Parvez M Chowdhury Analyst: Pharmaceuticals and Consumer Goods

Price BDT Volume Millions Parvez M Chowdhury Analyst: Pharmaceuticals and Consumer Goods parvez@bracepl.com Beximco Pharmaceuticals Limited December 27, 2010 Rating: OUTPERFORM Company Summary 52-week Price Range (BDT) 133.00-193.70 Current Price 135.10 12-month Fair Price 160.00 Cash Dividend 1.00 Total Return 19.93% Number of Shares MM 209.8 Float 89.00% Average daily volume MM BDT 197.7 BDT 2009A 2010E 2011E Revenue (MM BDT) 4,868.3 6,815.6 8,860.3 Ops Income (MM BDT) 1,001.3 1,819.8 2,383.4 Net Income (MM BDT) 624.7 1,251.8 1,740.2 Margins 2009A 2010E 2011E Gross Margin 47.29% 51.00% 51.00% Operating Margin 20.57% 26.70% 26.90% Net Margin 12.83% 18.37% 19.64% Growth 2009A 2010E 2011E Revenue Growth 21.40% 40.00% 30.00% Net Income Growth 14.56% 100.37% 39.01% Per Share (BDT) 2009A 2010E 2011E EPS 2.98 5.97 8.29 BVPS 51.88 76.39 83.19 CFPS 2.48 4.95 6.84 Dividend 0.00 1.00 1.50 Valuation 2009A 2010E 2011E P/E 45.4x 22.6x 16.3x P/B 2.6x 1.8x 1.6x EV/EBITDA 14.8x 8.0x 6.0x Other 2009A 2010E 2011E Debt/equity 33.85% 25.00% 25.00% Debt/assets 18.53% 18.67% 18.54% ROA 3.60% 6.05% 7.73% ROE 5.86% 9.30% 10.40% 250 Price Performance - Last 12 Months 6 200 5 4 150 3 100 2 50 1 Beximco Pharmaceuticals Limited (BPL) is one of the leading pharmaceutical manufacturing companies in Bangladesh. Considered as a technological leader among the local manufacturers, BPL currently holds the third position in local sales among all pharmaceutical companies in Bangladesh. The company has established an extensive distribution network that supports some of the best-selling products in the local market. With a highly ambitious expansion program, BPL has been able to eliminate some capacity bottlenecks, which have been holding off their growth in the recent past. Moreover, the company has increased its focus on exports in recent times. With its state of the art manufacturing plants and certifications from advanced market regulators, BPL is already in an advanced stage of becoming one of the first truly export-oriented pharmaceutical companies in the country. Although the company has witnessed quite a bit of dilution largely due to conversion of preference shares to common shares and issuing of stock dividends, we believe the growth prospects are high. However, the true potential may not become evident till the end of 2012. We initiate our coverage of Beximco Pharma with an OUTPERFORM rating and estimate a 12-month fair price of BDT 160.00. Our recommendation considers the growth prospect, sound business model, good management, and consistent dividend payout. Our estimated fair price is based on an estimated 2012 EPS of BDT 10.06 and a P/E multiple of 18.0x as well as 2012 BVPs of BDT 91.50 and P/B multiple of 2.0x. With 2010 estimated dividend yield of 0.7%, this price indicates a total return of 19.9% by the end of 2011. Table 1: Performance Snapshot Source: Company Annual Reports and BRAC EPL Estimates 2007 2008 2009 2010 2011 2012 Net Sales (MM BDT) 3,597.0 4,010.2 4,868.3 6,815.6 8,860.3 10,632.4 YoY Growth -2.84% 11.49% 21.40% 40.00% 30.00% 20.00% Operating Income (MM BDT) 654.8 998.8 1,001.3 1,819.8 2,383.4 2,934.5 YoY Growth -12.29% 52.54% 0.25% 81.74% 30.97% 23.12% Net Income (MM BDT) 353.1 545.3 624.7 1,251.8 1,740.2 2,110.3 YoY Growth -24.98% 54.46% 14.56% 100.37% 39.01% 21.27% EBITDA (MM BDT) 1,349.5 2,069.0 2,089.3 3,813.3 5,008.4 6,162.0 YoY Growth -12.67% 53.31% 0.98% 82.51% 31.34% 23.03% EBITDA Margin 37.52% 51.59% 42.92% 55.95% 56.53% 57.95% 0 0 Volume Price

Company Profile Beximco Pharmaceuticals Limited (BPL) is a part of Beximco Group, the largest private sector industrial conglomerate in Bangladesh. BPL develops, manufactures and markets both finished dosage form branded generic pharmaceutical products and active pharmaceutical ingredients (APIs), with products including solid dose forms, Metered Dose Inhalers, Nasal Sprays, Large Volume Intravenous Fluids, Suppositories, and Creams/Ointments. BPL produces and markets 'branded generics' for most diseases ranging from AIDS to cancer, from infection to asthma, from hypertension to diabetes, for both national and international markets. The company also manufactures active pharmaceutical ingredients and intravenous fluids and contract manufacture for major international brands of leading multinational companies. BPL utilizes state of the art manufacturing facilities. BPL also has outstanding reverse engineering capabilities. Incorporated in 1976, BPL started off as a distributor of pharmaceutical products. It imported products from global MNCs such as Bayer AG of Germany and Upjohn Inc. of USA and sold them in the local market. It eventually graduated to a manufacturer and distributor of these products in local market under licensing agreements. During the early 80s, BPL launched its own products in the local market. Beximco started its exports operation in the early 90s with APIs. Today BPL is one of the largest exporter of medicines from Bangladesh. BPL employs more than 2,400 staff, including over 300 qualified professionals such as pharmacists, chemists, microbiologists, engineers, doctors etc. BPL is the third largest pharmaceutical manufacturing company in Bangladesh with net sales of BDT 4.87 million, according to the 2009 annual report. Industry