Top Pharmaceutical Companies

Parvez M Chowdhury (880) 174 167 4023; parvez@bracepl.com Top Pharmaceutical Companies Sector Rating: Outperform March 1, 2010 Square Pharma 2009A 2010E 2011E Revenue (MM BDT) 11,826.2 13,025.7 15,098.9 Operating Income (MM BDT) 2,929.0 3,148.8 3,537.1 Operating Margin 25% 24% 23% Net Income (MM BDT) 2,115.6 2,170.9 2,456.9 Net Margin 18% 17% 16% 5-Year Revenue Growth (CAGR) 13% Capex (MM BDT) 2,049.2 1,385.8 1,398.1 Debt/Equity 23% 20% 18% No. of Shares (MM) 12.1 15.1 15.1 EPS (BDT) 140.19 143.86 162.81 Dividend (BDT) 40.00 50.00 60.00 Current Price (BDT) 3,554 Target Price (BDT) 4,000 Return (incl. Div yield) 14% Beximco Pharma 2008A 2009E 2010E Revenue (MM BDT) 4,010.2 5,012.7 6,015.3 Operating Income (MM BDT) 998.8 1,311.9 1,635.3 Operating Margin 25% 26% 27% Net Income (MM BDT) 545.3 731.7 964.1 Net Margin 14% 15% 16% 5-Year Revenue Growth (CAGR) 13% Capex (MM BDT) 1,180.4 333.8 338.5 Debt/Equity 34% 32% 29% No. of Shares (MM) 126.0 151.1 183.5 EPS (BDT) 3.26 4.37 5.76 Dividend (BDT) 1.00 1.10 1.20 Current Price (BDT) 166 Target Price (BDT) 230 Return (incl. Div yield) 39% Renata Limited 2008A 2009E 2010E Revenue (MM BDT) 3,203.2 4,004.0 5,005.0 Operating Income (MM BDT) 721.7 920.9 1,151.2 Operating Margin 23% 23% 23% Net Income (MM BDT) 438.7 605.1 769.5 Net Margin 14% 15% 15% 5-Year Revenue Growth (CAGR) 21% Capex (MM BDT) 286.5 103.2 110.0 Debt/Equity 1% 0% 0% No. of Shares (MM) 1.2 1.4 1.7 EPS (BDT) 303.37 418.47 532.17 Dividend (BDT) 50.00 62.77 69.41 Current Price (BDT) 11,310 Target Price (BDT) 13,000 Return (incl. Div yield) 15% ACI Limited 2008A 2009E 2010E Revenue (MM BDT) 10,341.4 11,050.6 13,632.4 Operating Income (MM BDT) 947.5 1,001.0 1,239.2 Operating Margin 9% 9% 9% Net Income (MM BDT) 932.9 784.7 465.4 Net Margin 9% 7% 3% 5-Year Revenue Growth (CAGR) 46% Capex (MM BDT) 1,212.1 1,500.0 679.5 Debt/Equity 176% 155% 156% No. of Shares (MM) 16.2 19.4 19.4 EPS (BDT) 48.08 40.44 23.98 Dividend (BDT) 10.00 10.00 10.00 Current Price (BDT) 509 Target Price (BDT) 675 Return (incl. Div yield) 35% Source BRAC EPL Research The pharmaceutical industry is one of the most developed among manufacturing industries in Bangladesh. Around 250 companies are operating in the market. The market size is estimated to be BDT 54.93 billion, which grew by 16.83% in 2009. The market size in 2008 was BDT 47.02 billion with a growth of 6.68%. One of the fastest growing sectors with an annual average growth rate of 14-16%, Bangladesh s pharmaceutical industry contributes to almost 1% of GDP. Local companies and MNCs together meet 95% of the country s drug demand but the local manufacturers dominate the industry; they enjoy approximately 87% of market share, while multinationals hold a 13% share. Another notable feature of this sector is the concentration of sales among a very small number of top companies. The top 15 players control around 73% of the market share. Given the country's lack of spending power, the pharmaceutical market remains tiny in comparison with the population size. Pharmaceutical spending is amongst the lowest in the world in per capita terms. Healthcare expenditures consist of only 3.4% of GDP. However, the increased awareness of healthcare and the government s increased expenditure in this sector is causing the demand to increase in this sector. In addition to the demand of therapeutic drugs, the demand for wellness