils. NPK fertilizer is applied at various times during crop's life cycle, Fertilizer application at the time of seed sowing is called "basal", whereas fertilizer application on the standing crop is called "top dressing". Engro NPK was re-launched as Engro Zarkhez in May 2004.HTU

joint venture with Royal Vopak of the Netherlands, a global provider of independent tank terminal capacity for chemical and oil products. EVTL owns and operates a jetty and integrated bulk liquid chemical and LPG storage at Port Qasim The company has facilitated investments of US$ 1 Billion in the Pakistani chemical industry and is ISO 9001 / 14001 / 18001 and CDI-T certified. The company continues to actively pursue opportunities to expand and diversify its terminal operations in the region through value added services. EVTL has a developed experience and specialization in handling different types of chemicals and liquefied gases.

Engro Asahi Polymer & Chemicals Limited (EAPCL) is a 50/50 joint venture with Asahi GlassUTH

EZingro is a powerful brand whose product attributes help in increasing the number of flowers and fruit in a plant and is an essential nutrient for all crops Zingro Danedar Zingro Danedar is used for soil application and is widely used on a majority of crops. It is available in a 3kg SKU and contains guaranteed 33% (minimum) water soluble zinc content.HTU

Company and Mitsubishi Corporation of Japan. A PVC resin manufacturing facility plant with an initial capacity of 100,000 tons per annum at Port Qasim. Engro Asahi Polymer & Chemicals Limited (EAPCL) is a joint Venture Company set up by Engro Chemicals Pakistan Limited, Asahi Glass Company (AGC) and Mitsubishi Corporation (MC). The equity stakes of the above mentioned companies are 50%, 30%, and 20% respectively. This is the first Project undertaken by any company in the manufacturing of PVC. The plant is located at Port Qasim, which is a little over 50km from the city of Karachi in Pakistan.

Zingro Spray is used for foliar application and is used on crops that are best suited for spray applications. It is available in a 350gm SKU and contains guaranteed 33% (minimum) water soluble zinc content, which is higher than any other available brand in the market. Various Grades of Zarkhez

Innovative Automation & Engineering (Private) Limited (IAEL) was acquired in April 2003 with 51%UTH

Grades BlendsGreen

Crops used on

08 : 23 : 18 Potato, Maize Sugar cane, Chillies, Pink 08 : 18 : 20 Vegetables Blue 17 : 17 : 17 Citrus, Other fruits White 12 : 15 : 20 Tobacco Yellow 10 : 28 : 10 Rice, cotton, Wheat Mangoes, Apples, Grey 18 : 09 : 18 Bananas

interest in the Automation & Control Division of Innovative (Private) Limited, a Lahore (Pakistan) based company that provides process control industrial solutions in the knowledge based services sector. The joint venture has been named as Innovative Automation & Engineering (Private) Limited (IAEL). The acquisition was part of Engros diversification strategy. IAEL commenced as a business division of Innovative Pvt. Ltd. (IPL) in July 1995 to implement industrial automation, electric engineering & process control systems for the local industry. In April 2003, it was acquired by Engro Chemical Pakistan Ltd (ECPL) to form an ECPL subsidiary.T T T T

UHT Milk Plant Engro has set up a milk processing facility to produce and market branded UHT milk, cream and other milk products. The plant to be located in Sukkur is expected to cost Rs 1 billion and will be completed by March end 2006. All major equipment is on order and civil construction is expected to commence soon. Engro plans to procure raw milk supplies from Sindh and lower Punjab.U U

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FFBL & ENGROENGRO Core Business StrategiesEngro is an agri based company. Core business of ECPL is manufacturing and marketing of chemical fertilizers. Engro is Pakistans one of the largest producers of urea fertilizer which is manufactured at Daharki and marketed under brand name Engro. They also produce crop specific NPK fertilizers at plant of Port Qasim Karachi and these are marketed under the brand name of "Zarkhez". Engro also markets imported MAP fertilizer under the brand name of "Zorawar" and imported DAP fertilizer. The company also markets micronutrients Zinc Sulphate branded as "Zingro" and Boron branded as "Zoron".