and Competition The pharmaceutical sector, which is widely regarded as a hi-tech industry, is the most developed among the manufacturing industries in Bangladesh. Roughly 250 companies are operating in the market. According to IMS, a US-based market research firm, the retail market size is estimated to be around BDT 55 billion, which grew by 16.8% in 2009. The market size in 2008 was BDT 47 billion with a growth of 6.9%. The actual size of the market may vary slightly since IMS does not include the rural market in their survey. The retail market is about 90% of the total market. In that respect, the total market size is more than BDT 60 billion. One of the fastest growing sectors, Bangladesh s pharmaceutical industry is the third largest tax paying industry in the country. Bangladeshi pharmaceutical firms focus primarily on branded generic final formulations using imported APIs. Branded generics are a category of drugs including prescription products that are either novel dosage forms of off-patent products produced by a manufacturer that is not the originator of the molecule, or a molecule copy of an off-patent product with a trade name. About 80% of the drugs sold in Bangladesh are generics and 20% are patented drugs. The country manufactures about 450 generic drugs for 5,300 registered brands which have 8,300 different forms of dosages and strengths. These include a wide range of products from anti-ulcerants, flouroquinolones, anti-rheumatic non-steroid drugs, non-narcotic analgesics, antihistamines, and oral anti-diabetic drugs. Some larger firms are also starting to produce anti-cancer and anti-retroviral drugs. Domestically, Bangladeshi companies including the locally based MNCs produce 95%-97% of the drugs and the rest are imported. Although about 250 pharmaceutical companies are registered in Bangladesh, less than 100 are actively producing drugs. The domestic market is highly concentrated and competitive. However, the local manufacturers dominate the industry as 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 10 players control around two-third of the market share while the top 15 companies cover 77% of the market. Figure 1: Market share concentration MNCs 13% Others 20% Top Ten 67% Source: BAPI and newspaper reports Page 2

Square Pharmaceuticals is the stand out market leader with a market share of 19.3% which posted domestic revenue of BDT 11.2 billion in the last four quarters (Apr 09 - Mar 10). Square s nearest competitors are Incepta Pharmaceuticals and Beximco Pharmaceuticals with market shares of 8.5% and 7.6% respectively. Incepta and Beximco had BDT 4.9 billion and BDT 4.4 billion in domestic sales for the last four quarters. Although a number of MNCs are operational in Bangladesh market, no MNCs are in the top ten in terms of domestic sales. Table 2: Domestic market share of companies Revenue April 09 - March 10 (MM BDT) Revenue Market 2009 Share (MM BDT) Market Share Top Companies Square Pharmaceuticals 11,158 19.3% 10,701 19.5% Incepta Pharmaceuticals 4,919 8.5% 4,524 8.2% Beximco Pharmaceuticals 4,415 7.6% 4,239 7.7% Opsonin Pharmaceuticals 2,817 4.9% 2,614 4.8% Eskayef Pharmaceuticals 2,788 4.8% 2,520 4.6% Acme Laboratories 2,717 4.7% 2,640 4.8% Renata Limited 2,623 4.5% 2,495 4.5% ACI Limited 2,466 4.3% 2,460 4.5% Aristopharma 2,355 4.1% 2,240 4.1% Drug International 2,283 3.9% 2,132 3.9% Sanofi-Aventis 1,700 2.9% 1,634 3.0% GlaxoSmithKline 1,266 2.2% 1,229 2.2% Novo Nordisk 1,005 1.7% 878 1.6% Sandoz 936 1.6% 908 1.7% Novartis 675 1.2% 558 1.0% Others 13,691 23.7% 13,158 24.0% Total 57,815 100.0% 54,929 100.0% Source: BAPI and newspaper reports Figure 2: Growth rate of companies in Apr 09 Mar 10 Top Ten Company Growth Apr 09 - Mar 10 ACI Limited 7.9% Acme Laboratories 8.0% Aristopharma 13.6% Square Pharmaceuticals 13.9% Sector 18.4% Beximco Pharmaceuticals 22.0% Eskayef Pharmaceuticals 27.3% Renata Limited 28.5% Incepta Pharmaceuticals 31.0% Opsonin Pharmaceuticals 31.7% Drug International Source: Newspaper reports 39.2% The most important therapeutic group in the Bangladeshi market are Systemic Antibiotics. They account for almost 30% of the market. The second therapeutic group, Anti-acids, are much less relevant in terms of market, as well as from a public health perspective. Vitamins, Analgesics, Mineral supplements, Cough and Cold preparations and muscle relaxants also figure prominently. It is to be noted, that typical developed market therapeutic groups like those addressing diabetes, cardiovascular diseases, allergies or psychological disorders also are among the most important in Bangladesh, whereas HIV/AIDS and Antimalarial drugs are not. Because Bangladesh API capacity is insignificant, pharmaceutical companies import approximately 80% of their APIs. Coupled with the necessity to import machines, it is one of the main disadvantages in terms of cost when compared to India. The leading manufacturers are therefore going into API manufacturing, focusing mainly on Antibiotics, but also other drugs, such as anti-cancer drugs. For many APIs, the domestic market is too small to justify an API manufacturing plant. This stresses the fact that whereas several Bangladeshi manufacturers have the know-how to manufacture APIs, the initial investment and the production scale required are high. This means that in order to