drugs such as vitamins and minerals are increasing gradually and the future growth of the sector lies in it. In a recent market research by IMS, a US-based market research organization, Square Pharmaceuticals, Beximco Pharmaceuticals, Renata and ACI Limited secured top positions in the turnover leaders list. The estimates from IMS are not completely accurate and there is a margin of error of 10% in either direction. However, this is the only estimate with any accuracy for this sector. Square Pharma retained the top position with a local sales of BDT 10.70bn in 2009. Square s market share was a solid 19.48%. Beximco Pharma improved their sales from 2008 and 2007 with sales figure of BDT 4.2bn in 2009 (sales growth 27.15%). Beximco was at the No. 3 spot with a 7.72% market share. Renata had a sales growth of 25.63% in 2009 taking the seventh position. With a turnover of BDT 2.50bn, the company holds a market share of 4.54%. ACI Limited took the eighth place with 4.48% of market share. ACI s turnover stood at BDT 2.46bn. Table 1: Top Pharma Companies and Peers Company Current No. of Shares Price (BDT) (MM) Source BRAC EPL estimates for 2009 earnings Mcap (MM BDT) Free Float Avg Daily Trade (Last 30 Days) P/E P/B Square Pharmaceuticals 3,554.00 15.1 53,630.9 46% 52,800 24.7x 4.4x Beximco Pharmaceuticals 166.20 167.3 27,808.3 79% 1,032,100 48.5x 2.6x Renata Limited 11,310.00 1.4 16,354.1 49% 274 27.0x 7.1x ACI Limited 508.50 19.4 9,866.9 63% 216,364 12.6x 2.9x GlaxoSmithKline 824.80 12.0 9,935.9 18% 28,650 69.6x 10.2x Reckitt Benckiser 1,661.00 4.7 7,848.2 17% 1,409 40.6x 15.4x Average 37.2x 7.1x

Square Pharmaceuticals (Target price: BDT 4,000) Square Pharmaceuticals is the largest pharmaceuticals manufacturing company in the country. The company has consistently created value for its shareholders, with average Return on Equity (ROE) of over 20% in the last 7 years. While maintaining the profitability in its core pharma business, the company has created a number of other businesses in house in the past, and after profitable commercial operation of the businesses commenced, spun off such subsidiary businesses to monetize the investment. Square Pharmaceuticals has undertaken an expansion program to be completed in two phases. The first Phase will be completed in 2012 at a total cost of BDT 3.6b (we anticipate a 25% cost overrun for a final cost of 4.5b). This first phase is expected to almost double the current production capacity. The second phase starts in 2014, completing in 2017 for a total cost of 2.0b (including an estimated cost overrun of 25%). We expect the expansion programs contributing to revenue growth after 2012. Capital expenditure will be financed by internally generated cash as the company generates a handsome amount of cash each year Current debt to equity ratio is quite low at 23%; in the absence of any other major expansion plan, we do not anticipate assumption of any more debt. Some of the business units (e.g., Square Knit Farbics Ltd. and Square Cephalosporins Ltd.) are just starting to become profitable and more are on the right path (e.g., Square Hospitals Ltd.). Square will definitely benefit from this. We believe the company is still undervalued. We need to look a for the value of the company beyond 2013 as the major value addition to the company is going to take place after 2012. We believe the market has not yet identified the real