Adeel Ahmed

STRICTLY PRIVATE & CONFIDENTIAL Investment Proposal MAGTECH PAKISTAN (PVT.) LTD. Information Memorandum Prepared by: Al Intisar (Pvt.) Ltd. http://www.alintisar.net/ 3 December 2016 IMPORTANT NOTICE Supporting Material This Information Memorandum is supported by the following additional information: Financial Model The financial model contains historical financial statements and a financial forecast. The financial forecast embodies the business projections based on a demand oriented model and cost of economics as well as the likely success of MagTech Pakistan (Pvt.) Ltd. in the market. An understanding of the assumptions underlying the model is essential. The assumptions are detailed in the Information Memorandum which also contains key results from the financial model. Due Diligence required This Information Memorandum was prepared by Al Intisar (Pvt.) Ltd. on the basis of information provided by MagTech Pakistan (Pvt.) Ltd. While reasonable care has been exercised by both Al Intisar (Pvt.) Ltd. and MagTech Pakistan (Pvt.) Ltd. in the preparation of this document, no responsibility whatsoever is accepted by either the Al Intisar (Pvt.) Ltd. or MagTech Pakistan (Pvt.) Ltd. for the accuracy or completeness of this Information Memorandum. Any organisation, Private / Public Investor or any other Individual contemplating a transaction envisaged by this Information Memorandum is encouraged to conduct such due diligence as may be required to form a true and fair view of the financial condition and operational activities of MagTech Pakistan (Pvt.) Ltd. as well as the current state of its technologies. Reproduction and/or distribution prohibited Neither this document, nor any part of it, may be reproduced by any process, exhibited or used for any other purpose whatsoever. The recipient, by accepting delivery of the memorandum, agrees to return the memorandum and all enclosed documents to the Al Intisar (Pvt.) Ltd. if the recipient does not engage in a transaction with MagTech Pakistan (Pvt.) Ltd. Confidentiality The issue of this Information Memorandum is conditional upon the recipient having first executed a Confidentiality Agreement which pertains to the information herein contained. The recipients are reminded of the obligations which they have undertaken in respect of the confidentiality of this information, and any other confidential information supplied by either Al Intisar (Pvt.) Ltd. or MagTech Pakistan (Pvt.) Ltd. Enquiries All product, solutions or business related enquiries are to be directed to the following Management of MagTech Pakistan (Pvt.) Ltd: Mr. Mir Mazher Talpur Dr. Iqbal Khemane President, MagTech Pakistan (Pvt.) Ltd. EVP, MagTech Pakistan (Pvt.) Ltd. Address: 113, Progressive Centre, Shahrah-e-Faisal, Karachi, Pakistan. Telephone: -, Fax: - Email:- Address: 113, Progressive Centre, Shahrah-e-Faisal, Karachi, Pakistan. Telephone: -, Fax: - Email:- A L IN T IS A R ( P V T . ) L T D . MAGTECH PAKISTAN (PVT.) LTD. Information Memorandum EXECUTIVE SUMMARY Investment opportunity  Market        Industry    Business overview   Management   An exciting investment opportunity in a relatively new yet a revolutionizing scientific innovation, Magnetology Investment Term – 10 Years Prospective Return on Equity of 30% or more Exit after 10 years via IPO or any other profitable means Massive opportunity in the Agriculture Sector - Customized and solution oriented magnetic devices that unbelievably enable brackish / salty / unstructured water to be used extensively in Farming, Poultry, Dairy & Livestock and Fisheries subsectors Prospectively large due to myriad uses, applications of the Technology in various fields, avenues and aspects of the Pakistani economy Key sectors of interest would be Agriculture, Energy (Fuel), Health and Industrial Expected to grow rapidly once both the marketing efforts are scaled and word of mouth becomes commonplace Highly fragmented water and allied services industry The business is going to tap several consumer segments and markets for befitting and viable technology solutions Strategic Competitive Advantage – Highly superior, unmatched and advanced Russian Magnetic Technology The Business would thrive due to its KPI’s, ideal opportunities in the market and lack of befitting competitive threat Scalable Business Model – Superior Russian Technology, working with & convincing Agriculture and Energy (Fuel) Consumers while employing key Sector Specialists in every business avenue to achieve business objective(s) Mr. Mir Mazher Talpur, President and Dr. Iqbal Khemane, EVP of MagTech Pakistan Pvt. Ltd. have both the related expertise in the uses and applications of Customized Magnetic Devices as well as proficient Managerial capabilities, which will enable the local Business to strategically grow and expand in key areas of significant influence Trained Staff and Sector Specialists will deliver quality / service levels required by the target consumer segment(s) Financial information      Revenue potential of Rs. 13.7 bn (approx.) over the investment term Annual growth of 50% expected once the growth capital is contributed Higher ROE or IRR of 30% or more for Prospective Investors Business Equity Value Estimation: Rs. 200 million Equity Stake being offered: 25% Corporate structure   Business is currently free of any debt or financial encumbrances 100% Equity formation MAGTECH PAKISTAN (PVT.) LTD. TABLE OF CONTENTS 1. INVESTMENT OPPORTUNITY 3 2. THE MARKET 5 3. 4. 2.1 The Problem ............................................................................................................. 5 2.2 Agricultural Economy .............................................................................................. 6 2.3 Drinking Water Quality ............................................................................................ 7 2.4 Wasterwater ............................................................................................................. 8 THE INDUSTRY 9 3.1 Industry Overview .................................................................................................... 9 3.2 The Need .................................................................................................................. 9 THE COMPANY & BUSINESS OVERVIEW 10 4.1 The Principal .......................................................................................................... 10 4.2 The Business........................................................................................................... 10 4.3 The Management .................................................................................................... 11 4.4 The Technology ............................................................................................................... 11 4.4.1 Magnetic Technology - The Nirvana…………………………………………… 12 4.4.2 Magnetized Water (Structured Water)…………………………………………...12 4.4.3 Water Magnetization (The Driving Force)……………………………………... 13 4.4.4 Magnetic Technology - For EveryDay Life……………………………………..13 4.4.5 Multipronged Benefits of Magnetology…………………………………………14 4.4.5.1 Land Farming………………………………………………………………….14 4.4.5.2 Dairy / Cattle Farming…………………………………………………………14 4.4.5.3 Fisheries……………………………………………………………………… .15 4.4.5.4 Poultry…………………………………………………………………… 4.4.5.5 Fuel Saving (Automobiles & Generators)……………………………………16 4.4.5.6 Health...……………………………………………………………...................16 4.4.5.7 Scaling / Corrosion Removal………………………………………………...16 4.4.5.8 Oil Mining & Refining…………………………………………………………17 4.4.5.9 Exclusive Solutions…………………………………………………………….18 15 4.5 The Products / Solutions………..…………………………………………………19 4.5.1 Mag Green Devices……………………………………………………………...19 4.5.2 Mag Life Devices………………………………………………………………..26 4.5.3 Mag Fuel Devices…………………………………………………………...…...27 4.5.4 Mag HealthCare Devices………………………………………………………...28 4.5.5 Mag Life Devices…………………………………………………………….…..30 MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.6 5. 5.2 6. 4.6.1 Mag Green / Mag Life Devices .......................................................................... 31 4.6.2 Mag Fuel Devices .............................................................................................. 32 4.6.3 Mag HealthCare / Mag Home Devices .............................................................. 33 34 Business / Market Analysis .................................................................................... 34 5.1.1 Volume & Value ................................................................................................ 35 5.1.2 Revenue / Sales Mix .......................................................................................... 34 5.1.3 Bigger Market, Bigger Opportunity ................................................................... 35 5.1.4 Competitive Advantage ..................................................................................... 35 Transaction Considerations ........................................................................................ 35 5.2.1 Business Potential .............................................................................................. 35 5.2.2 Growth Dynamics .............................................................................................. 36 FINANCIALS, PROJECTIONS & BUSINESS VALUATION 38 6.1 Balance Sheet (FY 2015 - FY 2016) ...................................................................... 38 6.2 Income Statement (FY 2015 - FY 2016) ................................................................ 39 6.3 Financial Review (FY 2015 - FY 2016) ................................................................. 40 6.4 Business Projections (FY 2017 - FY 2026) ............................................................ 42 6.5 6.6 7. Marketing & Sales Strategy.................................................................................... 31 BUSINESS ANALYSIS & TRANSACTION CONSIDERATIONS 5.1 Page 2 6.4.1 Agriculture ......................................................................................................... 42 6.4.2 Energry............................................................................................................... 42 6.4.3 Health ................................................................................................................. 42 6.4.4 Industrial ............................................................................................................ 43 Financial Models .................................................................................................... 44 6.5.1 First Model (Aggressive) ................................................................................... 44 6.5.2 Second Model (Semi Aggressive) ...................................................................... 46 6.5.3 Third Model (Moderate) .................................................................................... 48 6.5.4 Fourth Model (Conservative) ............................................................................. 49 Business Valuation (Equity) ................................................................................... 50 6.6.1 The Discount Cash Flow (DCF) Method ........................................................... 50 6.5.2 Free Cash Flow to Equity (FCFE) Method ....................................................... 52 6.5.3 Firm Value (FV) / EBITDA Method ................................................................. 54 CONCLUSION - VALUE PROPOSITION & OFFERINGS 56 7.1 Value Proposition ................................................................................................... 56 7.2 Conclusion / Value Offering .......................................................................................... 