establish API manufacturing e.g. for Antiretroviral APIs in Bangladesh, the manufacturers would need to be sure of their access to several export markets. Product Portfolio of Beximco Pharma Beximco has a wide range of product portfolio with more than 225 generic brands in over 400 strengths and dosage forms. Many of its brands have strong command over their respective therapeutic categories. Neoceptin-R is the number one brand in terms of revenue volume while Napa is the number one brand in terms of units sold among all pharmaceutical products in Bangladesh local market. One of BPL s major strengths lies with its sales and marketing team. It has one of the largest distribution channels in the pharmaceutical industry. The sales force of Beximco, led by a large number of medical representatives, is one of the most aggressive among all local manufacturers. This ensures that BPL s products always have a considerably large outreach. Page 3

Product Offerings by Dosage Forms BPL develops, manufactures and markets both finished dosage form branded generic pharmaceutical products (about 400 products in the range) and active pharmaceutical ingredients (APIs), with products including solid dose forms, Metered Dose Inhalers, Nasal Sprays, Large Volume Intravenous Fluids, Suppositories, and creams/ointments. Metered Dose Inhalers (MDIs) Beximco Pharma is one of the few companies who has the technology and expertise to manufacture CFC-free HFA MDIs. International market development activities in South East Asian, Middle Eastern and Latin American countries over the last 2 years have resulted in establishment of distributor and contract manufacturing agreement in approximately 20 countries. Product registration activities have commenced in most of these countries. Partnership interests and requests are received to do collaborative respiratory MDI market development from world's leading players, especially from Europe and USA. One MOU is already signed with a company based in USA and few are in the pipeline. Since CFC based products are not going to be produced after December 2009 (especially in all developed markets), it is expected that there will be huge shortages of CFC-free inhalers throughout the world including highly regulated markets like US, UK and EU. Beximco is already in an advantageous position here. Solid and semi solid Dosage Forms Beximco Pharma has gained wide acceptance from the physicians at home and abroad for the product quality of its solid dosage form products such as tablets, capsules, suppositories, ointment, cream etc. The company is also one of the largest manufacturer of liquid formulation products such as syrup and suspension etc. in Bangladesh. After getting enlisted with WHO and UNICEF as their global supplier and also due to the certification of Track-II (tablets, capsules, inhaler and sprays) from various regulatory authorities worldwide, the demand for oral solid dosage forms and inhalers is increasing day by day in the international markets. Large Volume Intravenous Fluids Beximco Pharma s large volume IV fluids products currently represent around 40% of the domestic market. Currently, Beximco Pharma is offering only IV fluids in salt and electrolyte market. However, it has no product offerings in Total Parenterals Nutrition (TPN) market. Annual and YTD Quarterly Results Table 3: Profits and Margins (Figures in million BDT) 2009 2008 % chg 9M10 9M09 % chg 3Q10 3Q09 % chg 3Q10 2Q10 % chg 4Q09 3Q09 % chg Net Sales 4,868 4,010 21% 4,781 3,472 38% 1,812 1,158 56% 1,812 1,642 10% 1,396 1,158 21% Gross Profit 2,302 2,007 15% 2,416 1,639 47% 932 553 68% 932 852 9% 663 553 20% Operating Profit 1,001 999 0% 1,302 735 77% 520 310 68% 520 448 16% 266 310-14% Profit After Tax 625 545 15% 840 480 75% 312 170 84% 312 310 1% 145 170-15% Gross Margin 47% 50% 51% 47% 51% 48% 51% 52% 47% 48% Operating Margin 21% 25% 27% 21% 29% 27% 29% 27% 19% 27% Net Margin 13% 14% 18% 14% 17% 15% 17% 19% 10% 15% Source: Company Quarterly Financial Statements In 2009, Beximco Pharma reached net sales of BDT 4.87 billion posting a healthy growth of 21% and outperforming the industry. The bottom line growth was 15% with a net profit of BDT 625 million. However, operating profit remained almost the same as previous years. This is mostly due to the company s extra efforts to recover some of its market shares from rivals. The company hit a bottleneck in capacity during the past couple of years. The rival companies took advantage of this. Since the pharmaceutical industry in Bangladesh is fiercely competed by the top companies, recovering lost market shares is not an easy task. However, BPL has apparently overcome those problems in 2010 and this is expected to continue in the foreseeable future. Page 4