value of the company. Based on 2013 estimated EPS of BDT 231, a price multiple of 22x (currently at 25.5x) and a discount rate of 13%, we arrive at a NPV of BDT 3,986. Target price BDT 4,000. Dividend yield 1.2%. Total return of 14%. Valuation Discounted FCF 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Operating cash 2,707 2,880 3,284 3,479 4,407 5,300 5,545 6,500 7,626 9,474 9,746 Capital expenditure -1,386-1,398-1,426-1,451-849 -869-856 -846-400 -400-400 Increase/(reduction) in debt 0 0 0 0 0 0 0 0 0 0 0 Free cashflow 1,321 1,482 1,858 2,028 3,558 4,431 4,689 5,654 7,226 9,074 9,346 Terminal value 153,264 NPV 55,914 Marketable Securities 3,628 NPV/Share 3,946 Discount rate 13% Perpetual growth 7% Square Pharma 2013 EPS 231 P/E 20.0x 22.0x 24.0x Price 4,627 5,090 5,552 P/B 2.0x 3.0x 4.0x Price 463 694 925

Square Pharma: Income Statement MM BDT 2007 2008 2009 2010E 2011E 2012E Net Turnover 8,747.7 10,553.8 11,826.2 13,025.7 15,098.9 17,287.3 Cost of Good sold 4,916.2 6,028.2 6,383.9 7,146.8 8,443.7 9,674.2 Gross profit 3,831.5 4,525.6 5,442.3 5,878.9 6,655.2 7,613.1 Selling & Distribution Expense 977.9 1,219.2 1,351.6 1,554.8 1,794.0 2,208.6 Administrative Expense 222.5 318.7 334.3 356.0 419.8 480.9 Depreciation 714.7 739.0 827.4 819.3 904.3 978.4 Operating Profit 1,916.5 2,248.7 2,929.0 3,148.8 3,537.1 3,945.2 Other Income 164.7 345.5 409.1 311.5 338.5 370.5 EBIT 2,081.1 2,594.2 3,338.1 3,460.3 3,875.5 4,315.7 Interest Expense 303.9 443.2 454.7 308.4 308.4 308.4 Profit before WPPF 1,777.3 2,151.0 2,883.4 3,151.9 3,567.1 4,007.3 Provision for WPPF 91.9 104.2 137.8 157.6 178.4 200.4 EBT 1,685.4 2,046.9 2,745.6 2,994.3 3,388.8 3,807.0 Tax 436.9 506.3 630.0 823.4 931.9 1,046.9 PAT 1,248.4 1,540.6 2,115.6 2,170.9 2,456.9 2,760.0 Square Pharma: Balance Sheet MM BDT 2007 2008 2009 2010E 2011E 2012E Cash & Cash Equivalent 157.3 226.0 314.4 767.0 1,265.9 2,019.6 Short Term Loan to Associates 1,137.5 1,397.1 609.3 609.3 609.3 609.3 Marketable Securities 32.6 32.6 20.3 20.3 20.3 20.3 Adv, Deposit & Pre-Payment 258.4 330.0 303.7 340.0 401.7 460.3 Accounts Receivable 773.7 891.0 477.6 526.0 609.7 698.1 Inventories 2,105.9 2,629.6 2,405.5 2,693.0 3,181.7 3,645.4 Total Current Assets 4,465.4 5,506.1 4,130.8 4,955.5 6,088.5 7,452.9 Total Long Term Investment 2,748.0 3,187.2 4,110.9 4,110.9 4,110.9 4,110.9 Fixed Assets: PPE-Net of Depreciation 4,844.4 5,217.0 5,462.1 6,028.7 6,522.5 6,970.5 Capital Work In Progress 481.2 1,147.9 1,200.8 1,200.8 1,200.8 1,200.8 Total Fixed Assets 5,325.7 6,364.8 6,662.9 7,229.5 7,723.3 8,171.3 Total Assets 12,539.0 15,058.2 14,904.6 16,295.9 17,922.7 19,735.1 Liabilities & Shareholders' Equity: Current Liabilities: Accounts Payable 331.8 233.4 127.6 142.8 168.7 193.3 Liabilities for Expense 92.6 236.2 93.6 104.8 123.8 141.9 Liabilities for Other Finance 443.0 443.2 614.7 677.0 784.8 898.5 Short Term Bank Loan 2,289.9 3,173.5 1,712.2 1,712.2 1,712.2 1,712.2 Current Portion of LTD 309.6 446.1 430.7 430.7 430.7 430.7 Total Current Liabilities: 3,466.7 4,532.6 2,978.7 3,067.5 3,220.2 3,376.6 Non Current Liabilities: Long Term Loan -Secured 632.9 778.4 786.3 786.3 786.3 786.3 Deffered Tax Liability 147.6 224.7 211.2 211.2 211.2 211.2 Minority Interest 12.4 15.6 2.3 2.3 2.3 2.3 Total Non Current Liabilities 792.9 1,018.7 999.9 999.9 999.9 999.9 Total Liabilities 4,259.6 5,551.3 3,978.6 4,067.4 4,220.0 4,376.4 Shareholder's Equity: Share Capital 596.2 894.2 1,207.2 1,509.0 1,509.0 1,509.0 Share Premium 2,035.5 2,035.5 2,035.5 2,035.5 2,035.5 2,035.5 General Reserve 105.9 105.9 105.9 105.9 105.9 105.9 Tax Holiday Reserve/Other 1,425.7 1,425.7 1,248.0 1,248.0 1,248.0 1,248.0 Retained Earnings 4,116.2 5,045.6 6,329.4 7,330.1 8,804.2 10,460.3 Total Shareholder's Equity 8,279.4 9,506.9 10,926.0 12,228.5 13,702.6 15,358.7 Total Liabilities & Equity 12,539.0 15,058.2 14,904.6 16,295.9 17,922.7 19,735.1