56 A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 3 MAGTECH PAKISTAN (PVT.) LTD. Information Memorandum 1. INVESTMENT OPPORTUNITY The Management is seeking to raise PKR 50 – 100 million in Equity funding (growth capital) for MagTech Pakistan (Pvt.) Ltd for business growth and expansion. We anticipate an exit for the Equity Investor either by IPO or strategic trade sale or any other profitable financial avenue at the time. The lack of befitting, business related solutions in Agriculture, Energy (Fuel) and Industrial sectors present significant market share and profitable opportunities for the Company. Following are the key themes of the investment opportunity in the local business, MagTech Pakistan (Pvt.) Ltd http://magtech.com.pk/Home/Index.html: Sole Distributor / Agency Holder of Patriarch Magnetic Company ‘Magnetic Technologies LLC, UAE’. Web Address of the Principal firm: http://www.magneticeast.com/eng/index.asp MagTech Pakistan (Pvt.) Ltd, was created to collaborate with Magnetic Technologies LLC.UAE to promote, distribute and expand the pioneering Russian based Magnetic Technology in Pakistan with the goal to provide chemical free magnetically enhanced solutions in every sphere of domestic economy particularly in Agriculture, Fuel / Energy, Industrial and Health sectors. The Company is the sole agent / distributor of its Principal. Magnetic Technology is the outcome of more than 30 years of constant research, observation and implementation. The research was initiated by 52 leading research institutes in Russia led by Prof. Yuri Tkatchenko, who is continuously working on this technology from the U.A.E. The international presence of the Company’s Principal in both emerging and mature markets has been the major hallmark, which would also boost the affiliate business in the local circuit. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 4 The Company is currently seeking Growth Capital coupled with Diversified Managerial competence from seasoned Business / Financial Investors. The Capital being sought is mainly for major acquisition of inventories and secondly for specialized marketing efforts at a wider scale so as to become a market leader in the water and allied services industry. The Company’s Business model is free of CAPEX and devoid of any major human resource related expenses. The reasonable Capital requirements are in stark contrast with the Company’s major scalability and profitability prospects in the near future. The Valuation of Company’s Equity has been performed keeping in view domestic pain points, major growth prospects, higher profitability, anticipated scalability, negligible competition and conducive social, regulatory / external environment. A detailed outline of the investment opportunity, market, industry and business is provided in the document below. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 5 2. MARKET 2.1 The Problem Pakistan has one of the rapidly growing populations in South Asia. Being an underdeveloped country with meagre financial and other resources, the problems for the masses in general are compounding with passing times. In the age of the 21st century, the three pronged themes of globalization, modernization and technology are at the forefront in every segment, sphere and sectors of any interconnected economy. The challenges of the 21st century are therefore, immense and bewildering. In Pakistan, though, we are facing challenges of different nature such as internal conflicts, socioeconomic injustices and abject poverty in the extreme corners and segments of the society. One such perpetual problem which has affected every other segment of the economy is dire shortage and depleting quantities of fresh, clean and arable water. Secondly, the majority of water that is even available is unclean, contaminated, salty / brackish and / or unusable for various consumption purposes. Freshwater is diminishing at a rapid pace globally and Pakistan is amongst the top waterstressed countries in the world. In 1951, the water availability per capita in the country was 5,260 cubic meters / year; in 2010 it had depleted to 1,038 cubic meters / year (source: WAPDA). Residents in urban areas probably do not realize how precious freshwater is because they have enough available for cooking and cleaning requirements. But globally, there are about one billion people who do not have access to clean drinking water. In Pakistan, some communities have to walk long distances to fetch water. Our groundwater level is also declining rapidly. On the other hand, freshwater is not plentiful in nature and only three per cent of the water is fresh. As a result, we are dependent on snowmelts and rains for our freshwater supply and this is a recurring water cycle that keeps replenishing, but only some of it. The problem is that we are polluting our freshwater resources and gradually making them unavailable. According to a World Bank survey of 2003 in Pakistan, 5.6 million tons of fertilizers and 70,000 tons of pesticides are used every year. Farmers use both fertilizers and pesticides without A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 6 understanding the situation and end up killing crop-friendly carnivore insects as well. On the other hand, no sewage treatment plant is functioning properly in the country and raw sewage or untreated industrial waste is poured directly into the harbor from the metropolis. This in turn pollutes freshwater while contaminating the naturally rich marine ecosystem. As the need for pristine and / or structured water grows, so will the demand for water based applications and demand by water-reliant sectors / industries. 2.2 Agricultural Economy In spite of structural shift towards industrialization, agriculture sector is still the largest sector of the economy with widespread impact and high socioeconomic cost. With the existing contribution of almost 21% towards the national GDP, it is the mainstay of the rural economy. Notwithstanding the higher contribution, the sector is facing myriad issues of varying and disturbing nature. The most fundamental constraint is the availability of scarce and clean water, which in turn limits expansion of irrigated land and creates variations in agriculture growth. The problems associated with Crop productivity includes the following:  Poor quality seeds  Inappropriate Production Technology  Variation in crop with poor yields  Scarcity of Freshwater  Poor quality Groundwater  Salinity  Water Logging  Higher input costs  Low water productivity  Inadequate Credit Facilities Likewise, Fertilizers also play a vital role for increasing productivity. One of the major factors limiting productivity is poor soil fertility and lesser use of organic, mineral fertilizers. There is net depletion of nutrients due to higher uptake by the plants compared to addition of fertilizers. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 7 Hence, the soil health is fast deteriorating and affecting the efficiency of mineral fertilizers. Nitrogenous, phosphatic and potassic fertilizers are essentially needed to maintain soil fertility for most crops. Almost 32% - 33% of the total land available for farming and irrigation purposes is salt-affected. Intensive and continuous use of surface irrigation has altered the hydrological balance of the irrigated areas, especially Indus Basin. The substantial rise in the water table has caused salinity and water logging in large areas of the country. The magnitude of the problem can be gauged from the fact that the area of productive land is being damaged at a rate of 40,000 hectares annually. The negligible rainfall causes major cropping (80%) to be dependent on irrigation. Additionally, 2 million hectares of land are under non-irrigated cropping, such as plantings on floodplains as the water recedes. Above 80% of growers are not using certified seeds in the country. The distribution of improved seeds for different agriculture produce has never exceeded 20% of the total seed requirement at the national level. 2.3 Drinking Water Quality According to a survey on behalf of the Pakistan Council of Research in Water Resources published in 2012, 88% of the functional water supply schemes in Pakistan provide water that is unsafe for drinking because of microbiological contamination. Increased arsenic, nitrate and fluoride contamination was detected in drinking water in various localities in Pakistan according to an official government document. Generally, water pressure is low in Pakistani supply systems. Together with leaky pipes, this leads to infiltration of contaminated water. A survey of drinking water in Karachi revealed that out of 216 ground and surface water samples collected, 86% had higher lead levels than the WHO’s maximum acceptable concentration of 10 parts per billion (ppb). The mean lead concentration was 146 ppb in untreated ground water and 77 ppb in treated tap water. The facts mentioned above clearly indicate the need for clean, structured and biologically active drinking water for a healthier life and an unaffected daily routine. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 2.4 Page 8 Wastewater Treatment The Pakistani Ministry of Water and Power reported in 2002 that only 1% of the domestic and industrial wastewater receives treatment. According to the Pakistan Water Situational Analysis, there are three wastewater treatment plants in Islamabad, of which only one is functional. Karachi has two trickling filters, where effluents generally receive screening and sedimentation. Lahore has some screening and grit removal systems but they are hardly functional. In Faisalabad, there is a wastewater treatment plant, in which wastewater receives primary treatment, but it treats only 7 percent of the collected wastewater in the city. Multan, Rawalpindi and Gujranwala have no wastewater treatment plants at all. In rural areas, wastewater treatment is non-existent, leading to pollution of surface and groundwater. All in all, this reflects that the Waste Water Industry is either not well developed and / or the solutions provided are not in line considering their financial and practical implications. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 9 3. INDUSTRY 3.1 Industry Overview The water and allied services industry in Pakistan is highly fragmented with no single service provider being able to capture a sizeable market share vis-à-vis the holistic water industry. There is no single company which has captured the major pie of the market share. The reasons for their underdevelopment can be attributed to the following factors:  Solutions provided are either impractical, expensive and / or not scalable  Inefficient and ineffective solutions  High end cost / benefit ratio for the end users Most of these domestic water reliant businesses are doing run-of-the-mill operations and / or catering towards a smaller market like the water filtration / RO plants. On the other hand, there are waste water treatment companies with much higher cost to benefit ratio because their solutions are highly costly while the benefits are neither long lasting nor effective. These companies are unable to generate substantial demand to either command higher prices and / or higher market share due to lacking competitive advantage. Furthermore, some of these businesses like RO plants are in fact potential future customers rather than competitors of MagTech Pakistan because of its USP of activating the dead drinking water and also adjusting their acidic or alkalized pH levels. 3.2 The Need The associated water problems (such as polluted water, untreated, unstructured, brackish and scarce water etc.) are seriously hampering the pace and growth of the agro economy as well as other spheres of influence in Pakistan. Due to the double whammy of extremely scarce and unclean water, there is an enormous need in Pakistan for a buoyant technology which is fit enough to provide for the efficient and practical usage of available water resources for a wider scope and major applicability in various avenues / fields of interest. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 10 4. THE COMPANY AND BUSINESS OVERVIEW 4.1 The Principal The Russian version of Magnetic Technology was the outcome of 30-years of unceasing research, intellectual work and hard sweat. Since then (i.e. from 1995), the research work has been continuing from UAE when scientists from Russia relocated and created the Magnetic Patriarch Company Magnetic Technologies LLC. UAE. The World’s largest base of “Magnetology” operating in over 25 countries, the Principal also possesses claim on more than 500 research works in different spheres of Global Economy. 4.2 The Business MagTech Pakistan (Pvt.) Ltd, was established by a team of highly experienced professionals in collaboration with renowned Russian scientist Prof. Yuri Tkatchenko (inventor of innovative magnetic technology) and his business associate Sheikh Junaid Khoory (Chairman, Magnetic Technologies LLC. UAE). The local Business was established to introduce and expand magnetic technology in Pakistan with the goal to provide chemical free, magnetized solutions in every aspect of life in the country. The Company was incorporated on 10th April, 2014 and has prepared significant groundwork in the previous 2 years. The Business is now ready for major headwinds and scalable expansion. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.3 Page 11 The Management Mr. Mir Mazher Talpur (President) and Dr. Iqbal Khemane (Executive Vice President) were at the forefront of bringing this pioneering technology in Pakistan. Deeply concerned about Saline and Waterlogged land, they were initially seeking chemical-free and permanent solution in Agriculture. In their pursuit for superior knowledge and technology orientation, they were fortunate enough to come into contact with the above two gentlemen. 4.4 The Technology Magnetology is the most incredible invention of the 21st Century that provides chemical free solutions in almost every field of life, which includes and extends beyond treatment of drinking water, soil desalination, salty water for irrigation, treatment of low quality seeds to enhance agriculture yield, increasing profitability of farmers, enhancing rainfall, health, fuel and energy saving, and industrial scaling / corrosion. Salient Features: i. Customized Agriculture devices are being used on hundreds of thousands of hectares for irrigation. Additionally, the Technology enables salty water to be used for irrigation. ii. The magnetic devices for Industrial applications have been installed in many manufacturing units in several countries. In Dubai, the following large companies are getting the benefits of the chemical free solution which include National Cement Company (PSC), Union Paper Mills, Dubai Aluminum Company Limited as well as many other. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal iii. Page 12 Countless satisfied customers are continuously using Magnetic Funnel and other devices for a healthier and rewarding life. The home devices for water quality improvement have been successfully installed on hundreds of Villas / homes in Dubai, UAE and many other countries. iv. Ecological systems are being used successfully for clearing lagoons in Oman, United Arab Emirates, Saudi Arabia and other nations. v. Contribution towards environment protection by removing tons of harmful substances in the atmosphere. 4.4.1 Magnetic Technology - The Nirvana Magnetic Technology is the outcome of more than 30 years of constant research, scientific observations and project-to-phase wise implementation. The research was initiated by 52 leading research institutes in Russia under the able supervision and mentoring of Prof. Yuri Tkatchenko, who is continuously working on this technology from UAE. Without going into the technical details, the usability and applications of the Magnetic Technology are in many areas and economic sectors such as Drinking Water, Health, Energy (Automobiles and Generators), Agriculture (Farming, Poultry, Dairy & Livestock, and Fisheries), Industrial (Construction, Anti Scaling/Corrosion) etc. In addition, the Technology has unlimited uses in “Exclusive Solution Range” such as RO Plants, Hotels, Swimming Pools, Hospitals, Golf Courses, Parks & Horticulture, Lake Rehabilitation as well as application in another dynamic and revolutionizing process called “Praesidium”, which in simple terms is Rain Enhancement Technology. 4.4.2 Magnetized Water (Structured Water) Clean and structured water is one of the most essential elements for the sustenance of healthy life. Additionally, water plays an important role in the world economy as it functions as a solvent for a wide variety of chemical substances and facilitates industrial cooling and transportation. The concept of Magnetized Water (Structured water) is not new, though it is a new concept in Pakistan. It has been in practical use (since 1995) in 25 major or key developing economies of the world like Russia, Saudi Arabia, GCC countries, Australia, India, Cyprus, Chile etc. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.4.3 Page 13 Water Magnetization (The Driving Force) Water magnetization is a scientific breakthrough with its foundations dated as long back as the early 1970s. It treats each and every kind of water based on its purpose of application such as impure, unstructured water for drinking and domestic usage (making the water healthy and biologically active), brackish water with high TDS (Total Dissolved Solids) and extreme pH levels for better suitability, usability, arability, higher yields of previously endangered, uncultivable and barren agriculture lands and farms as well as for healthier products and larger gains in the dairy, livestock and fisheries subsector. The magnetized water technology – a surreal reality, is now available in Pakistan and will have its footprint in every walk of life with beneficial returns for every stakeholder concerned such as end users, growers, farmers, industrialists and commoners etc. 4.4.4 Magnetic Technology - For EveryDay Life Magnetic Technology is not less than a miracle, especially for a country like Pakistan where there is a burning need for a solution that caters to any and everything related to Hydro based uses, applications, devices and installations. Because of the technology’s multidimensional benefits in various fields of life, unmatched impact and greater savings / enhanced profitability, it is the most practical, reliable, long lasting and feasible solution for the general public as well as for the key underpinning sectors of Pakistan. The application of Magnetic Technology through various “Customized Treatment Devices” on untreated, unfiltered, unclean, unstructured and / or brackish water makes it more structured, oxygenized thereby revitalizing its chemical / physical parameters and therefore converts the dead / untreated water to become alive or biologically active and more useful as per the underlying consumption purpose i.e. filtered / clean water for drinking / domestic uses OR enabling of brackish water (irrigation water with High TDS and pH level) to be utilized for saline / barren / marginal land for reclamation and cultivation purposes. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.4.5 Page 14 Multipronged Benefits of Magnetology The key benefits of using Magnetic Technology / Magnetized Water in various fields / sectors are as follows: 4.4.5.1 Land Farming – Following years of extensive scientific research, the Russian Technology helps enhance Agricultural resources, resulting in multifold commercial benefits: (i) Allows reclamation of and cultivation on saline, barren and marginal land even with brackish / salty water up to 6,000 TDS (ii) Enables soil desalination (iii) Water used for irrigation is reduced by 30% - 50% (iv) Minimizes use of farming inputs such as pesticides, herbicides, fertilizers and seeds (v) Significant reduction in seeds (30% - 50%), fertilizers (50%) and pesticides (50% – 70%) (vi) Yield per acre is increased by 20% - 50% approx. (vii) Crops mature / ripe much earlier than expected (at least 15 – 20 days earlier) (viii) Increases the quality and taste of vegetables and fruits (ix) Doubles the shelf life of produce (given the same storage conditions) 4.4.5.2 Dairy / Cattle Farming – Dairy farmers and breeders can benefit from wide array of productiveness in key areas such as: Milk Production: (i) Milk production increases by 10% - 15% (ii) Fat content of milk increases by 0.13 – 0.15% (iii) Firmness of “utters” is reduced and makes it easier to milk (iv) The number of bacteria in milk is drastically reduced (v) The shelf life of the containerized dairy milk doubles Meat: (i) Significant improvement in the taste and quality of animal meat (ii) Average weight gain in calves increases up to 35% (iii) Average weight gain in lambs increases up to 12% (iv) Quantity of meat increases significantly A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 15 Disease Prevention / Animal Mortality & Fertility: (i) Prevents diseases in animals by eliminating the impurities in water and fodder (ii) Mortality ratio in animal becomes negligible while also showing signs of significant disease resistance (iii) Protection against skin diseases and skin glows/shines (iv) Improves fertility rates (v) Increases re-productive performance of animals by making them more active 4.4.5.3 Fisheries – The following gains can be harnessed in the Fisheries subsector: (i) Structured water carries more oxygen which is favorable for fish, shrimp and lobster breeding as well as caviar farming (ii) Structured water reduces diseases and hence improves the fish stock (iii) Fish taste gets improved (iv) Fish attains maturity faster (v) The weight of the fish increases twofold (i.e. 100% increase in size) (vi) Fish mortality and morbidity rate reduces significantly 4.4.5.4 Poultry – The following improvements can be attained in the Poultry subsector: Egg-Laying: (i) Nutritionally rich eggs (ii) Increases the egg-laying ability of birds increases up to 10% (iii) Profitability is increased and / or reduction in feeding cost Healthier Chicks: (i) Potentially healthier and disease free chicks (ii) Birds gain weight faster which reduces maturity period by 3 to 5 days (iii) Quality of meat is improved Health & Quality: (i) Mortality and sickness rate is significantly reduced (ii) Metabolic and immune system are substantially improved to resist viral diseases (iii) Requirement of medication and vaccines gets significantly reduced A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 16 4.4.5.5 Fuel Saving (Automobiles & Generators) – The need for saving upon higher fuel & energy costs is a chronic issue for all concerned. Magnetized Fuel Devices can help in the following manner: (i) Reduces fuel consumption – Automobiles (15% - 30%) and Generators (5% 10%) (ii) Cleaner Environment through reduction in emission of toxic gases (iii) Increases Engine’s life and power (iv) Decreases maintenance cost of the Engine (v) Noise reduction 4.4.5.6 Health – The are numerous benefits of using Magnetized (biologically active) water and Magnetic Technology in Health sector and addresses the following issues, diseases and hazards such as: (i) Reduces migraine / headaches (ii) Regulates High / Low Blood Pressure (iii) Reduces Cholesterol level (iv) Reduces Acidity and regulates body’s pH level (v) Asthma and other respiratory issues (vi) Epilepsy (vii) Muscular Pains and Arthritis (viii) Water-borne diseases and contamination 4.4.5.7 Scaling / Corrosion Removal – In the Industrial sector, the