Beximco boosted their efforts through their strong sales force. This has increased their expenses faster than their top line growth resulting in reduced margins in 2009. However, the situation seems to have improved considerably as the margins have been increasing steadily in the last couple of quarters. The gross margin, operating margin and net margin for the year 2009 were 47%, 21% and 13% respectively. For the first nine months of 2010 these margins are 51%, 27% and 18% respectively. The quarterly margins also demonstrate an increasing trend. We believe that the margins will stabilize and then continue at that rate for the foreseeable future. Sales Table 4: Local Sales and Exports BDT 2005 2006 2007 2008 2009 Local Sales 3,238,165,045 3,587,218,117 3,474,272,775 3,839,563,510 4,596,129,162 Exports 88,857,529 115,099,042 122,852,037 170,603,549 272,175,753 Total 3,327,022,574 3,702,317,159 3,597,124,812 4,010,167,059 4,868,304,915 Local Sales Growth 39% 11% -3% 11% 20% Exports Growth 12% 30% 7% 39% 60% Total Sales Growth 38% 11% -3% 11% 21% Source: Company Annual Reports Beximco Pharma has been a regular feature in the top three in terms of domestic sales among the pharmaceutical companies in Bangladesh. However, during the period of 2006-2008, the company faced a bit of capacity constraints. The fiercely competitive industry forced the company to relinquish a small portion of market share to its closest rivals. The recent capacity expansion should help it continue with its impressive top line growth and the early signs are positive. As of 2009, the company had local sales and exports contributing 94% and 6% respectively. The management wants to achieve a net sales of BDT 8.4 billion by 2011 and double its current revenue by 2012. While it could be challenging, it certainly is achievable. The management also has a target to have an equal contribution from local sales an exports by 2015. This seems to be an ambitious target. However, the exports have seen some very robust growth. Therefore, we are likely to see them reach their target in a few years, if not within their targeted timeframe. Margins and profitability Table 6: Margins and Profitability 2005 2006 2007 2008 2009 Beximco has been able to maintain a decent Sales 3,327 3,702 3,597 4,010 4,868 margin throughout the last few years despite Gross Profit 1,559 1,731 1,630 2,007 2,302 fluctuations during some tough times between Gross Margin 46.8% 46.8% 45.3% 50.1% 47.3% 2006-2008. With capacity constraints out of the Operating Profit way, their margin could stabilize very quickly Operating Margin 724 21.8% 747 20.2% 655 18.2% 999 24.9% 1,001 20.6% and continue for the foreseeable future. EBITDA 1,497 1,545 1,350 2,069 2,089 Increased focus in the exports market could even EBITDA Margin 45.0% 41.7% 37.5% 51.6% 42.9% Net Profit 489 471 353 545 625 lead to improvement in margins in the long run. Net Margin 14.7% 12.7% 9.8% 13.6% 12.8% BPL s Current Operational Capability Source: Company Annual Reports Facilities Table 5: Production Capacity and Utilization Tablet & Capsules (Mn pcs) 2005 2006 2007 2008 2009 Capacity 1,336 1,566 1,742 1,742 1,742 Actual Production 1,789 2,124 1,774 2,371 2,203 Utilization 134% 136% 102% 136% 126% Bottle, Tube & Cans (Mn pcs) 2005 2006 2007 2008 2009 Capacity 26 39 39 39 39 Actual Production 29 41 36 34 45 Utilization 112% 105% 92% 87% 115% Bottle-IV (Mn pcs) 2005 2006 2007 2008 2009 Capacity 14 14 14 14 14 Actual Production 15 10 10 6 8 Utilization 107% 71% 71% 43% 57% Source: Company Annual Reports BPL s operational capability consistently delivers high quality products. Beximco Pharma has a number of self-contained units, namely: Page 5

Track I Original plant for tablets, capsules, liquids, cream, ointments, suppositories drops and nasal sprays. Track II New USFDA/ UKMHRA standard Oral Solid Dosage Plant (Currently 2 lines out of total 5 lines are operational) Metered Dose Inhaler (MDI) Plant - Manufactures both CFC & HFA MDIs Intravenous Fluid Plant Injectable, Ophthalmics and Nebulizer Solution Plant Penicillin Formulation Plant Penicillin API Plant Paracetamol API Plant Outsourced products Cephalosporins Outsourcing from 2 manufacturing companies (e.g. Sanofi Aventis) under contract/toll manufacturing arrangement Current Facility Status - Approvals Received GMP Clearance from Therapeutic Goods Administration (TGA) Australia (OSD & MDI) Received GMP Certification from Gulf Co-operative Council (GCC) (OSD & MDI) Received GMP Certification from ANVISA, Brazil (MDI) Qualified by UNICEF (MDI & OSD) Qualified by Global GlaxoSmithKline (MDI) Qualified by Global F Hoff Mann La Roche (OSD) WHO Prequalification for ARVs on going The recent capacity expansion program In order to overcome the capacity bottlenecks and expand its product portfolio, Beximco Pharma has recently undertaken a huge expansion program. The expansion was financed through issuance of fully convertible preference shares worth BDT 4.1 billion. The expansion/diversification projects the company undertook include the following: Completion of additional 3 OSD lines of the USFDA plant Setting up a new MDI Unit with 20 Million Capacity Setting up a new Dry Powder Inhaler plant Nasal Spray facility Setting up a Multi-purpose API Unit (e.g. for Ranitidine, Ciprofloxacin and Omeprazole etc.) Capacity expansion of Paracetamol API plant Capacity expansion of Large Volume Parenterals production facility Capacity expansion of existing Ophthalmic and Injectable facility Setting up Liquid, Cream, Ointment and Sterile manufacturing facility Setting up a new Cephalosporin (finished formulation) manufacturing facility for Oral and Parenteral dosage forms Installation of a new 55,000 sq. feet warehouse Page 6