Beximco Pharmaceuticals Beximco Pharmaceuticals is one of the largest pharmaceutical companies in Bangladesh. The company has featured consistently in the top five manufacturers for the last decade. Beximco is widely regarded as one of the technological leaders among the local pharmaceutical companies in the country. The company utilizes state of the art technology. All new plants are equipped with cutting edge machineries. New facilities are coming online in 5 new plants. Two of them are already operational. The company maintains many good partnerships with established players such as Bayer AG of Germany and Upjohn Inc. of USA. The company has outperformed the industry in terms of sales during 2009. The pharmaceutical industry has grown around 15% on average annually and Beximco Pharma has matched that growth before 2009. We believe they will continue to emulate the performance of 2009 for the foreseeable future. Generally the company doubles their turnover in every three years. The company expects to generate BDT 700 million per month in 2011. Despite troubled political environment during 2007 and 2008, the company has successfully weathered the conditions and bounced back strongly under more favorable condition in 2009. New production lines become operational this year which will effectively double the capacity. The company has undertaken a hugely ambitious plan for foreign market. The management has targeted to have equal revenue from domestic sales and exports. That means they would have to achieve exponential growth in exports. Although this seems quite ambitious, there are signs that the management is on the right track to delivering what they promised. Target price BDT 230. Dividend yield 0.66%. Total return of 35%. Valuation Discounted FCF 2008 2009 2010 2011 2012 2013 2014 2015 Operating Cash 915,856 1,133,017 1,523,378 1,914,524 2,344,024 2,693,460 3,017,023 Capital Expendture -333,790-338,463-257,401-172,802-172,802-172,802-172,802 Change in Debt - - - - - - - 582,066 794,554 1,265,977 1,741,722 2,171,222 2,520,658 2,844,221 Net Terminal Value 76,792,805 Terminal Value 80,349,238 Terminal Debt 3,556,433 Net Free Cash Flow 582,066 794,554 1,265,977 1,741,722 2,171,222 2,520,658 79,637,026 Discount Rate 13.0% NPV 39,322,708 Terminal Growth Rate 9% NPV/Share 235.02 BEXIMCO Pharma Valuation EPS BVPS 2010 estimates 7.52 73.39 Multiple 20.0x 2.5x Target price 150.37 183.48

Beximco Pharma: Income Statement Net Sales 3,702,317 3,597,025 4,010,167 5,012,709 6,015,251 7,218,301 Cost of goods Sold 1,809,860 1,813,233 1,855,687 2,406,100 2,887,320 3,248,235 Gross Profit 1,892,457 1,783,792 2,154,480 2,606,609 3,127,930 3,970,065 Administrative Expenses 150,286 145,545 153,464 175,445 180,458 216,549 Selling & Distribution Expenses 834,276 829,192 855,037 952,415 1,142,898 1,371,477 Depreciation Expense 161,371 154,277 147,184 166,895 169,232 171,601 Profit from Operation 746,523 654,778 998,795 