problem of scaling / corrosion is a regular feature in processing plants, cooling towers, boilers, heat exchangers and pipelines. The technology competently resolves all of the following issues: (i) Scaling and corrosion (ii) Failure of boiler tubes due to overheating of the metal (iii) Corrosion of the metal surface under the deposit (iv) Increased boiler cleaning expenses to remove the deposit (v) Microbial growth which strongly influences fouling, corrosion and scale formation (vi) Calcium Deposits which increase bacterial growth and foul pumps as well as filters and reduces the heat transfer potential of the system thereby increasing the energy needs A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 17 (vii) Higher maintenance cost (viii) Frequent repair or replacement of equipment (ix) Frequent shutdown for cleaning (x) Higher Fuel cost and Energy consumption 4.4.5.8 Oil Mining & Refining – The multifarious benefits in Oil producing and refining industries including drilling, pumping and separation processes are listed below: (i) Life of the core drills is extended (ii) Efficiency of the drilling process is enhanced (iii) Scaling problems are prevented against under various circumstances (iv) Efficiency in pumping due to increased capacity and reduced solidifying material (v) Reduces the effects of saline encrustation before pumping (vi) Flow capacity of the liquid to storage tanks after pumping is improved (vii) Efficiency of the Platform’s initial dewatering process is significantly improved (viii) Allows wells to be chemically injected while the drilling rig is still on site, thereby saving time and money for subsea wells (ix) Reduces concerns regarding risk of early formation and well-damage (x) Effectively extends the lifetime of a well, postpones redundancy (decommissioning) (xi) Enhances pumping when using sea water to maintain reservoir pressure (xii) Significantly reduces salt deposits in pipes, particularly during operation of compressor wells (xiii) Significantly reduces wax depositions in oilfield equipment and highway transport of oil (xiv) Potential content of fractions of petroleum products could be altered (xv) Improves solubility and selectivity of organic solvents A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 18 4.4.5.9 Exclusive Solution Range – Besides the many applications, advantages and uses of Magnetic Technology in key sectors mentioned above, there is a host of “exclusive solutions” available for important segments and leading projects on turnkey basis with amazing results: RO Plants: (i) Decreases electricity / gas cost (ii) Increases the life of the membrane and filter (iii) Minimizes water wastage (iv) Provides biologically active water Hotels: (i) Decreases electricity / gas cost (ii) Reduces blockage and seepage due to scaling / corrosion in pipelines (iii) Increases life of water heaters, coolers and heat exchangers (iv) Reduces the cost of detergents, soaps and other cleaning material Swimming Pools: (i) Water chlorination not required (ii) Prevents skin and hair damage or eye burns (iii) Reduces bacterial growth Hospitals: (i) Provides bacteria free and hygienic environment (ii) Reduces janitorial, surgical sterilization, laundry and other cleaning costs Golf Courses: (i) Eliminates bad odor / smell of ponds and puddles (ii) Crystallizes water and increases biodiversity Parks and Horticulture: (i) Better fragrance in flowering plants Construction Projects: (i) Use of cement is reduced by 10% (ii) Marginal water can be used in Batching Plants (iii) Reduces seepage and settling time (iv) Increases the structure’s strength A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.5 Page 19 The Products / Solutions Following are the customized products / solutions / devices provided by the Business to its consumer segments: 4.5.1 Mag Green Devices (For Agriculture, Industrial and Exc. Solutions) Mag Green devices can be divided into 2 categories: systems for water magnetization and systems for seed / animal feed magnetization. The main difference between different systems / devices is water flow capacity / hour and its resilience to harsh environments. AGI100 MODEL DETAILS (1 Kg) Capacity: 2 - 3 m3/hour Body: Metal Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation ADS-200 (2 Kg) MODEL DETAILS Capacity: 8 - 12 m3/hour Body: PVC / Plastic Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal A 200 U (6 Kg) Capacity: 14 - 20 m3/hour Body: PVC / Plastic Application: Page 20  Can be used without preliminary filtration  Brackish water can be used for irrigation AGI 200 (10 Kg) MODEL DETAILS Capacity: 14 - 20 m3/hour Body: Metallic Application:  Can be used without preliminary filtration.  Brackish water can be used for irrigation A-300-DU (7 Kg) MODEL DETAILS Capacity: 20 – 40 m3/hour Body: PVC / Plastic Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal AGI-300-D (15 Kg) Page 21 MODEL DETAILS Capacity: 20 – 40 m3/hour Body: Galvanized Metallic  Device contains elements for electron generation and aeration Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A-400 d (16 Kg) MODEL DETAILS Capacity: 35 – 55 m3/hour Body: PVC  Contains elements for aero ion and electron generation Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation AGI-400-D (20 Kg) MODEL DETAILS Capacity: 35 – 55 m3/hour Body: PVC  Device contains elements for electron generation and aeration Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal AB 600 (30 Kg) Page 22 MODEL DETAILS Capacity: 55 - 90 m3/hour Body: Galvanized Metallic  Device contains elements for electron generation and aeration Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A 600 (30 Kg) MODEL DETAILS Capacity: 70 - 120 m3/hour Body: Galvanized Metallic  Device contains elements for electron generation and aeration Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A 600 d (13 Kg) MODEL DETAILS Capacity: 70 - 120 m3/hour Body: PVC  Device contains elements for electron generation and aeration Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal AD 600 (30 Kg) Page 23 MODEL DETAILS Capacity: 80 - 160 m3/hour Body: Galvanized Metallic  Device contains elements for electron generation and aeration Application: AGI 800 S (41 Kg)  Can be used without preliminary filtration  Brackish water can be used for irrigation MODEL DETAILS Capacity: 90 - 160 m3/hour Body: Galvanized Metallic Application:  Removes lime scale (Anti scaling)  Can be used without preliminary filtration  Brackish water can be used for irrigation AGI 800 (44 Kg) MODEL DETAILS Capacity: 130 - 220 m3/hour Body: Galvanized Metallic Application:  Removes lime scale (Anti scaling)  Can be used without preliminary filtration  Brackish water can be used for irrigation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal AGI 1000 D (44 Kg) Page 24 MODEL DETAILS Capacity: 200 - 350 m3/hour Body: Galvanized Metallic  Removes lime scale (Anti scaling)  Contains elements for aero ion and electron generation Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation AMS-1200 (35 Kg) MODEL DETAILS Capacity: 300 - 500 m3/hour Body: Metallic (Painted)  Removes lime scale (Anti scaling)  Contains elements for aero ion and electron generation Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation AGI 1200 D (30 Kg) MODEL DETAILS Capacity: 300 - 500 m3/hour Body: Galvanized Metallic  Removes lime scale (Anti scaling)  Contains elements for aero ion and electron generation Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal AMS 1200 D (13 Kg) Page 25 MODEL DETAILS Capacity: 300 - 500 m3/hour Body: Metallic (Painted)  Removes lime scale (Anti scaling)  Contains elements for aero ion and electron generation Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation AGI 1400 D (13 Kg) MODEL DETAILS Capacity: 400 - 650 m3/hour Body: Galvanized Metallic  Removes lime scale (Anti scaling)  Contains elements for aero ion and electron generation Application:  Can be used without preliminary filtration  Brackish water can be used for irrigation Seed Funnels MODEL DETAILS Body: Plastic  Various funnel(s) for magnetization of seeds  Changes in germination behavior of seeds Application:  Seed germination will be 100% after passing seeds through Mag Green Seed Device  5 – 50% reduction in seed usage gradually A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.5.2 Page 26 Mag Life Devices (Poultry, Dairy & Livestock) These devices are installed to provide chemical free solution without any operational or maintenance cost and does not even require replacement of parts. Poultry Item Details                Reduces / Eliminates: Normalizes / Improves: Summary:   Dairy & Livestock E. coli, Coliform and other bacteria Waterborne diseases Maturity period by 3 – 5 days Mortality and sickness rate Viral diseases Gastro-intestinal problems Feeding cost Water TDS Bird’s weight Egg-laying qualities Blood circulation Quality of meat Immune system Profitability Devices are installed on the inlet and outlet of main water head tank and on each individual drinking water line entering control shed. Mag Life Device is a great news and peace of mind for Poultry industry Very simple to operate Item Details Prevents / Reduces / Eliminates: Improves / Increases: Summary:                Firmness / rigidity of animal utters Bacteria in milk Diseases in animal Mortality ratio Skin diseases Harmful chemicals usage Milk productivity by 10% - 15% Fat content of milk by 0.13% - 0.15% Milking process Taste of meat Average weight gain Both quality and quantity of meat Devices are installed on the water lines as per the dia size of water pipes connected in farm. Improves health and prevention of diseases in animal for enhanced profitability and viability. Increases milk and meat produced A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.5.3 Page 27 Mag Fuel Devices (Energy Saving – Automobiles & Generators) These devices are installed in automobiles and generators for optimum mileage, increasing both the life and performance of engines / generators, major fuel and ultimately costs savings by up to 30% as well as contributing towards a cleaner environment. MAG FUEL Item Details Key Features: Automobiles Generators           Summary: Increases Fuel Mileage Increases Engine Life Car pick is increased Improves Engine Power Reduces Emissions Reduces Engine Noise    Fuel saving of 5% - 10% Boosts Engine Power Increases pore-point in freezing weather Decreases Noise Decreases Emissions and Fumes Cost recovered in few months of installation Mag Fuel Devices by Yuri Tkatchenko are undoubtedly one of the most acceptable solutions i.e. with respect to both environmental and economic angles. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.5.4 Page 28 Mag HealthCare Devices As the name suggests, these devices are natural, chemical-free and most effective solution for many diseases and disorders. An item wise detail of each Health unit is given below: MAGNETIC BRACELET Item Details Treats: Application:      Hypotension & Hypertension State of Anxiety and Stress Dizziness and Headaches Sleeping Disorder Respiratory Disorders  The magnetic bracelet is worn loosely on the wrist, so that the majority of the vital points come under the influence of the magnetic field.  The bracelet is to be worn for a minimum duration of 10-12 hours: o Hypotension – Left wrist o MAG FUNNEL Hypertension – Right wrist Item Details Treats:      Heart issues Blood Pressure Cholesterol level Kidney Problems High Uric Acid  Makes the filtered, yet dead water to make biologically active, which is lighter, healthier and free from harmful gases (like chlorine etc.).  Gives the Receiver energetic feeling and younger look.  Normal drinking water is simply passed through Mag Funnel device to instantly get magnetized, biologically active water.  