The management aims to achieve equal revenue from exports and domestic market by the year 2015. The expansion program is a part of that ambition. Since its current export revenue is not significant, BPL will need to attain exponential growth in exports. This could be quite challenging to achieve. However, the management is trying very hard and the company seem to be going at the right direction. Opportunities in International Markets Beximco Pharma was one of the pioneers in exporting pharmaceuticals from Bangladesh. Today, it is among the largest exporters of pharmaceutical products from Bangladesh. The export market remains a huge opportunity for BPL as it has only scratched the surface thus far owing to capacity constraints resulting in its inability to meet export orders. The management wants to become a world-class manufacturer of pharmaceutical products operating in domestic and international markets, including Least Developed Countries (LDCs, owing to TRIPS Agreement), developing and developed countries. Currently, product registration in several countries is in the pipeline. In line with the goal to enter high margin markets and developed markets, few regulatory audits have already been taken place. Very recently, the Company has received GMP Clearance from Therapeutic Goods Administration (TGA), Australia, GCC and ANVISA, Brazil and expects to commence product exports to these countries from 2010. Regulatory audits by UKMHRA, EMEA and USFDA are also expected to take place during 2010 and 2011. The company expects that higher margin will be achieved in all these international markets. Along with developed markets, additional 25 countries are also targeted (distributor agreement signed and product registration under process) to enter by 2010. These markets/continents include Latin and Central America, South Africa, Africa, Caribbean Island, Pacific Island countries, South Asia and South East Asian countries. Along with own brand marketing, contract manufacturing opportunities are also expected from the developed countries. For example, after receiving TGA s GMP Clearance, the company has already started receiving strong queries for contract manufacturing from Australia and other developed European markets (including Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Netherlands, Norway, Spain, Sweden, Switzerland, UK etc.) where TGA s GMP certification is accepted as a quality standard (under Mutual Recognition Arrangement). Also as mentioned earlier regarding opportunities for inhalers, since only a few companies in the world are operating with their CFC free MDI formulations; there will be huge opportunities for contract manufacturing for reputed MNCs in the coming years. Moreover, opportunities for operating in developed markets with proprietary formulations are also opening up. Contract Manufacturing Opportunity Cost of medication is becoming a major concern even in the developed countries. This particular issue coupled with severe price competition from the generic manufacturers has prompted a number of giant multinational companies to shift or outsource their production from developed to developing and less developed countries, because of huge cost advantage. It is believed that the world pharmaceutical market will continue to see more consolidation than ever across the entire value chain of the pharmaceutical business. Big companies will continue to look for suitable partners in their supply chain management in order to reduce their cost of production. In 2009, the market for contract manufacturing of prescription drugs alone is estimated to be US$ 44 billion. The company has already established partnership with a number of leading global pharmaceutical companies. These partnerships have given the company expertise and know-how to contract manufacture products for reputed MNCs for the developed markets like Europe, USA, and Australia etc. which will commence soon. The Company targets to achieve BDT 120 million sales per month (BDT 1.44 billion annually) from international markets, from the beginning of 2011. Page 7

Adopting Technology Beximco Pharmaceuticals Limited Beximco Pharma has always been a pioneer in adopting innovative technologies that introduced both sophistication and scale in the business processes. The company s focus on technology is intended to take the company to a standard which would match with other top global generic pharma companies. BPL is the pioneer company from Bangladesh in introducing technology driven (specialty) products in local and international markets. Such specialty products include: - Inhalation aerosols, including Ozone-benign HFA MDIs - Suppositories - Nasal sprays Beximco Pharma has shown its capability in the past by installing state-of-the-art MDI plant and IV fluid plant in collaboration with Pamasol, Switzerland and Pharmaplan, Germany, a sister concern of Fresenius AG, Germany. Experience in Foreign Markets Beximco Pharma is one of the largest exporters of pharmaceuticals from Bangladesh. It is a pioneer in exporting APIs, IV Fluids and hi-tech specialized products. BPL is the first pharmaceutical company in Bangladesh to enter CIS countries. The company is also a pioneer to enter African markets. Beximco Pharma is the only pharmaceutical company in Bangladesh operating in Singapore - one of the most stringently regulated markets in South East Asia. BPL is the only company from Bangladesh supplying medicines to Raffles Hospital and KK Women & Children Hospital of