1,311,854 1,635,344 2,210,438 Other Income 56,201 19,626 687 12,532 15,038 18,046 Contribution to WPPF 26,162 19,984 35,706 37,595 45,114 54,137 Earning before Interest and Taxes (EBIT) 776,562 654,420 963,775 1,286,791 1,605,267 2,174,347 Interest Expense 253,319 254,742 249,654 284,515 284,515 284,515 Earning Before Taxes (EBT) 523,244 399,678 714,121 1,002,276 1,320,753 1,889,832 Income Tax (Current & Deffered) 52,585 46,610 168,780 270,615 356,603 510,255 Profit After Tax (PAT) 470,659 353,068 545,341 731,661 964,150 1,379,578 Beximco Pharma: Balance Sheet Assets: Current Assets: Cash & Cash Equivalent 581,099 85,699 73,648 489,450 1,639,117 2,657,386 Accounts Receivable 430,240 499,681 503,916 503,916 503,916 503,916 Spares and Supplies 182,328 234,530 234,530 234,530 234,530 Loan, Advance & Deposit 591,614 685,915 544,509 544,509 544,509 544,509 Inventories 1,754,440 1,470,152 1,505,288 1,590,305 1,680,123 1,775,014 Total Current Assets 3,357,393 2,923,775 2,861,892 3,362,710 4,602,196 5,715,355 Fixed Assets: Property, Plant & Equipment 8,513,136 8,992,942 11,921,073 12,087,968 12,257,199 12,343,000 Investment in Shares 41,983 36,701 36,701 36,701 36,701 36,701 Total Fixed Assets 8,555,119 9,029,643 11,957,774 12,124,669 12,293,900 12,379,701 Total Assets: 11,912,512 11,953,419 14,819,665 15,487,379 16,896,096 18,095,056 Liabilities & Equities: Current Liabilities: Short Term Borrowing from Bank 1,302,817 907,582 1,461,666 1,461,666 1,461,666 1,461,666 CMLTD 712,123 343,604 648,166 648,166 648,166 648,166 Creditors & Other Payables 365,256 271,814 263,177 341,237 409,485 460,670 Accrued Expenses 117,937 60,053 81,776 106,032 127,238 143,143 Dividend payable 13,012 3,285 3,170 3,170 3,170 3,170 Income Tax Payable 16,276 41,634 144,077 144,077 144,077 144,077 Total Current Liabilities 2,527,421 1,627,973 2,602,032 2,704,348 2,793,802 2,860,893 Non Current Liabilities: Long Term Borrowing-Secured 1,159,410 1,776,450 1,446,601 1,446,601 1,446,601 1,446,601 Deffered Liability-provision for gratuity 213,358 246,705 274,419 274,419 274,419 274,419 Deffered Tax Liability 62,403 51,352 46,411 46,411 46,411 46,411 Total Non-Current Liabilities 1,435,171 2,074,506 1,767,431 1,767,431 1,767,431 1,767,431 Shareholder's Equity: Share Cpaital 1,040,973 1,145,070 1,259,577 1,259,577 1,834,877 1,834,877 Share Premium 1,489,750 1,489,750 1,489,750 1,489,750 1,489,750 1,489,750 Issue price over face Value of GDR 1,689,637 1,689,637 1,689,637 1,689,637 1,689,637 1,689,637 Capital reserve 294,951 294,951 294,951 294,951 294,951 294,951 Tax-Holiday Reserve 394,835 442,355 1,711,175 1,711,175 1,711,175 1,711,175 Retained Earnings (including Tax holiday reserve from 2006E) 3,039,775 3,189,176 4,005,112 4,570,509 5,314,474 6,446,343 Total Equities 7,949,920 8,250,940 10,450,202 11,015,599 12,334,863 13,466,732 Total Liabilities & Equities 11,912,512 11,953,419 14,819,665 15,487,379 16,896,096 18,095,056