HistoryEngro Chemical Pakistan Ltd (ECPL) was established to help farmers, maximizing their farm produce by providing quality plant nutrients and technical services upon which they can depend. To make sure, sustained and efficient fertilizer plant operations and to cater to the proposed expansion and diversification, ECPL involved in an annual purchases of over US $ 55 million, for the base plant alone. Purchasing by far one of the largest single functions performed at ENGRO.

Gas Allotment Better Late Than NeverEngro obeyed the rule of Fertilizers Policy 2001 and applied first for feedstock provision. GoP has asked the interested parties to submit statement of Qualification (SoQs) latest by 15th Aug 2006 which must include the detail of financial position, technical expertise, total cost of project, major shareholding infrastructure, and debt/equity ratio.P P

Key StatisticsBloomberg: ENGRO PA KATS: ENGRO Price: PKR 177 (Prices on 25th July 2006)P P

Estimated Free Float: 69%

3m Avg. Traded Value: PKR Million 12 Month High/Low: PKR 150/89.30 Major Shareholder: Dawood Group 24% KSE-100 Index Weight: 1.1% Total Gas Allocation: 103 MSCFDEngro Share Performance 300 250 200 150 100 50 0 1 52 103 154 205 256 307 358 409 460 511 562 Engro Pices KSE 100 Index

Furthermore as for as our financial projections are concerned, we have not incorporated expansion impact in our hypothetical assumption and model but we believe that, after decision of gas allocation to Engro for setting up a Ammonia plant in Daharki would more or less twice over Engros urea production capacity by 3rd quarter FY09.P P

Latest Climb of Feed stockThe fertilizer sector is the second largest gas end user in the country after the energy sector, utilizing roughly 23% of annual gas production and continues to be affected by gas price revisions. Gas prices have been increased twice during the year and feedstock gas rates total surge in gas rates (feed and fuel) for the fertilizer industry stood at 22.5%.

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FFBL & ENGROENGRO SWOT Breakdown Strengths Performance based management Multidimensional diversification strategies Strong marketing activities Continuous improvement & quality management

ENGRO Urea Production CapacityECPL has remained in the midst of the industry when it comes to enhancing the production capacity. True that the demand has been towering and the local industry was not able to convene the demand. ENGRO urea production design capacity is 850 thousands tones but its production during FY05 was 912 thousands tones represents 5% increase over FY04. ECPL continuously has undertaken a harmonizing measure to attain maximum utilization capacity.

Opportunities Rising industry demand trends Higher fertilizer prices Export opportunity in Asian countries

Zarkhez Production CapacityBoiler plate Zarkhez plant capacity is 100 thousand tones. During the FY05, the production was 157 thousand tones stand for an increase of 30% while compared to Zarkhez production achieved last year. For this percentage Zarkhez plant at present utilizing 157% production capacity, 57% above to name plate capacity.

Weaknesses Shareholder influence Burning candle from both ends

Expansion (1FY09) Consciousness ContinuesExpansion of world scale urea plant in Daharki is not yet to be decided and its construction is mainly subject to gas allocation decision by the GoP. ENGRO eagerly linger for the final decision. Unquestionably, NPAT will be considerably enlarged and market share of ENGRO will jumps to 50% just after expansion.

Threats Strong competition Commencement of Fatima Fertilizers Rising Feed stock & Fuel prices Gas Curtailment Delay in Gas Allocation Weather & Environmental Conditions Use of substitute products

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FFBL & ENGROENGRO - Engage in RecreationUrea Design Capacity1,000 800 600 400 200 0FY0 2 FY0 3 FY0 4 FY0 5 FY0 6 FY0 7 FY0 8

115% 110% 105% 100% 95% 90%

Since, last 10-years ENGRO is being engaged in uninterrupted enlargement of its share value and have shown unrelenting and solid ideas. In 1966 company had annual urea design capacity was 173 thousand tones but on hand ECPL per annum urea design capacity is 850 thousand tones. Witnessing the balanced used of fertilizer nutrients in the country and increasing demand/supply gape creates intense opportunity for fertilizer manufacturers to reap profit margins. Engro takes an opportunity of capitalizing on the huge unexplored potential of NPK fertilizer and on August 9th, 2002 Engros NPK fertilizer plant at Port Qasim had started its production with initial production capacity of 100 thousand tones per annum. Over a decade, the cumulative average growth rate of urea production stands at 2% and company achieved the 38% CAGR of Zarkhez (NPK) production volume. As for as company sales growth is concerned ECPLs 10-year sales volume CAGR is 2% and 43% for Zarkhez (NPK). ECPL also markets the imported MAP fertilizer under the brand name Zorawar and imported DAP fertilizer. The CAGR of the purchased volume for the past ten years stand at 5%..