Singapore. Very recently Beximco Pharma has received GMP Clearance from Therapeutic Goods Administration (TGA) Australia for oral solid dosage (tablets & capsules) and inhaler & spray products (for new USFDA standard OSD plant and MDI plant). Under Mutual Recognition Agreements (MRA), TGA s Certificates of GMP Compliance is recognized by over 20 developed countries including Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Netherlands, Norway, Spain, Sweden, Switzerland, UK etc. Pioneer in Exporting APIs from Bangladesh Beximco Pharma s pioneering move to diversify business into manufacture of APIs in 1990 set a new milestone for the pharmaceutical industry of Bangladesh. A number of APIs with good sales potentials are also in the development pipeline of the company. Business Partnerships Beximco Pharma has successful business partnerships with MNCs in contract manufacturing which could lead to further exploration of revenue sharing custom manufacturing arrangements for developed and strategically important international markets such as Latin America, Africa and Middle East and South East Asia. Beximco Pharma has well established partnerships with some of world's leading pharmaceutical companies. BPL started its journey partnering with Bayer AG of Germany and Upjohn Inc. of USA. The company has also partnered with Roche of Switzerland and Pharma Italia Carlo Erba of Italy. Currently, the company contract manufactures world s number one reliever inhaler brand Ventolin for GlaxoSmithKline, and will soon commence to contract manufacture liquid, cream, ointment and suppository products for Novartis. On the other hand, the company has outsourced two of its cephalosporin injectable products from Sanofi Aventis. Collaboration with WHO, UNICEF and ADF BPL is a partner of UNICEF, WHO and Asthma Drug Facility (ADF) in their Millennium Development Goal Commitment for serving and improving human life. Being an enlisted supplier of WHO and UNICEF, BPL has been providing its products to these pioneer organizations since 1998, a way to serve humanity. Very recently, BPL has entered into a Long Term Arrangement (LTA) with Global Supply Division (Copenhagen, Denmark) of United Nations Children s Fund (UNICEF) and ADF, France, to supply CFC free metered dose inhaler products. Page 8

Research & Development Beximco Pharmaceuticals Limited Beximco has a strong reverse engineering. It has made a collaborative research agreement with Ciba Specialty Chemicals of Switzerland in proprietary research. In formulation R&D, it focuses principally on developing new formulations, predominantly through reverse engineering. BPL also focuses on simplifying manufacturing processes and improving cost efficiency. Its growing innovation is evident from successful launching of a number of cutting-edge products (for example, Oseltamivir capsules for bird & swine flu treatments, ARVs, anti-cancer products etc.) advanced formulations like multi-layer tablets, sustained release formulations, dispersible tablets, chewable vitamins etc. With considerable experience in MDI formulations, BPL s R&D team has successfully developed a range of CFC-free HFA MDIs. In addition, BPL is also developing a number of APIs to ensure availability of raw materials across the range of therapeutic classes. Beximco Pharma has also signed agreements for collaborative research with leading international API manufacturers to strengthen its API pipeline in order to fully capitalize the WTO patent opportunity. Outlook for the future We believe that with the major bottlenecks in production out of the way, BPL may experience significant improvement in their performance. The margins are expected to improve considerably, as was evident in its 3Q10 results. The gross margin, which was at 47.3% in 2009 has already improved to 50.5% for the first nine months of 2010. We estimated it will improve slightly over the course of the next few years and stabilize at 52.0% by 2015. Operating margin was at 20.6% in 2009, which Table 7: Margins has moved up to 27.3% for the first three 2009A 2010E 2011E 2012E 2013E 2014E 2015E quarters of 2010. We expect the operating margin to continue to improve and stabilize at Gross profit margin 47.3% 51.0% 51.0% 51.5% 51.5% 52.0% 52.0% 28.5% by 2015. Net margin in 2009 was at Operating margin 12.8%, which has improved to 17.5% for the Net margin 20.6% 12.8% 26.7% 18.4% 26.9% 19.6% 27.6% 19.8% 27.8% 19.8% 28.4% 20.0% 28.5% 19.9% first nine months of 2010. It is expected to go up EBITDA margin 42.9% 55.9% 56.5% 58.0% 58.3% 59.6% 59.8% to 20% by 2015. In that connection, the EBITDA Source: Company Annual Report and BRAC EPL Estimates margin is also expected to improve significantly. In 2009, EBITDA margin was at 42.9%. We expect this to improve to almost 60% by 2015. In Bangladesh, the pharmaceutical companies have no power on setting prices for the essential drugs, a list of lifesaving drugs decided by the government. Only the government has the power to decide price of these drugs and the revision of price is few and far between. Therefore, the pharmaceutical companies make only marginal profits from these drugs. However, the pharmaceutical companies are free to set prices on products outside of this list. So, the companies make the bulk of their profit from these non-essential drugs. Even then, the companies