Renata Top Pharmaceutical Companies Renata is one of fastest growing pharmaceutical companies in Bangladesh. It is the seventh largest company in terms of local pharmaceutical sales. Successor of the business of Pfizer Bangladesh still enjoys distribution relationship with Pfizer. Renata is the market leader in agrochemical business. Strong growth history; in the last five years, revenue grew by a 23% CAGR whereas net profit grew by 31%. Even if gross profit margin remained the same, the company has consistently reduced its operating costs, thus improving the bottom line. The company achieved a return on equity of over 25% on average in the past five years. 2009 seems to be on the same track. Renata boasts of the highest gross profit margin (almost 50%) among the local manufacturers. In 3Q09, Renata declared EPS of BDT 325.94 posting a 43.55% bottom line growth QoQ; reduction of operating expenses improved bottom line. Renata has a Modest dividend payment; dividend yield in 2008 was about 1%. A high retention rate is justified as the company consistently makes huge capital expenditures, financed by internal cash. This state is supposed to continue in the near future. Manageable leverage; D/E is about 50%. The entire debt is short-term. Renata has good management, disciplined growth and low leverage, and appears to be an attractive company. Target price BDT 13,000. Dividend yield 0.55%. Total return 15%. Valuation Discounted FCF 2008 2009 2010 2011 2012 2013 2014 2015 Operating Cash 490,572.1 540,839.4 709,032.9 846,511.8 1,068,244.2 1,220,157.9 1,411,073.1 Capital Expendture -103,195.1-110,006.0-117,266.4-125,006.0-133,256.4-142,051.3-151,426.7 Change in Debt -10,546.3 0.0 0.0 0.0 0.0 0.0 0.0 376,830.7 430,833.4 591,766.5 721,505.8 934,987.8 1,078,106.5 1,259,646.4 Net Terminal Value 15,560,337.9 Terminal Value 15,560,337.9 Terminal Debt 0.0 Net Free Cash Flow 376,830.7 430,833.4 591,766.5 721,505.8 934,987.8 1,078,106.5 16,819,984.3 Discount Rate 13.5% NPV 9,438,570.8 Terminal Growth Rate 5.00% NPV/Share 6,527.44 Renata Valuation EPS BVPS 2011 estimates 646.53 2593.95 Multiple 20.0x 5.0x Target price 12930.51 12969.77

Renata: Income Statement Turnover 2,165.6 2,729.9 3,203.2 4,004.0 5,005.0 6,006.1 Cost of sales -1,102.7-1,456.1-1,621.5-2,002.0-2,502.5-3,003.0 Gross profit 1,062.9 1,273.8 1,581.7 2,002.0 2,502.5 3,003.0 Administrative, selling and distribution expenses -592.9-715.1-860.1-1,081.1-1,351.4-1,621.6 Operating profit 470.0 558.7 721.7 920.9 1,151.2 1,381.4 Other income 21.5 18.2 19.3 20.7 22.2 23.8 Gain on disposal of property, plant and equipment 1.9 0.5 0.1 0.0 0.0 0.0 Other expenses -2.7-3.3-5.9-5.0-6.3-7.5 490.7 574.1 735.2 936.6 1,167.1 1,397.7 Interest on overdraft -44.0-61.0-89.0-90.5-90.5-90.5 446.7 513.2 646.2 846.1 1,076.5 1,307.1 Contribution to WPPF -21.3-24.4-30.8-39.3-50.5-60.6 Profit before tax 425.5 488.7 615.4 806.8 1,026.0 1,246.5 Current tax -98.2-121.8-166.4 Deferred tax -6.9-8.9-10.3 Total tax -105.1-130.7-176.8-201.7-256.5-311.6 Net profit after tax for the year 320.4 358.0 438.7 605.1 769.5 934.9 Renata: Balance Sheet Current assets Inventories 677.3 707.0 1,008.3 1,201.2 1,501.5 1,801.8 Trade and other receivables 187.4 200.5 322.5 320.3 400.4 480.5 Advance, deposits and prepayments 62.5 71.5 84.0 100.1 125.1 150.2 Cash and cash equivalent 116.2 95.8 142.8 428.9 744.3 1,195.8 Total current assets 1,043.4 1,074.8 1,557.6 2,050.5 2,771.3 3,628.3 Non-current assets Property, plant and equipment 824.4 927.8 1,135.9 1,145.3 1,155.3 1,165.9 Capital work-in-progress 44.2 308.1 601.8 601.8 601.8 601.8 Investment 6.5 15.7 22.7 22.7 22.7 22.7 Total non-current assets 875.0 1,251.5 1,760.4 1,769.8 1,779.8 1,790.5 Total Assets 1,918.5 2,326.3 3,318.0 3,820.3 4,551.1 5,418.7 Current liabilities Bank overdraft 371.8 361.5 823.2 823.2 823.2 823.2 Short term bank loans 0.0 0.0 0.0 0.0 0.0 0.0 Dividend