Urea Design Capacity

Utilization(%)

Zarkhez Design Capacity120 100 80 60 40 20 FY0 2 FY0 3 FY0 4 FY0 5 FY0 6 FY0 7 FY0 8

200% 150% 100% 50% 0%

Zarkhez Design Capacity

Utilization(%)

Success StoryWitnessing the fertilizer demand and its shortfall in the country creates intense opening for fertilizer manufacturers to reap vigorous windfalls. The gross margins on ENGRO manufacturing business have been all time higher than that of its trading and marketing business. For 1QCY06 profit margins register a enlargement of 22% as compared to same period last year. Likewise, Gross margin for FY05 stands at 21 percent 5 percent less than that for gross margins achieved by FY04. Decline in the manufacturing gross margins indicate that cost of sales is increased at very high rate.

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FFBL & ENGROECL research forecast the same growth pattern of ENGRO bottom line. We view that, company will obtained the target of Rs 20,344 million profit after tax for FY06 and PAT CAGR (FY06-08) should be 8.94 percent. To ensure, unrelenting and proficient operations of the fertilizer plant and trade with suppliers and manufacturers for improving effectiveness of its Supply Chain Management and building a long term business partnership. ENGRO 6 Years revenue CAGR is 16% and sales for the FY05 grew by 11%. For 1QCY06 net sales registered a growth of 19% as compared to same period last year. We view that, company has to register a 12% increase in sales during FY06.

Gross Margin- Top Line35% 30% 25% 20% 15% 10% 5% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08

Operating Margin25% 20% 15% 10% 5% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08

Earning commencing from EVTL, EACPL, IAELEVTL showed the 3 year 25% CAGR. Company achieved the Profit after tax for FY05 .million .% higher than FY04. EVTL has paid 60% average dividend to Engro so far. We expect the positive growth of EVTL in coming years and dividend income will increase the earnings of Engro. EACPL registered a .year % CAGR and paid cumulative share amounted to Rs 134 million in FY05 first time. EACPL is making feasibility for expansion and back integration which is likely to be completed during FY06.05 03 04 06 07 02 08

Net Margin - Bottom Line14% 12% 10% 8% 6% 4% 2% 0%

DisbursementThe company has maintained a balanced payout ratio at an average of 45 percent. The company for the FY05 declared 50 percent final dividend compared to 40 percent in FY04. We expect that the company would keep up this ratio in the get up of rising EPS for FY06 and the expected earning per share for the same period is Rs16.74. We are also optimistic about the dividends and according to our expectations ENGRO will declare 55 percent final dividend for FY06.

FY

FY

FY

FY

FY

FY

EBITDA Margin30% 25% 20% 15% 10% 5% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08

FY

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FFBL & ENGROAssessmentEPS 20 15 10 5 0FY02 FY03 FY04 FY05 FY06 FY07 FY08

We have assumed a 3 percent risk premium for our valuations. The risk free rate is assumed at 8 percent in line with current PIB yields. Our calculated beta is 0.18 and our rate of return on equity is thus calculated as 8.54 percent. With these variables, our calculation of the weighted average cost of capital make known a rate of 6.7 percent. A growth rate of 4 percent is assumed for valuations. After discounting the projected free cash flows we have calculated the firm's cost of capital in which each category of capital is proportionately weighted. All capital sources, common stock, and long-term debt are included in a WACC calculation. With our calculated WACC and keeping in view the growth rate, we have arrived at a fair value of Rs 184 for ENGRO Chemical Pakistan Limited. On the basis of this fair value, we recommend a Sell on Strength for the company scrip. The upside potential is currently around of Rs10 and the potential return is 5.75 percent at current levels.HT TH HT TH