cannot set prices too high as the purchasing power of the population is limited. This is a limitation of the domestic market of Bangladesh. We expect one of the reasons behind the improvement of margins down the line besides the apparent removal of bottlenecks is that BPL is increasingly focusing its attention to the international market. The same drugs that BPL sell for Tk. 10, for example, could be sold multiple times in Australia, UK or even USA because of the enhanced purchasing power of the consumers of those markets. As a result we think there sales volume will grow significantly over the years. On the flip side, because of the strict quality control and regulations of the developed market Table 8: Local Sales vs. Exports 2004 2005 2006 2007 2008 2009 Local Sales (MM BDT) 2,323.2 3,238.2 3,587.2 3,474.3 3,839.6 4,596.1 Exports (MM BDT) 79.5 88.9 115.1 122.9 170.6 272.2 Total (MM BDT) 2,402.7 3,327.0 3,702.3 3,597.1 4,010.2 4,868.3 Local Sales % of Total 96.69% 97.33% 96.89% 96.58% 95.75% 94.41% Exports % of Total 3.31% 2.67% 3.11% 3.42% 4.25% 5.59% Local Sales Growth 39.38% 10.78% -3.15% 10.51% 19.70% Exports Growth 11.79% 29.53% 6.74% 38.87% 59.54% Total Sales Growth 38.47% 11.28% -2.84% 11.48% 21.40% Source: Company Annual Reports such as Europe and USA, BPL will need to continuously maintain and renovate their manufacturing plants. This means they are expected to have a large outflow in capital expenditure each year. Since most of the state of the art plants are already in place and waiting for certification, the expenditure should not go up much but rather stay at a stabilized rate. Page 9

Valuation The DCF valuation for Beximco Pharmaceuticals gave us a fairly attractive value for the company. We believe even though the real value addition will come after 2012 when the full potential of the ambitious expansion program is realized, the company is slightly undervalued. With a discount rate of 13.0% and terminal growth rate of 6.5%, our DCF valuation provides a fair value of BDT 162 per share, which would be 19.5x of expected 2011 EPS and 20.0% appreciation over the current price of BDT 135. Table 9: DCF Valuation Discounted FCF (MM BDT) 2010 2011 2012 2013 2014 2015 Operating Cash 1,039 1,435 2,000 2,464 2,770 2,913 Capital Expenditure -421-425 -428-431 -434-437 Change in Debt 322 356 436 474 514 542 940 1,366 2,009 2,506 2,850 3,017 Net Terminal Value 43,104 Terminal Value 49,432 Terminal Debt 6,328 FCFE 940 1,366 2,009 2,506 2,850 46,120 Discount Rate 13.0% Terminal Growth Rate 6.5% NPV (MM BDT) 34,002 NPV/Share 162 We also looked at the peer group of Beximco Pharma. The peers include the major listed pharmaceutical companies in Bangladesh. The peer group had an average P/E ratio of 29.5x and an average P/B ratio of 7.4x. Because of the recent dilution in Beximco s earnings the 45.4x P/E (trailing) may appear slightly richly valued. However, as we believe the company has high growth potential and the major value addition is going to occur post 2012, we considered the projected EPS and BVPS at the end of 2012. With a moderate earnings multiple of 18.0x and a conservative book value multiple of 2.0x, the comparative valuation gives us value per share of BDT 181 and BDT 183 respectively. We took the average of these two values and discounted them with a cost of equity of 14% to arrive at a fair value of BDT 160. Having considered both the DCF and relative valuation, we arrived at a fair value of BDT 160, giving us a 12- month total return of 19.8% including a dividend yield of 0.7%. We believe this is a good return considering the company had a large dilution recently. Table 10: Relative Valuation Other Pharmaceuticals Price EPS P/E BVPS P/B Square Pharmaceuticals 3503 127.29 27.5x 659.63 5.3x Renata Limited 12944.5 365.21 35.4x 1322.02 9.8x ACI Limited 367.6 30.64 12.0x 151.62 2.4x GlaxoSmithKline 1157.5 26.88 43.1x 96.60 12.0x Average 29.5x 7.4x Beximco Pharmaceuticals EPS BVPS 2012 Estimates 10.06 91.50 Multiples 18.0x 2.0x Value/Share 181 183 Average 182 Fair Value (Discounted at cost of equity) 160 Current Price 135 Dividend Yield 0.7% Total Return 19.8% Page 10

Table 11: Income Statement Income Statement (MM BDT) 2007 2008 2009 2010E 2011E 2012E Net Sales 3,597.0 4,010.2 4,868.3 6,815.6 8,860.3 10,632.4 Cost of Goods Sold 1,967.5 2,002.9 2,566.2 3,339.7 4,341.6 5,156.7 Gross Profit 1,629.5 2,007.3 2,302.0 3,476.0 4,518.8 5,475.7 Administrative Expenses 145.5 153.5 215.2 259.0 327.8 382.8 Selling & Distribution Expenses 829.2 855.0 1,085.6 1,397.2 1,807.5 2,158.4 Operating Profit 654.8 998.8 1,001.3 1,819.8 2,383.4 2,934.5 Other Income 19.6 0.7 199.0 441.0 468.3 490.5 Financial Cost 254.7 249.7 289.4 282.0 314.7 348.3 Preference Share Dividend 153.8 Profit Before WPPF 419.7 749.8 910.8 1,825.0 2,537.0 3,076.7 Contribution to Workers' Profit Participation/Welfare Funds 20.0 35.7 43.4 86.9 120.8 146.5 Profit Before Tax 399.7 714.1 867.5 1,738.2 2,416.3 2,930.3 Tax 46.6 168.8 242.7 486.4 676.1 819.9 Profit After Tax 353.1 545.3 624.7 1,251.8 1,740.2 2,110.3 Diluted EPS (BDT) 1.68 2.60 2.98 5.97 8.29 10.06 Source: Company Annual Reports and BRAC EPL Estimates Table 12: Cash Flow Statement Cash Flow Statement (MM BDT) 2007 2008 2009 2010E 2011E 2012E Net Profit After Tax 1,251.8 1,740.2 2,110.3 Change in Working Capital -599.4-730.5-517.4 Non-Cash Charges 324.2 326.6 329.0 Other Changes 62.6 98.3 78.5 Cash Flow from Operating Activities 340.5 880.7 520.9 1,039.2 1,434.6 2,000.5 Capital Expenditure -421.4-424.6-427.8 Other Investments 0.0 Cash Flow from Investing Activities -449.2-1,180.4-3,452.9-421.4-424.6-427.8 Change in Debt 321.8 356.4 435.8 Dividends Paid -209.8-314.7-367.2 Cash flow from Financing Activities -386.6 287.6 3,916.7 112.0 41.7 68.6 Net Cash Flow -495.4-12.1 984.8 729.8 1,051.7 1,641.3 Opening Cash 581.1 85.7 73.6 1,058.4 1,788.2 2,839.9 Closing Cash 85.7 73.6 1,058.4 1,788.2 2,839.9 4,481.3 Diluted CF Per Share (BDT) 1.62 4.20 2.48 4.95 6.84 9.53 Source: Company Annual Reports and BRAC EPL Estimates Page 11