distribution tax 0.0 0.0 0.0 0.0 0.0 0.0 Creditors for goods 53.6 42.2 127.3 157.2 196.4 235.7 Accrued expenses 76.7 106.4 140.1 87.0 96.0 101.2 Other payables 70.8 139.4 92.2 113.9 142.3 170.8 Unclaimed dividend 1.8 2.5 3.2 3.2 3.2 3.2 Provision for taxation 94.2 94.0 147.0 147.0 147.0 147.0 Total current liabilities 668.9 745.8 1,332.9 1,331.4 1,408.2 1,481.1 Non-current liabilities Loans and borrowings 33.8 22.4 10.5 0.0 0.0 0.0 Deferred liability-staff gratuity 72.7 88.9 105.2 105.2 105.2 105.2 Deferred tax liability 62.7 71.4 81.5 81.5 81.5 81.5 Total non-current liabilities 169.2 182.8 197.3 186.8 186.8 186.8 Total liabilities 838.1 928.6 1,530.3 1,518.2 1,594.9 1,667.9 Equity attributable to equity holders of the group company Share capital 80.3 96.4 115.7 144.6 166.3 182.9 Revaluation surplus 156.0 155.6 155.1 155.1 155.1 155.1 Capital reserve 0.5 0.5 0.5 0.5 0.5 0.5 Tax holiday reserve 62.0 63.6 70.2 70.2 70.2 70.2 Proposed stock dividend 16.1 0.0 0.0 0.0 0.0 0.0 Proposed cash dividend 40.2 0.0 0.0 0.0 0.0 0.0 Retained earnings 725.2 1,081.6 1,446.3 1,931.7 2,564.1 3,342.1 Total equity attributable to equity holders of the group company 1,080.4 1,397.8 1,787.7 2,302.1 2,956.2 3,750.8 Minority interest 0.0 0.0 0.0 0.0 0.0 0.0 Total equity 1,080.4 1,397.8 1,787.8 2,302.1 2,956.2 3,750.8 Total equity and liabilities 1,918.5 2,326.3 3,318.0 3,820.3 4,551.1 5,418.7

ACI Limited Advanced Chemical Industries (ACI) Limited is one of the most recognized pharmaceutical companies in Bangladesh. ACI currently lies at eighth spot in the local market. The company has expanded its business beyond pharmaceuticals encompassing agrochemical, animal health, agro-machinery, consumer brands and retail chains. Since the company has been expanding its business horizon rather aggressively for the last few years, ACI has found itself in a cash crunch, which ultimately led the company to resort to a fair bit of leverage. However, ACI has recently issued a zero-coupon bond to improve their cash position. Despite cash constraint, ACI is one of the more consistent dividend paying companies in the local market. Although the core pharma segment and agribusiness segment are making respectable profits, consumer brands and other segments are not yet fully profitable. If and when these segments become profitable, the bottom line will see significant improvement. Despite its cash crunch, ACI remains one of the more attractive companies among the pharmaceutical companies. Target price BDT 675. Dividend yield 1.96%. Total return 35%. Valuation Discounted FCF 2008 2009 2010 2011 2012 2013 2014 2015 Operating Cash 578,368,698 1,114,949,068 1,231,726,511 1,410,844,831 1,690,114,889 1,788,059,630 1,967,010,983 Capital Expendture -1,500,000,000-679,457,053-467,678,231-400,178,280-424,931,576-451,216,003-479,126,271 Change in Debt 315,090,975 469,599,385-700,000,000-1,070,816,761-1,200,000,000-200,000,000-200,000,000-606,540,327 905,091,401 64,048,280-60,150,210 65,183,313 1,136,843,627 1,287,884,712 Net Terminal Value 21,037,902,697 Terminal Value 23,396,572,260 Terminal Debt 2,358,669,563 Net freecashflow -606,540,327 905,091,401 64,048,280-60,150,210 65,183,313 1,136,843,627 22,325,787,409 Discount Rate 15.0% NPV 11,050,450,933 Terminal Growth Rate 9.00% NPV/Share 569.49 ACI valuation EPS BVPS 2011 estimates 39.41 222.03 Multiple 18.0x 3.0x Target price 709.40 666.08