DPS25 20 15 10 5 0

03

04

06

05

02

07 FY

FY

FY

FY

FY

FY

BVPS60 50 40 30 20 10 0

FY

08

Dividend Yield12%FY 03 FY 04 FY 05 FY 06 FY 07 FY 08

FY 02

10% 8%

Payout Ratio120% 100% 80% 60% 40% 20% 0%

6% 4% 2% 0%02 03 04 05 06 07 FY FY FY FY FY FY FY 08

03

04

05

06

07 FY

02

FY

FY

FY

FY

FY

FY

08

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FFBL & ENGRO

Performance Measurement ToolFY02Net Sales Revenue Operating Profit PBT PAT Taxation Property, Plant Equip Capital Expenditure Long Term Investment Long Term Loans & Advances Shares Outstanding DPS (Rs) Dividend Payout Rate Bonus Shares Engro Urea Production (MT) Engro Urea Sales Zarkhez Production Zarkhez Sales Purchased Fertilizer sales10.620 2,327 1,836 1,133 703 6,865 823 75.2

FY0311,884 2,534 2,323 1,557 766 6,648 370 85 51.9

FY0412,798 2,233 2,315 1,611 704 6,492 520 65.6

FY0518,276 2,641 3,220 2,319 900 6,351 377 748 65.9

FY0620,344 2,848 3,555 2,560 995 665 2,498 66.3

FY0722,984 2,758 3,614 2,530 1,084 562 2,998 66.9

FY0826,305 2,630 3,801 2,471 1,330 2,027 3,598 99.4

139.0 7.5 104% 10% 852 846 73 64 309

153 8.0 79% 955 930 72 86 290

153 8.5 81% 870 891 121 114 250

153 11.0 73% 912 890 157 143 491

153 15.9 95% 912 894.9 157 150 520

153 17.37 105% 912 899.8 157 157.7 562

153 16.9 105% 912 904.8 157 165.5 590

Comparative AnalysisTotal Number of Shares EPS EPS - Adjusted DPS DPS - Adjusted BVPS BVPS- Adjusted ROE ROA ROFA ROCE139.0 8.2 7.4 7.50 6.82 38.34 34.85 21% 12% 152.94 10.18 10.2 8.00 8.00 37.03 37.03 27% 12% 22% 16% 152.94 10.5 10.5 8.50 8.50 43.06 43.06 24% 12% 23% 16% 152.94 15.2 15.2 11.00 11.00 48.22 48.22 31% 16% 34% 21%

152.94 8.9 8.9 8.89 8.89 34.07 34.07 0.26 20% 6323% 19%

152.94 8.1 8.1 8.54 8.54 34.49 34.49 0.24 17% 5783% 17%

152.94 8.9 8.9 10.23 10.23 33.62 33.62 0.26 16% 6329% 24%

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FFBL & ENGRORetention ratio Sustainable Growth Payout Ratio8% 92% 21% 6% 79% 19% 5% 81% 27% 9% 73%

5% 2% 100%

-5% -2% 105%

-5% -2% 115%

Balance Sheet QualityGearing - TD/Net worth Debt / Equity Equity / Debt Total Debt / Total Assets Asset Turnover Current Ratio100% 50% 74% 42% 7% 95% 0.00 0.73 499.58 6% 0.33 32 1.39 11.53 262.24 9% 11% -10% 37% 65% 39% 5% 97% 0.35 26 1.18 13.79 309.28 13% 5% -10% 3% 2% 37% 10.18 8.00 10.18 42.74 37.03 16.57 3% 10.53 8.50 10.85 19.48 43.06 14.92 62% 38% 7% 130% 0.36 10 0.91 38.30 399.0 11% 30% 16% 44% 7% 44% 15.16 11.00 15.16 19.52 48.22 17.27

99% 50% 59% 302% 0.51 10 0.90 36.40 404.22 5% 9% 8% -41% -53% -41% 8.89 8.89 11.79 2.44 34.07 18.62