Table 13: Balance Sheet Balance Sheet (MM BDT) 2007 2008 2009 2010E 2011E 2012E Inventories 1,470.2 1,505.3 1,723.0 1,908.4 2,170.8 2,291.9 Spares & Supplies 182.3 234.5 242.0 315.0 409.5 486.4 Accounts Receivable 499.7 503.9 694.1 971.8 1,263.3 1,516.0 Loans, Advances & Deposits 685.9 544.5 699.2 909.9 1,182.9 1,405.0 Short Term Investment 2,500.0 2,500.0 2,500.0 2,500.0 Cash & Cash Equivalent 85.7 73.6 1,058.4 1,788.2 2,839.9 4,481.3 Total Current Assets 2,923.8 2,861.9 6,916.7 8,393.3 10,366.4 12,680.5 Property, Plant & Equipment - Net 8,992.9 11,921.1 12,966.6 13,063.8 13,161.8 13,260.5 Intangible Assets 5.7 5.7 5.7 5.7 Investment in Shares 36.7 36.7 2.9 2.9 2.9 2.9 Total Non-Current Assets 9,029.6 11,957.8 12,975.2 13,072.4 13,170.4 13,269.1 Total Assets 11,953.4 14,819.7 19,891.9 21,465.7 23,536.8 25,949.6 Short Term Borrowings 907.6 1,461.7 1,451.3 1,618.5 1,781.0 1,963.2 Long Term Borrowings - Current Maturity 343.6 648.2 308.8 385.0 400.7 436.3 Creditors & Other Payables 271.8 263.2 409.9 533.4 693.5 823.7 Accrued Expenses 60.1 81.8 79.1 102.9 133.8 158.9 Dividend Payable 3.3 3.2 1.7 1.7 1.7 1.7 Income Tax Payable 41.6 144.1 70.6 70.6 70.6 70.6 Total Current Liabilities 1,628.0 2,602.0 2,321.5 2,712.1 3,081.2 3,454.5 Long Term Borrowings - Net of Current Maturity (Secured) 1,776.4 1,446.6 1,924.9 2,003.5 2,181.6 2,399.5 Fully Convertible, 5% Dividend, Preference Share 4,100.0 Liability for Gratuity & WPPF 246.7 274.4 307.4 370.0 468.3 546.8 Deferred Tax Liability 51.4 46.4 352.4 352.4 352.4 352.4 Total Non-Current Liabilities 2,074.5 1,767.4 6,684.8 2,725.9 3,002.4 3,298.8 Issued Share Capital 1,145.1 1,259.6 1,511.5 2,098.1 2,098.1 2,098.1 Share Premium 1,489.8 1,489.8 1,489.8 5,276.8 5,276.8 5,276.8 Excess of Issue Price over Face Value of GDRs 1,689.6 1,689.6 1,689.6 1,689.6 1,689.6 1,689.6 Capital Reserve on Merger 295.0 295.0 295.0 295.0 295.0 295.0 Revaluation Surplus 1,711.2 1,617.4 1,617.4 1,617.4 1,617.4 Retained Earnings 3,631.5 4,005.1 4,282.5 5,050.8 6,476.3 8,219.5 Total Shareholders' Equity 8,250.9 10,450.2 10,885.7 16,027.7 17,453.2 19,196.4 Total Liabilities and Shareholders' Equity 11,953.4 14,819.7 19,891.9 21,465.7 23,536.8 25,949.6 Diluted BVPS (BDT) 39.33 49.81 51.88 76.39 83.19 91.50 Source: Company Annual Reports and BRAC EPL Estimates Page 12

Table 14: Indicators 2007 2008 2009 2010E 2011E 2012E Sales growth -2.84% 11.49% 21.40% 40.00% 30.00% 20.00% Earnings growth -24.98% 54.46% 14.56% 100.37% 39.01% 21.27% EBITDA (MM BDT) 1,349.5 2,069.0 2,089.3 3,813.3 5,008.4 6,162.0 EBITDA growth -12.67% 53.31% 0.98% 82.51% 31.34% 23.03% Dividend growth 10.00% 120.00% N/A N/A 50.00% 16.67% Dividend yield 0.00% 0.00% 0.00% 0.74% 1.11% 1.30% Cost of sales/sales 54.70% 49.94% 52.71% 49.00% 49.00% 48.50% Gross profit (MM BDT) 1,629.5 2,007.3 2,302.0 3,476.0 4,518.8 5,475.7 Gross profit margin 45.30% 50.06% 47.29% 51.00% 51.00% 51.50% Operating profit (MM BDT) 654.8 998.8 1,001.3 1,819.8 2,383.4 2,934.5 Operating margin 18.20% 24.91% 20.57% 26.70% 26.90% 27.60% Net profit (MM BDT) 353.1 545.3 624.7 1,251.8 1,740.2 2,110.3 Net margin 9.82% 13.60% 12.83% 18.37% 19.64% 19.85% Return on equity 4.36% 5.83% 5.86% 9.30% 10.40% 11.52% Return on assets 2.96% 4.07% 3.60% 6.05% 7.73% 8.53% EBITDA margin 37.52% 51.59% 42.92% 55.95% 56.53% 57.95% Diluted Book value per share 39.33 49.81 51.88 76.39 83.19 91.50 Diluted Earnings per share 1.68 2.60 2.98 5.97 8.29 10.06 Diluted Cash Flow per share 1.62 4.20 2.48 4.95 6.84 9.53 Debt/equity 36.69% 34.03% 33.85% 25.00% 25.00% 25.00% Debt/assets 25.33% 24.00% 18.53% 18.67% 18.54% 18.49% Equity growth rate 3.79% 26.65% 4.17% 47.24% 8.89% 9.99% P/E 80.3x 52.0x 45.4x 22.6x 16.3x 13.4x P/B 3.4x 2.7x 2.6x 1.8x 1.6x 1.5x EV (MM BDT) 31,286.8 31,827.6 30,971.5 30,563.6 29,868.2 28,662.7 EV/EBITDA 23.2x 15.4x 14.8x 8.0x 6.0x 4.7x Source: Company Annual Reports and BRAC EPL Estimates Page 13

IMPORTANT DISCLOSURES Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects. BRAC EPL Stock Brokerage Capital Markets Group Aminul Haque Head of Capital Markets amin@bracepl.com 01730317802 Md. Monirul Islam Research Analyst monirul@bracepl.com 01730357150 Parvez Morshed Chowdhury Research Analyst parvez@bracepl.com 01730357154 Ali Imam Investment Analyst imam@bracepl.com 01730357153 Asif Khan Investment Analyst asif@bracepl.com 01730357158 Md. Ashfaque Alam Research Associate ashfaque@bracepl.com 01730357786 Khandakar Safwan Saad Research Associate safwan@bracepl.com 01730357779 BRAC EPL Research www.bracepl.com WW Tower (7 th Floor) 68 Motijheel C/A, Dhaka-1000 Tel: +88 02 951 4721-30 Fax: +88 02 955 3306 E-Mail: research@bracepl.com