The unit can be conveniently placed on one’s countertop. It’s portable and does not require electricity or any installation. Advantages: Application  A L IN T IS A R ( P V T . ) L T D .      Acidity Digestion Constipation Fatigue Aches & Pains MagTech Pakistan (Pvt.) Ltd. – Investment Proposal MAGNETIC CAP Page 29 Item Details Treats:    Neurological and Behavioral issues Sleeping Disorder Headaches and Migraine Stimulates   Brain Activity General Condition  The Cap should be worn for at least 1 hour before or as per Doctor’s advice.  Highly recommended to be used in conjunction with the Mag Funnel. Directions: MAGNETIC HAIR BRUSH Item Details Prevents: Stimulates Directions:    Hair from falling Dandruff formation Helps overcome tiredness and relieves pain in muscles (by stroking with backside of the brush)   Blood supply (to the hair) Healthy looking, stronger hair  Daily combing 10 – 15 times, each side of the head drastically improves hair growth and look.  Stroking with the backside of the brush to the affected body part or muscle pain. MAGNETIC STRIP BELT Item Details Prevents:    Pain in back muscles, joints and spine Fatigue and tiredness Stress in muscles Normalizes   Functionality of Heart, Lungs, stomach etc. Metabolic functioning  Adjustable belt of Mag Strip to be placed on the affected area of the body.  To be worn twice a day for 30 – 60 minutes. Directions: ‘  In case of severe pain, the strip should be worn throughout the day. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.5.5 Page 30 Mag Home Devices As the name suggests, these are a set of devices installed in the house that will convert “Dead” tank water into “Biologically Active” water for:  Drinking  Cooking  Bathing  Laundry  Gardening MAG HOME Item Details Personal (Mag Shower) Kitchen Wash rooms Gardening           Relaxing shower experience Enhances Body Freshness Reduces muscle discomfort and stress Improves skin No more dry and itchy skin Reduces wrinkles and hair fall     Summary:  Improves food taste Reduces cooking / washing time Tap water can be safely used for cooking Dish cleaning with soaps is reduced up to 50%   Reduces bad odor Reduces blockage of shower nozzles and closure of pipes Prevents scaling in pipes Saves over 50% washing powder / soaps and detergents   Gives new life to plants / grass grown Early growth in plants Minimizes the use of fertilizer Mag Home devices are installed on the inlet and outlet of main overhead tank and third device in the kitchen tap. The Mag Shower device can also be attached to any standard shower between the pipe and head. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 4.6 Page 31 Marketing and Sales Strategy The Company has been pursuing the strategy of working directly with the end user and via employed sector specialist(s) to convince them regarding the suitability and feasibility of each device. 4.6.1 Mag Green / Mag Life Devices The Mag Green / Mag Life Devices are the major product line(s) of MagTech Pakistan (Pvt.) Ltd. The advantages of using these devices are manifold both at the micro and macro levels of Agro economy, which include: - Reclamation of salinized, barren and marginal agricultural land(s) - Much better intake of highly salty and brackish water - Better crop yields - Reduction in major cost items such as seeds, pesticides, herbicides and fertilizers - Highly nutritious and / or qualitatively better produce The major subsectors of Agriculture are farming, poultry, dairy, livestock and fisheries. Till now, the Management has been working in tandem with Sector Specialists of each subsector to successfully convince both the rural and urban segments, that the Mag Green Devices are highly customized and specialized devices that have been specifically designed to cater to the existing set of issues being faced: - Uncultivable, barren or marginalized agriculture land - High intake of inputs and therefore higher operational, maintenance and energy costs - Frequent replacement of machinery, parts and / or various installations - Higher water tables and / or lesser quantities of desired irrigation water - Poor yields per acre - Meagre produce - Higher morbidity and therefore higher animal mortality rates - Infertility or poor fertility rates - Weaker livestock, poultry or fish - Difficulty in milking process - Waterborne diseases - Skin diseases Other important and useful incentives that have been introduced into the marketing of Mag Green devices to lure the farmers into purchasing these devices are as follows: A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 32 - Special approval from SBP to grant loan for purchased devices - Only 50% of the purchase price to be given (once the device is installed) - Remaining 50% to be given once the cycle completes and / or successful results appear as claimed - Sector specialist work with the customers throughout the entire process In addition to the above, Company has published various brochures, pamphlets, booklets and other marketing and educational material in provincial / local languages, which further boosts the selling efforts. In the Industrial and / or exclusive solution range, customized marketing efforts are targeted for each customer / project and revolves around the following critical / major aspects: - Cost effective, chemical free devices - Adequately resolves the major issue of scaling and corrosion in pipes, heat exchangers, boiler in the Industrial and Oil and Mining sectors - Tailor made solutions catering to the exclusive range of requirements in Swimming Pools, RO Plants, Construction projects, Golf courses, Hospitals, Hotels, Parks and Horticulture etc. 4.6.2 Mag Fuel Devices (Digital Fuel Saving System - DFS) The Mag Fuel Devices is another innovative product line of MagTech Pakistan (Pvt.) Ltd. The advantages of using these devices in Automobiles and Generators are as follows: - High fuel saving - Major reduction in fuel costs - Increase pore-point (freezing of - Reduces noise pollution Petrol) in freezing weather - Installation cost recouped within - Cleaner Environment - Enhanced performance - Enhanced life of engines and generators a few months of purchase of - Decreases maintenance cost engines and generators The Company has put in place a show room by the name of MagTech Auto Centre for retail sales and marketing efforts at a generalized level. Besides, Company has targeted major Automobile manufacturers of various kinds for testing, verification and simultaneously marketing / selling Mag Fuel Devices at the Industry / Wholesale bandwidth. DFS systems have been installed in various kinds of cars with the following results / fuel savings: A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 33 (Source: MagTech Pakistan) 4.6.3 Mag Health Care / Mag Home Devices The Mag Health Care and Mag Home Devices are a totally different range of but equally useful products for individuals, family and home owners especially the ones living in the urban centres and towns. They are specifically designed to cater the existing and raised concerns regarding the deteriorating health of people. The advantages of using these devices are listed below: - Addresses Neurological & Behavior - No electricity problems - No maintenance cost - Helps relieve and acute chronic pain - No space constraint - Structured active - No replacement of parts water, which is fresh, lighter and - Simple installation healthier for body - Life: 10 years - / biologically Addresses various common health related issues - Relieves various muscular, joint & spine pains Company has floated around brochures and pamphlets for marketing of these retail products. Besides, detailed material is available on their website www.magtech.com.pk For these products though, major effort has been focused on the health and retail sector as sector specialist such as a Health Advisor would play an influential role in enticing and promoting health conscious individuals into buying these valuable health oriented products. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 34 5. BUSINESS ANALYSIS & TRANSACTION CONSIDERATIONS 5.1 Business / Market Analysis Although the overall Pakistani market is cost conscious, they are also looking for unique bespoke solutions like Magnetic Technology based devices of MagTech Pakistan that is authentic, reliable and robust and in turn can help solve their impending issues and imminent problems. The general Pakistani market is diverse in terms of its social, national / ethnic and need based demographics. The younger generation is much smarter, keener and sharper in nature and is willing to embrace high end stuff for increased convenience, enhanced profitability and result oriented deliverables. 5.1.1 Expected Business Volume and Value In terms of its size and value, the Pakistani market has been bifurcated into the following major sectors to analyse / assess their potential. Considering target market in the range of 0.01% - 10% in each, following numbers have been forecasted on a conservative basis: Business Potential Agriculture (1%) Energy (1%) Health (0.01%) Industrial (10%) No. of Customers 120,000 50,000 20,000 200 Average Revenue per Unit (Rs.) 90,000 40,000 25,000 2,000,000 10,700,000,000 2,000,000,000 500,000,000 400,000,000 Total Value (in PKR) These numbers indicate an extremely bright and prosperous future for the Company business. With an overall market potential of PKR 13.6 Billion (approximately), spread over a period of 10 years translates into an explosive growth rate of more than 50% per annum, which is remarkably high and too good to be true for Investors’ sake and therefore a highly lucrative prospect to intuitively act upon. 5.1.2 Revenue / Sales Mix The estimated market potential above suggests higher revenue share from Agriculture (79%), followed by Energy (15%) and minor share(s) from Health (4%) and Industrial (3%) sectors. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 5.1.3 Page 35 Bigger Market, Bigger Opportunity The Company’s business strategy is focused towards customer base in Agriculture, Poultry, Dairy & Livestock, Fisheries where there is an imminent requirement of bespoke and cost effective solutions. 5.1.4 Competitive Advantage The driving edge for the Company’s thriving business would spiral around unique and customized solutions, shorter payback period (for customers), lack of befitting competition, improved customer economics and last but definitely not the least, the continuous R&D efforts (to stay way ahead of the competition). 5.2 Transaction Considerations Investors should consider the following Business merits for the anticipated transaction: 5.2.1 Business Potential – Future Leader with Huge Market Potential The Company is expected to be the Industry Leader in Water and Allied Services industry with its footprint in every segment, sector and / or walk of life in the domestic arena. The anticipated Market Leader possessing superior Russian technology, highly calibrated and precision devices would supersede competition in every respect (at least for the next 15 years). Technology (based on Precise Calibration) would not just meet rather exceed the normal expectations of customer(s) from all segments. Widespread applications and usability of customized magnetic devices in all spheres. The Company is expected to capture sizeable share in each sector, except health sector where we have assumed just 0.01% of the total population being captured. The all-inclusive sectoral and customer base in Farming, Fisheries, Energy, Health, Domestic, Construction, Industrial (Anti Scaling / Corrosion), Exclusive Solutions etc. would enable the Company to capture self-sufficient, higher revenue mix and consequently strong organic growth. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 36 Projected growth rate of 50% or more expected in the Topline of the Company for the next 10 years. Enormous market potential to be tapped, which is hard to quantify in the startup stage. Higher IRR or expected returns of 30% or more. 5.2.2 Strong, Long term Primary Growth Dynamics Several broad trends support the Company’s anticipated growth target: Huge Backlog of Agriculture Land Reclamation – Due to deprivation of water and / or unusable salty water, vast hectares of agricultural land have become uncultivable and / or marginalized, while the problem is getting acuter by the day. This poor condition has been further impaired because of higher costs related to pesticides, fertilizers and related energy needs. Fragmented market share – Most of the ‘so-called’ competitors of the Business have smaller or focused market share and that too in not more than one sector i.e. either in RO Plants or Water Treatment Business. Some of them are in fact prospective customers of MagTech Pakistan. Health Concerns – Prompt awareness and raised level of health-related concerns among the general public both in the urban and rural sections of the society would intensify the demand for medical products such as Magnetic Shower Adapter, Magnetic Funnel, Magnetic Bracelet, Magnetic Cap, Magnetic Ear Clip and Magnetic Nose Clip to name a few. Intellectual Property (Registered Patents) – Each and every product is patentregistered and is the intellectual property of MagTech Pakistan (Pvt.) Ltd. The Company is the sole distributor of its Principal’s products in Pakistan and therefore they have complete copy rights for the related products and their designs. Furthermore, those who have tried to copy the products have wretchedly failed in their attempt because of lack of technical know-how and customization needs. Competitive Advantage – The Principal has been involved in the customization, calibration and installation of their solutions in various fields / sectors for the last 20 years. They have a dedicated Research & Development Dept., which is working day A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 37 in / day out to further enhance the performance of existing solution. The customers trust Magnetic Technologies worldwide due to their higher brand image and consequently their reputation precedes actual delivery. Business Model – The Company has arranged for the provision of products from their Principal concern at an extremely impressive discount / concession rate of 40%. The Business Model therefore would flourish once the Company expands to the next level, becomes more scalable and therefore is able to increase its profit margin(s) at a decent clip, which though has not been factored in for valuation purposes. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 38 6. BUSINESS FINANCIALS, PROJECTIONS AND EQUITY VALUATION 6.1 Balance Sheet (2015 – 2016) EQUITY & LIABILITIES 2016 RUPEES 2015 RUPEES SHARE CAPITAL AND RESERVES Authorized Capital: 100,000 (2015: 1000,000) Ordinary Shares of Rs. 100/- each 10,000,000 10,000,000 (27,837,035) (13,573,726) 33,478,950 2,000,000 17,772,343 - 35,478,950 17,772,343 376,728 420,753 22,616,000 5,608,000 16,800,000 24,000,000 5,608,000 8,400,000 45,024,000 38,008,000 53,042,643 42,627,370 2,811,269 258,000 16,800,000 2,597,194 210,000 8,400,000 19,869,269 11,207,194 22,616,000 5,608,000 24,000,000 5,608,000 28,224,000 29,608,000 1,545,000 2,897,700 506,672 1,295,000 517,176 4,949,372 1,812,176 53,042,643 42,627,370 UN-APPROPRIATED PROFIT/(LOSS) SPONSERS EQUITY Mir Mazher Talpur Mrs. Mir Mazher Talpur CURRENT LIABILITIES Creditor Accrued and other Liabilities LONG TERM LIABILITIES NBP Fuel Modifier Project The Bilours Boiler Circuit Project Directors' Remuneration TOTAL EQUITIES AND LIABILITIES ASSETS NON-CURRENT ASSETS Property, Plant and Equipment Long Term Deposits Capitalized Op. Assets Long Term Project Receivables NBP Fuel Modifier Project The Bilours Boiler Circuit Project CURRENT ASSETS Other Receivables Inventory Cash and Bank Balance TOTAL ASSETS A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.2 Page 39 Income Statement (2015 – 2016) The table below provides the Income Statement of the Company for the previous 2 years: MAGTECH PAKISTAN (PVT) LTD PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED JUNE, 2015 & JUNE,- RUPEES 2016 RUPEES 1,454,800 4,772,910 COST OF GOODS SOLD (1,073,170) (3,387,722) ADMINISTRATIVE EXPENSES (12,479,322) (13,018,032) MARKETING EXPENSES (1,461,486) (2,582,736) - - (13,559,178) (14,215,580) 14,548 47,729 (13,573,726) (14,263,309) Un-Appropriated Profit/(Loss) B/F - (13,573,726) Un-Appropriated Profit/(Loss) C/F (13,573,726) (27,837,035) SALES FINANCIAL EXPENSE NET PROFIT FOR THE YEAR before Taxation TAXATION NET (LOSS) / PROFIT FOR THE YEAR after Taxation A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.3 Page 40 Financial Review (FY 2015 – FY 2016) As with any start up business, the initial few years are the most difficult because of factors such as fixed operating costs such as administrative, marketing and financial costs, fledgling sales figures coupled with limited capital. Resultantly, the Company not only faces operational losses and financial difficulties to operate in a viable and sustainable manner but its future success or failure also hinges upon key performance indicators, most importantly being sizable market potential or in financial terms rapidly growing top line figure i.e. Sales. Although MagTech Pakistan has been posting financial losses since its incorporation in 2014, there are many reasons why Investors should feel buoyant and excited about this business prospect, which are listed below:  Potential of extraordinary growth or exponential growth in Sales  The higher the investment, the higher the probability of generating stable, growing profits  Excellent Return on Equity (ROE) or IRR of 30% The most noticeable KPI for the business has been its top line. The Company’s sales have grown at an extraordinary rate of 228% in just 1 year i.e. from Rs. 1.454 mil (FY 2015) to Rs. 4.773 mil (FY 2016), which indicates that the Company has strong potential to grow exponentially by capturing greater market share in future periods. Following are the major cost components for the Company’s modus operandi: S. No. Variable Costs 2016 (% of Total Costs) 2015 (% of Total Costs) Growth 1 Salaries & Wages 8,219,145 45.6% 6,205,917 41.3% 32.4% 2 Marketing Expenses 2,582,736 14.3% 1,461,486 9.7% 76.7% 3 Inventory Consumed 3,387,722 17.8% 1,073,170 7.1% 216% 4 Travelling 1,164,678 6.5% 1,768,943 11.8% (-ve) 5 Consultancy Charges 563,000 3.1% 1,326,015 8.8% (-ve) 6 Printing & Stationery 367,731 2.0% 570,668 3.8% (-ve) 7 Office Rent 441,000 2.4% 530,250 3.5% (-ve) 87.3% A L IN T IS A R ( P V T . ) L T D . 86% MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 41 The 3 major cost component for the firm’s operations in the previous two years (on average) were:  Salaries and Wages – 43.5%  Marketing Expenses – 12.0%  Inventory Consumed – 12.5% The losses posted in the previous two years amount to Rs. 13.573 mil (FY 2015) and Rs. 14.263 mil (FY 2016) respectively. However, these losses are anticipated to be of transient nature and the trend would ideally reverse once sizeable amount of capital is invested. The working capital cycle of the Company is around 90 days or 3 months and therefore in our assessment the financial leverage would be accordingly desired for the growth and expansion of the Business. Once the desired Equity amount is invested, the Business is expected to post growing profits year after year on the basis of growing demand and robust sales growth. The growth oriented capital would be used extensively for working capital requirements and marketing expenditures of the firm. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.4 Page 42 Business Projections (FY 2017 – FY 2026) We have made revenue projections for the business model and have focused on the 4 key revenue generating sectors i.e. Agriculture, Energy, Health and Industrial. 6.4.1 Agriculture The Agriculture sector is expected to be the top sector for the business model and would contribute 79% in terms of the overall revenue. As per the latest Agriculture Census of Pakistan (2010), there are 12 million farmers in the country (of varying sizes). These farmers have been bifurcated into 6 categories (as per their land holding / acreage). We have conservatively targeted just 1% of the total market potential and have come up with the following sales forecast for the Agribusiness for the period FY 2017 – FY 2026: AGRICULTURE STATISTICS AND MAGTECH’s MARKET POTENTIAL 430,000 Total Sales Potential (For 10 Years) 928,800,000 8,160 245,000 1,999,200,000 33,120 150,000 4,968,000,000 47,520 45,000 2,138,400,000 2,136,000 21,360 25,000 534,000,000 768,000 7,680 25,000 192,000,000 12,000,000 120,000 89,670.00 10,760,400,000 ACREAGE % of Total1 Large (25 acres & above) 1.80% Medium (12.5 - 25) 6.80% 816,000 Small (5 - 12.5) 27.6% 3,312,000 Marginal (2 - 5) 39.6% 4,752,000 Sub Marginal (1 - 2) 17.8% Poor (0.5 - 1) 6.40% Total 100.00% Total Units1 216,000 MagTech Prospective Share (1%) 2,160 Avg. Price 1 (As per Latest Agriculture Census of 2010) 6.4.2 Energy As mentioned earlier, the energy sector is composed of automobiles and generators. In terms of overall revenue, the contribution expected is around 15%. We have again conservatively estimated 1% of the sum of automobiles and generators in the country, which in absolute terms is 50,000 customers / units with an average price per unit to be Rs. 40,000/-. 6.4.3 Health In this sector, we have considered both domestic appliances (MagHome Devices) as well as individual healthcare merchandise. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 43 We expect that the Company would be able to capture 0.01% of the total population and would therefore be able to generate total sales of 20,000 in the Health sector in the next 10 years, while the average revenue per unit is expected to be Rs. 25,000/-. The sector is expected to tap in 4% of the total revenue mix. 6.4.4 Industrial In the industrial sector, total number of units / industries are estimated to be 2,000 of different sizes and capacities in the country. We expect that the Company would be able to capture 10% of the total industrial base in the next 10 years, due to the dire requirement of a bespoke and cost effective solution which can robustly tackle the dual issue of antiscaling and corrosion, while the average revenue per unit is expected to be Rs. 2,000,000/-. The sector is expected to tap in 3% of the total revenue mix. MAGTECH 10 YEAR BUSINESS PROJECTIONS Sectors MagTech Share Avg. Price per Unit Units Revenue Potential Sectoral Share in Total Revenue Agriculture 1% 120,000 90,000 10,800,000,000 78.8% Energy 1% 50,000 40,000 2,000,000,000 14.6% Health 0.01% 20,000 25,000 500,000,000 3.6% 200 2,000,000 400,000,000 2.9% 13,700,000,000 100% Industrial Total 10% - - - MAGTECH PAKISTAN - Revenue Mix (%) A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.5 Page 44 Financial Models We have used 4 different variants of financial model(s) in order to determine Business projections, business viability and ultimately the financial feasibility of the Company. 