ACI: Income Statement Revenue 4,237.9 5,756.8 10,341.4 11,050.6 13,632.4 16,139.4 Cost of sales 2,770.6 3,749.1 7,289.4 7,839.5 9,734.9 11,433.8 Gross profit 1,467.2 2,007.7 3,052.0 3,211.2 3,897.5 4,705.6 Admisnistrative expenses 119.0 171.1 321.8 331.5 409.0 484.2 Distribution expenses 193.3 252.4 277.1 331.5 409.0 484.2 Selling expenses 702.2 974.5 1,505.7 1,547.1 1,840.4 2,098.1 Operating profit 452.6 609.7 947.5 1,001.0 1,239.2 1,639.1 Other income 56.1 83.2 68.1 63.5 67.7 70.6 Result From opeating activities 508.7 692.9 1,015.6 1,064.5 1,306.9 1,709.7 Profit from sale of shares 86.2 639.3 512.8 Share of Profit equity accounted investees 37.0 3.8 0.9 EBIT 471.7 775.3 1,654.0 1,577.3 1,306.9 1,709.7 Financing cost 163.7 220.5 523.8 642.8 631.2 584.7 308.0 554.7 1,130.2 934.5 675.7 1,125.0 Provision for contribution to WPPF 17.7 28.6 35.5 46.7 33.8 56.3 Profit before tax 290.4 526.1 1,094.6 887.8 641.9 1,068.8 Income tax expenses: Current tax expense 165.6 177.6 194.6 103.1 176.5 293.9 Deferred tax income 14.9 15.7 32.8 Profit after tax 139.7 364.2 932.9 784.7 465.4 774.8 ACI: Balance Sheet Inventory 1,239.2 1,583.0 3,144.3 2,850.7 3,245.0 3,277.4 Trade debtors 443.0 907.1 1,874.7 2,200.0 2,272.1 2,294.8 Other debtors 81.5 144.5 83.8 110.5 136.3 161.4 Advances, deposits and prepayments 180.8 248.2 357.9 857.9 357.9 357.9 Advance income tax 120.0 234.7 218.8 218.8 218.8 218.8 Inter-company receivable 28.9 27.6 13.0 13.0 13.0 13.0 Cash and bank balances 47.5 82.6 233.8-566.8 144.3 67.7 Total current assets 2,140.8 3,227.7 5,926.1 5,684.0 6,387.2 6,390.9 PPE at cost/revaluation 1,936.0 2,610.4 3,822.4 5,322.4 6,001.9 6,469.5 Accumulated depreciation 542.6 660.4 846.9 1,121.2 1,461.0 1,835.1 PPE Net 1,393.4 1,949.9 2,975.5 4,201.2 4,540.9 4,634.4 Capital work-in-progress 39.4 567.5 265.0 265.0 265.0 265.0 Intangible assets 104.7 104.7 108.3 108.3 108.3 108.3 Investment 38.1 62.0 134.5 134.5 134.5 134.5 Total non-current assets 1,575.5 2,684.1 3,483.2 4,708.9 5,048.6 5,142.1 Total assets 3,716.3 5,911.9 9,409.3 10,392.9 11,435.8 11,533.0 Bank overdraft 166.1 314.2 1,209.6 1,200.0 1,000.0 500.0 Short term bank loan 1,178.7 1,915.0 2,870.8 3,200.0 2,870.8 2,870.8 Long term bank loan- Current portion 46.2 154.8 232.9 232.9 232.9 232.9 Trade creditors 100.6 152.0 473.1 508.8 631.8 631.8 Other creditors 404.8 607.4 840.3 882.5 1,061.4 1,224.4 Inter company liability 0.0 0.0 0.0 0.0 0.0 0.0 Current portion of lease obligation 14.8 10.2 5.7 1.2 0.0 0.0 Provision for taxation 222.5 328.2 339.1 339.1 339.1 339.1 Total current liabilities 2,133.8 3,481.9 5,971.6 6,364.5 6,136.1 5,799.1 Zero coupon bond 1,000.0 800.0 Long term bank loan 44.5 281.2 313.3 313.3 313.3 313.3 Other liabilities 325.6 348.6 312.4 312.4 312.4 312.4 Long term liabilities 370.1 629.8 625.7 625.7 1,625.7 1,425.7 Total liabilities 2,503.9 4,111.7 6,597.3 6,990.3 7,761.8 7,224.8 Share capital 161.7 161.7 161.7 194.0 194.0 247.5 Share premium 250.0 250.0 250.0 250.0 250.0 250.0 Capital reserve 1.8 1.7 1.7 1.7 1.7 1.7 Special Reserve 0.1 Revaluation surplus 273.1 600.3 597.3 597.3 597.3 597.3 Tax Holiday Reserve 34.5 Retained earnings 411.9 693.7 1,493.3 2,051.6 2,322.9 2,903.7 Total equity 1,133.1 1,707.4 2,504.0 3,094.6 3,365.9 4,000.2 Minority interest 79.3 92.8 308.0 308.0 308.0 308.0 Total equity and liabilities 3,716.3 5,911.9 9,409.3 10,392.9 11,435.8 11,533.0

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