117% 54% 56% 302% 0.52 10 0.75 36.40 485.40 6% 11% 0% -9% 13% -9% 8.13 8.54 11.17 11.54 34.49 18.58

70% 41% 13% 322% 0.53 10 1.75 36.40 208.21 2% 15% -6% 9% 11% 9% 8.90 10.23 8.90 (4.17) 33.62 17.48

EfficiencyInventory Turn. Rec. Turn. Days Inventory Days Receivable F Charges/EBIT

GrowthSales Growth EBITDA Growth EPS Growth GCFPS Growth Assets Growth PAT Growth 8.15 7.50 11.66 20.22 34.85 18.40

Per shareEPS DPS GCFPS FCFPS BVPS EBITDA Per Share

ProfitabilityGross Margin Operating Margin EBITDA Margin EBIT Margin Net Margin Interest Cover Dividend Yield33% 21% 26% 21% 10% 15.80 4% 32% 21% 21% 21% 13% 10.95 5% 26% 17% 18% 17% 13% 7.82 5% 21% 14% 14% 14% 13% 9.43 7% 20% 12% 14% 12% 7% 20.75 5% 20% 11% 13% 11% 5% 16.08 5% 20% 10% 10% 10% 5% 59.59 6%

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FFBL & ENGROEquity ValuationPE (x) PE Market (x) PE relative to market (%) P/GCFPS (x) P/FCFPS (x) P/BVPS (x)20.25 7 2.89 14.15 8.16 4.30 21% 62% 94% 21% 16.21 10 1.62 16.21 3.86 4.46 21% 67% 91% 95% 2.27 27% 12% 15.67 12 1.31 15.21 8.47 3.83 17% 70% 87% 97% 2.00 24% 12% 10.88 12 0.91 10.88 8.45 3.42 14% 72% 89% 130% 1.91 31% 16% 18.56 12 1.55 14.00 67.64 4.84 12% 72% 95% 302% 1.27 26% 20% 20.30 12 1.69 14.77 14.30 4.78 11% 70% 94% 302% 1.42 24% 17% 18.54 12 1.55 18.54 -39.53 4.91 10% 65% 98% 322% 1.62 26% 16%

DuPont AnalysisEBIT Margin 1 - tax rate 1 - (1/ interest cover) Assets Turnover Financial Leverage Return on Equity Return on Assets

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FFBL & ENGROJoint Ventures & Subsidiaries Technical DetailsENGRO Vopak Terminal Ltd (EVTL)Joint venture company Equity Held Basis Operation Volume Handling Capacity FY05 PAT Dividend Paid for FY05 ENGRO share of dividend payoutRoyal Vapak of Netherlands 50% Owns & operates liquid chemical & LPG terminal at Port Qasim 885,000 Tones 438 million 60% Rs.270 million

ENGRO Asahi Polymer & Chemical Ltd (EACPL)Joint venture company Equity Held Basis Operation Production Volume FY05 FY05 PAT FY05 Domestic & Import Sales Dividend Paid for FY05 ENGRO share of dividend payoutAsahi Glass & Mitsubishi Corporation Japan 50% Manufacturing & Marketing of PVC Resin 91,000 Tones 438 Million 94,000 Tones 15% Rs. 134 Million

Innovative Automation & Engineering (Pvt) Limited (IAEL)Joint venture company Equity Held Basis Operation Volume Handling Capacity FY05 PAT Dividend Paid for FY05 ENGRO share of dividend payoutRoyal Vapak of Netherlands 50% Owns & operates liquid chemical & LPG terminal at Port Qasim 885,000 Tones 438 million 60% Rs.270 million

. Salman Bashir Memon Financial & Research Analyst Regional Portfolio Manager Eastern Capital Limited Sukkur. Cell: 0301-3810391 / 0301-8278367 Tel: 071-5620965 / 071-9310685 Email: somimemon24@yahoo.com Important Disclaimer: This report has been prepared for information purpose only. All facts and figures have been taken from the sources that are considered reliable. The view and opinions expressed in this report do not guarantee any accuracy or completeness. ECL and its employees bear no liability for any direct or indirect consequential loss arising from use of this report.

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