6.5.1 First Model - Aggressive In the first model, we have taken the following assumptions for the Business model: The total sales for the first year i.e. FY 2017 is estimated to be Rs. 120 million The topline of the business is assumed to grow at a CAGR of 50.0% Cost of inventories / cost of goods sold would be 70% of the Net Revenue Marketing expenses have been estimated to be 10% of the Net Revenue Administrative expenses as a % of total sales would gradually decline from 13.2% in first year (FY 2017) to 3.1% in the tenth year (FY 2026) There are no financial expenses anticipated in the model. Albeit, there would be NonOperating Income (Income on Financial Investments) due to excess cash Corporate Earnings would be taxed in the range of 25% to 30% Gross margins would remain constant at 30%, operating margins are expected to improve from 6.8% to 16.9% and net margins would increase from 7.0% to 11.9% A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 45 The aggressive model in the tabular form is presented below: Projections of MagTech (Rs. in '000) 2017 F 2018 F 2019 F Large Farmers (1.80%) 1,706 2,560 3,839 Medium (6.80%) 6,446 9,670 14,504 Small (27.6%) 26,165 39,247 58,871 Marginal (39.6%) 37,541 56,311 Sub Marginal (17.8%) 16,874 Poor (6.40%) 6,067 Sub Total 2020 F 2021 F 2022 F 2023 F 2024 F 2025 F 2026 F 5,759 8,639 12,958 19,437 29,155 43,733 65,600 21,757 32,635 48,952 73,429 110,143 165,214 247,821 88,306 132,459 198,689 298,033 447,050 670,575 1,005,863 84,467 126,700 190,050 285,075 427,613 641,420 962,130 1,443,194 25,312 37,967 56,951 85,427 128,140 192,210 288,315 432,472 648,709 9,101 13,651 20,477 30,715 46,073 69,109 103,664 155,496 233,244 94,800 142,200 213,300 319,950 479,925 719,888 1,079,831 1,619,747 2,429,620 3,644,430 Energy (15%) 17,500 26,250 39,375 59,063 88,594 132,891 199,336 299,004 448,506 672,759 Health (4%) 4,300 6,450 9,675 14,513 21,769 32,653 48,980 73,470 110,204 165,306 Industrial (3%) 3,400 5,100 7,650 11,475 17,213 25,819 38,728 58,092 87,138 130,707 Total Revenue (100%) 120,000 180,000 270,000 405,000 607,500 911,250 1,366,875 2,050,313 3,075,469 4,613,203 Cost of Inventories 84,000 126,000 189,000 283,500 425,250 637,875 956,813 1,435,219 2,152,828 3,229,242 Gross Profit (Rs.) 36,000 54,000 81,000 121,500 182,250 273,375 410,063 615,094 922,641 1,383,961 Gross Margin (%) 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 15,892 19,639 24,541 30,970 39,419 50,540 65,196 84,532 110,062 143,792 Agriculture (79%) Operating Expenses Administrative Expenses Marketing Expenses 12,000 18,000 27,000 40,500 60,750 91,125 136,688 205,031 307,547 461,320 Sub Total 27,892 37,639 51,541 71,470 100,169 141,665 201,883 289,563 417,608 605,112 EBIT (Rs.) 8,108 16,361 29,459 50,030 82,081 131,710 208,179 325,531 505,032 778,849 EBIT Margin (%) 6.8% 9.1% 10.9% 12.4% 13.5% 14.5% 15.2% 15.9% 16.4% 16.9% (3,014) (2,784) (2,541) (2,310) (2,012) (1,778) (1,711) (1,981) (2,873) (4,851) 11,122 19,145 31,999 52,340 84,092 133,488 209,890 327,512 507,905 783,700 2,781 4,786 8,000 15,702 25,228 40,047 62,967 98,254 152,372 235,110 Net Profit (Rs.) 8,342 14,359 24,000 36,638 58,865 93,442 146,923 229,258 355,534 548,590 Net Margin (%) 7.0% 8.0% 8.9% 9.0% 9.7% 10.3% 10.7% 11.2% 11.6% 11.9% Financial Expenses1 / (Income)2 EBT (Rs.) Taxation (25% - 30%) A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.5.2 Page 46 Second Model - Semi-Aggressive In the second model, we have modified the first model by reducing the original sales projections for the first five years only i.e. FY 2017 – FY 2021 by 50%, 40%, 30%, 20% and 10% respectively and consequently the following assumptions were derived: The total sales for the first year are estimated to be Rs. 56.15 million The topline of the business is assumed to grow at a CAGR of 63.2% Cost of inventories / cost of goods sold would be 70% of the Net Revenue Administrative expenses as a % of total sales would steeply decline from 28% in first year (FY 2017) to 3% in the tenth year (FY 2026) Marketing expenses have been estimated to be 10% of the Net Revenue Corporate Earnings would be taxed in the range of 25% to 30% The financial expenses would be incurred at the rate of 10% of borrowing, while nonoperating income would be generated at 5% of available cash and bank balances Gross margins would remain constant at 30%, operating margins are expected to improve from (8.3%) to 16.9% and net margins would consequently improve from (3.4%) to 11.8% A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 47 The semi-aggressive model in the tabular form is presented below: Projections of MagTech (Rs. in '000) 2017 F 2018 F 2019 F 2020 F 2021 F 2022 F 2023 F 2024 F 2025 F 2026 F 853 1,536 2,688 4,607 7,775 12,958 19,437 29,155 43,733 65,600 Medium (6.80%) 3,223 5,802 10,153 17,405 29,371 48,952 73,429 110,143 165,214 247,821 Small (27.6%) 13,082 23,548 41,210 70,645 119,213 198,689 298,033 447,050 670,575 1,005,863 Marginal (39.6%) 18,770 33,787 59,127 101,360 171,045 285,075 427,613 641,420 962,130 1,443,194 Sub Marginal (17.8%) 8,437 15,187 26,577 45,561 76,884 128,140 192,210 288,315 432,472 648,709 Poor (6.40%) 3,034 5,460 9,556 16,381 27,644 46,073 69,109 103,664 155,496 233,244 Sub Total 47,400 85,320 149,310 255,960 431,933 719,888 1,079,831 1,619,747 2,429,620 3,644,430 Energy (15%) 8,750 15,750 27,563 47,250 79,734 132,891 199,336 299,004 448,506 672,759 Health (4%) - 3,870 6,773 11,610 19,592 32,653 48,980 73,470 110,204 165,306 Agriculture (79%) Large Farmers (1.80%) Industrial (3%) - 3,060 5,355 9,180 8,606 25,819 38,728 58,092 87,138 130,707 Total Revenue (100%) 56,150 108,000 189,000 324,000 539,865 911,250 1,366,875 2,050,313 3,075,469 4,613,203 Cost of Inventories 39,305 75,600 132,300 226,800 377,906 637,875 956,813 1,435,219 2,152,828 3,229,242 Gross Profit (Rs.) 16,845 32,400 56,700 97,200 161,960 273,375 410,063 615,094 922,641 1,383,961 Gross Margin (%) 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 15,892 19,639 24,541 30,970 39,419 50,540 65,196 84,532 110,062 143,792 5,615 10,800 18,900 32,400 53,987 91,125 136,688 205,031 307,547 461,320 Sub Total 21,507 30,439 43,441 63,370 93,406 141,665 201,883 289,563 417,608 605,112 EBIT (Rs.) (4,662) 1,961 13,259 33,830 68,554 131,710 208,179 325,531 505,032 778,849 EBIT Margin (%) (8.3%) 1.8% 7.0% 10.4% 12.7% 14.5% 15.2% 15.9% 16.4% 16.9% (3,296) (2,634) (1,935) (1,075) (32) 2,841 3,299 3,109 841 (1,007) (1,366) 4,595 15,194 34,904 68,586 128,869 204,880 322,421 504,192 779,856 562 1,149 3,798 10,471 20,576 38,661 61,464 96,726 151,257 233,957 Net Profit (Rs.) (1,927) 3,446 11,395 24,433 48,010 90,209 143,416 225,695 352,934 545,899 Net Margin (%) (3.4%) 3.2% 6.0% 7.5% 8.9% 9.9% 10.5% 11.0% 11.5% 11.8% Operating Expenses Administrative Expenses Marketing Expenses Financial Expenses1 / (Income)2 EBT (Rs.) Taxation (25% - 30%) A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.5.3 Page 48 Third Model - Moderate In the third model, we have made sales projections for the next five years (only) by dividing fixed costs (i.e. administrative and marketing expenses) by a certain percentage in the range of 25% - 30%. The total sales for the first year are estimated to be Rs. 104.4 million The topline of the business is assumed to grow at a CAGR of 48.1% Cost of inventories / cost of goods sold would be 70% of the Net Revenue Administrative expenses as a % of total sales would decline from 15% in first year (FY 2017) to 8% in the fifth year (FY 2021) Marketing expenses have been estimated to be 10% of the Net Revenue The financial expenses would be incurred at the rate of 10% of borrowing Corporate Earnings would be taxed in the range of 25% to 30% Gross margins would remain constant at 30%, operating margins are expected to improve from 4.8% to 12.2% and net margins would consequently improve from 3.2% to 7.4% The model in the tabular form is presented below: FY 2017F FY 2018F FY 2019F FY 2020F FY 2021F Agriculture (79%) Large Farmers (1.80%) Medium (6.80%) Small (27.6%) Marginal (39.6%) Sub Marginal (17.8%) Poor (6.40%) Sub Total Energy (15%) Health (4%) Industrial (3%) Total Revenue (100%) Cost of Inventories Gross Profit (Rs.) Gross Margin (%) Projections of MagTech (Rs. In '000) 1,481 5,596 22,711 32,586 14,647 5,266 82,287 15,246 3,812 3,081 104,425 73,098 31,328 30.0% 1,742 6,579 26,704 38,315 17,222 6,192 96,755 17,927 4,482 3,622 122,785 85,950 36,836 30.0% 2,070 7,819 31,737 45,536 20,468 7,359 114,991 21,305 5,326 4,305 145,927 102,149 43,778 30.0% 2,588 9,777 39,682 56,936 25,592 9,202 143,777 26,639 6,660 5,383 182,458 127,721 54,737 30.0% 7,134 26,951 109,388 156,947 70,547 25,365 396,332 73,432 18,358 14,837 502,959 352,071 150,888 30.0% Operating Expenses Administrative Expenses Marketing Expenses Sub Total 15,892 10,443 26,334 19,639 12,279 31,917 24,541 14,593 39,134 30,970 18,246 49,216 39,419 50,296 89,715 EBIT (Rs.) EBIT Margin (%) Financial Expenses1 / (Income)2 EBT (Rs.) Taxation (25% - 30%) Net Profit (Rs.) Net Margin (%) 4,993 4.8% 545 4,449 1,112 3,337 3.2% 4,918 4.0% 672 4,246 1,062 3,185 2.6% 4,644 3.2% 939 3,-,779 1.9% 5,521 3.0% 1,552 3,-,977 1.6% 61,173 12.2% 7,876 53,297 15,989 37,308 7.4% A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.5.4 Page 49 Fourth Model - Conservative In the fourth model, we have made sales projections for the next five years by using exponential growth which is still lower than the sales growth of 228% from FY 2015 to FY 2016. (This model however in our opinion is not the true reflection of the business potential because it is based on extreme assumptions of lower sales figures, shorter investment horizon of only five years and gigantic sales growth). The sales figure for the FY 2016 was Rs. 4.77 million On the basis of exponential growth, sales figure for the FY 2017 to FY 2026 have been estimated to be Rs. 13.0 million to Rs. 708.36 million The topline figure is expected to grow annually at an exponential rate of 172% (based on the previous sales figure of FY 2016) Administrative expenses as a % of total sales would be 122% in FY 2017 but will swiftly drop to 6% in in FY 2021 Gross margins would remain constant at 30%, while operating and net margins would drastically improve from (102.5%) to 14.4% and (98.4%) to 8.6% The model in the tabular form is presented below: Projections of MagTech (Rs. In '000) FY 2017F FY 2018F FY 2019F FY 2020F FY 2021F Sub Total Energy (15%) Health (4%) Industrial (3%) Total Revenue (100%) Cost of Inventories Gross Profit (Rs.) Gross Margin (%) -,822 4,049 1,-,224 1,-,974 9,082 3,892 30.0% -,670 11,005 4,947 1,779 27,791 5,149 1,287 1,040 35,267 24,687 10,580 30.0% 1360 5,137 20,850 29,915 13,447 4,835 75,543 13,997 3,499 2,828 95,866 67,107 28,760 30.0% 3,696 13,964 56,676 81,317 36,552 13,142 205,347 38,046 9,512 7,687 260,592 182,414 78,178 30.0% 10,047 37,957 154,060 221,043 99,358 35,724 558,190 103,421 25,855 20,897 708,363 495,854 212,509 30.0% Operating Expenses Administrative Expenses Marketing Expenses Sub Total 15,892 1,297 17,189 19,639 3,527 23,166 24,541 9,587 34,128 30,970 26,059 57,030 39,419 70,836 110,255 (13,297) (102.5%) (657) (12,640) 130 (12,770) (98.4%) (12,585) (35.7%) 251 (12,837) 353 (13,190) (37.4%) (5,368) (5.6%) 3,156 (8,524) 959 (9,483) (9.9%) 21,148 8.1% 7,560 13,588 3,397 10,191 3.9% 102,253 14.4% 15,707 86,546 25,964 60,582 8.6% Agriculture (79%) Large Farmers (1.80%) Medium (6.80%) Small (27.6%) Marginal (39.6%) Sub Marginal (17.8%) Poor (6.40%) EBIT (Rs.) EBIT Margin (%) Financial Expenses1 / (Income)2 EBT (Rs.) Taxation (25% - 30%) Net Profit (Rs.) Net Margin (%) A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.6 Page 50 Business Valuation (Equity) In order to value the firm’s Equity, we have applied valuation methods such as Discounted Cash Flow of Earnings (DCF) method, Free Cash Flow to Equity (FCFE) valuation and FV/EBITDA ratio to the four (4) financial projections used above. 6.6.1 DCF Method: The DCF of Corporate earnings method is based on the following inputs and assumptions listed below: Net Profit / Net Income for the projected period i.e. earnings for FY 2017 to FY 2026 Terminal Value (TV) i.e. the value of the firm at the time of exit or future value of the firm Discount rate (IRR or ROE) – We have discounted the future earnings at the most conservative rates of 20% to 50% as applicable to any private company while factoring in the lack of liquidity and marketability factors (as applicable to any private, startup business) Sustainable / Long term growth rate (g) – The growth rate which is sustainable over an extended time period for determining the terminal value. We have assumed sustainable growth rate of a modest 5% The average Equity value derived using the DCF method based on the 4 financial models is Rs. 208,481,000/-. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 51 Following are the four Equity values derived on the basis of the DCF method: FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F FY 22 F FY 23 F FY 24 F FY 25 F FY 26 F TV26 Sum of PV Net Profit & TV Projections 8,342 14,359 24,000 36,638 58,865 93,442 146,923 229,258 355,534 548,590 2,304,077 3,820,027 (DCF @ 20%) - PV1 6,951 9,971 13,889 17,669 23,656 31,3294 41,033 53,318 68,905 88,600 372,121 727,378 (DCF @ 30%) - PV2 6,417 8,496 10,924 12,828 15,854 19,359 23,415 28,105 33,527 39,794 167,134 365,851 (DCF @ 40%) - PV3 5,958 7,326 8,746 9,537 10,945 12,410 13,938 15,535 17,208 18,966 79,656 200,224 (DCF @ 50%) - PV4 5,561 6,382 7,111 7,237 7,752 8,203 8,599 8,945 9,248 9,513 39,956 118,508 Average Value (Rs.) 6,222 8,044 10,167 11,818 14,552 17,816 21,739 26,476 32,222 39,218 164,717 352,990 Second Model (Rs. in ‘000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F FY 22 F FY 23 F FY 24 F FY 25 F FY 26 F TV26 Sum of PV Net Profit & TV Projections (1,927) 3,446 11,395 24,433 48,010 90,209 143,416 225,695 352,934 545,899 2,292,777 3,736,287 (DCF @ 20%) - PV1 (1,606) 2,393 6,595 11,783 19,294 30,211 40,025 52,489 68,401 88,166 370,296 688,047 (DCF @ 30%) - PV2 (1,482) 2,039 5,187 8,555 12,930 18,689 22,856 27,668 33,282 39,599 166,314 335,635 (DCF @ 40%) - PV3 (1,377) 1,758 4,153 6,360 8,927 11,981 13,605 15,293 17,082 18,873 79,265 175,920 (DCF @ 50%) - PV4 (1,285) 1,532 3,376 4,826 6,322 7,920 8,394 8,806 9,181 9,467 39,760 98,299 Average Value (Rs.) (1,437) 1,931 4,828 7,881 11,868 17,200 21,220 26.064 31,986 39,026 163,909 324,475 First Model (Rs. in 000) Third Model (Rs. in ‘000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F TV21 Sum of PV Net Profit & TV Projections 3,337 3,185 2,779 2,977 37,308 250,826 300,410 (DCF @ 20%) - PV1 2,780 2,211 1,608 1,435 14,993 100,801 123,830 (DCF @ 30%) - PV2 2,567 1,884 1,265 1,042 10,048 67,555 84,361 (DCF @ 40%) - PV3 2,383 1,625 1,013 775 6,937 46,637 59,369 (DCF @ 50%) - PV4 2,224 1,415 823 588 4,913 33,031 42,995 Average Value (Rs.) 2,489 1,784 1,177 960 9,223 62,006 77,639 Fourth Model (Rs. In ‘000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F TV21 Sum of PV Net Profit & TV Projections (12,770) (13,190) (9,483) 10,191 60,582 329,631 364,962 (DCF @ 20%) - PV1 (10,641) (9,159) (5,487) 4,915 24,347 132,471 136,444 (DCF @ 30%) - PV2 (9,823) (7,804) (4,316) 3,568 16,317 88,779 86,720 (DCF @ 40%) - PV3 (9,121) (6,729) (3,456) 2,653 11,264 61,290 55,901 (DCF @ 50%) - PV4 (8,513) (5,862) (2,810) 2,013 7,978 43,408 36,214 Average Value (Rs.) (9,525) (7,389) (4,017) 3,287 59,905 81,487 78,820 A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.6.2 Page 52 FCFE Method: The FCFE method is another valuable and alternate method for determining the value of Firm’s Equity and is derived by adding noncash charges (such as depreciation) and deducting investment in net working capital as well as CAPEX from Net Income. The FCFE method is based on the following inputs and assumptions listed below: Net Profit / Net Income for the projected period i.e. earnings for FY 2017 to FY 2026 Non-cash charges i.e. Depreciation (assumed to be 10% of administrative expenses) Investment in Net Working Capital is the change in working capital requirements from year to year Terminal Value (TV) of Equity i.e. the value of the Equity portion of the firm at the time of exit or future value of the firm’s equity Discount rate – We have discounted the FCFE at the most conservative rates of 20% to 50% as applicable to any private company while factoring in the lack of liquidity and marketability factors Sustainable / Long term growth rate (g) – The growth rate which is sustainable over an extended time period for determining the terminal value. We have modestly assumed sustainable growth rate of 5% The average Equity value derived using the FCFE method based on the 4 financial models is Rs. 189,149,000/-. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 53 Following are the four Equity values derived on the basis of the FCFE method: First Model (Rs. in 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F FY 22 F FY 23 F FY 24 F FY 25 F FY 26 F TV26 Sum of PV Net Profit Projections 8,342 14,359 24,000 36,638 58,865 93,442 146,923 229,258 355,534 548,590 - - Add Back: Depreciation* 1,589 1,964 2,454 3,097 3,942 5,054 6,520 8,453 11,006 14,379 - - Less: Investment in (NWC) (4,595) (4,867) (4,608) (5,974) (4,666) (1,347) 5,402 17,845 39,554 57,399 - - FCFE 5,336 11,456 21,846 33,761 58,141 97,149 158,844 255,556 406,094 620,368 2,605,546 4,274,096 (PV1 of FCFE @ ROE of 20%) 4,446 7,955 12,642 16,281 23,366 32,535 44,330 59,434 78,704 100,193 420,810 800,697 (PV2 of FCFE @ ROE of 30%) 4,104 6,779 9,944 11,821 15,659 20,127 25,314 31,328 38,295 45,000 189,001 397,372 (PV3 of FCFE @ ROE of 40%) 3,811 5,845 7,961 8,788 10,810 12,902 15,069 17,317 19,655 21,447 90,078 213,684 (PV4 of FCFE @ ROE of 50%) 3,557 5,092 6,473 6,669 7,656 8,529 9,297 9,971 10,563 10,758 45,184 123,749 Average Value (Rs.) 3,980 6,418 9,255 10,890 14,373 18,523 23,503 29,513 36,804 44,350 186,268 383,876 Second Model (Rs. in 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F FY 22 F FY 23 F FY 24 F FY 25 F FY 26 F TV26 Sum of PV Net Profit Projections (1,927) 3,446 11,395 24,433 48,010 90,209 143,416 225,695 352,934 545,899 - - 1,589 1,964 2,454 3,097 3,942 5,054 6,520 8,453 11,006 14,379 - - Less: Investment in (NWC) (13,234) (13,979) (17,212) (20,852) (29,047) (4,581) 1,895 14,281 36,955 43,314 - - FCFE (13,572) (8,569) (3,362) 6,678 22,905 90,682 151,830 248,429 400,895 603,593 2,535,089 4,034,597 (PV1 of FCFE @ ROE of 20%) (11,310) (5,951) (1,946) 3,220 9,205 30,369 42,373 57,777 77,696 97,484 409,431 708,348 (PV2 of FCFE @ ROE of 30%) (10,440) (5,070) (1,530) 2,338 6,169 18,787 24,197 30,455 37,804 43,783 183,891 330,383 (PV3 of FCFE @ ROE of 40%) (9,694) (4,372) (1,225) 1,738 4,259 12,044 14,403 16,834 19,403 20,843 87,642 161,874 (PV4 of FCFE @ ROE of 50%) (9,048) (3,808) (996) 1,319 3,016 7,961 8,886 9,693 10,428 10,467 43,962 81,881 Average Value (Rs.) (10,123) (4,800) (1,424) 2,154 5,662 17,290 22,465 28,690 36,333 43,144 181,232 320,622 Add Back: Depreciation* Third Model (Rs. in 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F TV21 Sum of PV Net Profit Projections 3,337 3,185 2,779 2,977 37,308 - - Add Back: Depreciation* 1,589 1,964 2,454 3,097 3,942 - - Less: Investment in (NWC) 1,272 2,669 (6,134) (63,236) (16,160) - - FCFE 6,189 2,479 (901) (57,162) 25,090 205,994 181,697 (PV1 of FCFE @ ROE of 20%) 5,165 1,722 (522) (27,567) 10,083 82,784 71,666 (PV2 of FCFE @ ROE of 30%) 4,768 1,467 (410) (20,014) 6,757 55,480 48,048 (PV3 of FCFE @ ROE of 40%) 4,427 1,265 (329) (14,880) 4,665 38,301 33,450 (PV4 of FCFE @ ROE of 50%) 4,132 1,102 (267) (11,291) 3,304 27,127 24,106 Average Value (Rs.) 4,623 1,389 (382) (18,438) 6,202 50,923 44,317 Fourth Model (Rs. In 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F TV21 Sum of PV Net Profit Projections (12,770) (13,190) (9,483) 10,191 60,582 - - 1,589 1,964 2,454 3,097 3,942 - - Less: Investment in (NWC) (18,165) (26,535) (44,035) (81,475) 17,255 - - FCFE (29,345) (37,761) (51,064) (68,187) 81,749 300,322 195,713 (PV1 of FCFE @ ROE of 20%) (24,455) (26,223) (29,551) (32,883) 32,853 120,693 40,434 (PV2 of FCFE @ ROE of 30%) (22,573) (22,344) (23,243) (23,874) 22.017 80,885 10,869 (PV3 of FCFE @ ROE of 40%) (20,961) (19,266) (18,609) (17,750) 15,200 55,840 (5,546) (PV4 of FCFE @ ROE of 50%) (19,564) (16,782) (15,130) (13,469) 10,765 39,549 (14,631) Average Value (Rs.) (21,888) (21,154) (21,633) (21,994) 80,835 296,967 7,781 Add Back: Depreciation* A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal 6.6.3 Page 54 FV / EBITDA Method: The FV / EBITDA is also another popular method for determining the Equity Value. The FV / EBITDA method is based on the following inputs and assumptions listed below: In this method, we have calculated EBITDA value(s) for the holding period (i.e. either 10 years or 5 years). In turn, we have calculated Present Values of the holding period EBITDAs and finally an average EBITDA was derived. We have used discount rate of 10% in this case (based on the current long term government bond rates / yields of 8%) to arrive at the PVs of future EBITDAs. Starting off with EBIT values, we add Depreciation (10% of administrative expenses) to arrive at EBITDA values. In the penultimate stage, a realistic range of FV / EBITDA multiple(s) is multiplied by average EBITDA (we have used 3x to 7x) to accordingly derive a range bound Firm Value. In addition, we have applied probabilities / weights of 50%, 26%, 13%, 7% and 4% to the derived range of Firm Value to get a ‘Weighted Firm Value’. Finally, Long term Debt is subtracted from this Weighted Firm Value to arrive at the Equity Value. The average Equity value derived using the FV/EBITDA method based on the 4 financial models is Rs. 214,729,000/-. A L IN T IS A R ( P V T . ) L T D . MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 55 Following are the four Equity values derived on the basis of the FV / EBITDA method: First Model (Rs. in 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F FY 22 F FY 23 F FY 24 F FY 25 F FY 26 F EBIT Add Back: Depreciation EBITDA PVs of EBITDA (@ 10%) Average EBITDA FV / EBITDA MULTIPLE Firm Value Probability Weightages Weighted Value(s) Weighted Equity Value 8,108 1,589 9,698 8,816 16,361 1,964 18,325 15,145 29,459 2,454 31,913 23,977 50,030 3,097 53,127 36,286 82,081 3,942 86,023 53,413 131,710 5,054 136,764 77,200 208,179 6,520 214,699 110,174 325,531 8,453 333,984 155,806 505,032 11,006 516,038 218,851 778,849 14,379 793,228 305,824 100,549 3x 301,647 50% 150,824 4x 402,197 26% 103,686 5x 502,746 13% 66,771 6x 603,295 7% 42,419 7x 703,844 4% 27,494 391,194 Second Model (Rs. in 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F FY 22 F FY 23 F FY 24 F FY 25 F FY 26 F EBIT Add Back: Depreciation EBITDA PVs of EBITDA (@ 10%) Average EBITDA FV / EBITDA MULTIPLE Firm Value Probability Weightages Weighted Equity Value Weighted Equity Value (4,662) 1,589 (3,072) (2,793) 1,961 1,964 3,925 3,244 13,259 2,454 15,713 11,805 33,830 3,097 36,927 25,221 68,554 3,942 72,496 45,014 131,710 5,054 136,764 77,200 208,179 6,520 214,699 110,174 325,531 8,453 333,984 155,806 505,032 11,006 516,038 218,851 778,849 14,379 793,228 305,824 95,035 4x 380,138 26% 98,000 3x 285,104 50% 142,552 5x 475,173 13% 63,109 6x 570,208 7% 40,093 7x 665,242 4% 25,986 369,739 Third Model (Rs. In 000) FY 17 F FY 18 F FY 19 F FY 20 F EBIT Add Back: Depreciation EBITDA PVs of EBITDA (@ 10%) Average EBITDA FV / EBITDA MULTIPLE Firm Value Probability Weightages Weighted Equity Value Weighted Equity Value 4,993 1,589 6,583 5,984 4,918 1,964 6,882 5,688 4,644 2,454 7,098 5,333 5,521 3,097 8,618 5,886 3x 37,993 50% 18,997 4x 50,658 26% 13,060 5x 63,-% 8,410 6x 75,987 7% 5,343 Fourth Model (Rs. In 000) FY 17 F FY 18 F FY 19 F FY 20 F FY 21 F EBIT Add Back: Depreciation EBITDA PVs of EBITDA (@ 10%) Average EBITDA FV / EBITDA MULTIPLE Firm Value Probability Weightages Weighted Equity Value Weighted Equity Value (13,297) (12,585) (5,368) 21,148 102,253 1,589 (11,708) (10,643) 1,964 (10,622) (8,778) 2,454 (2,914) (2,189) 3,097 24,245 16,560 3x 36,533 50% 4x 5x 6x 3,942 106,195 65,939 12,178 7x 48,710 26% 60,888 13% 73,066 7% 85,243 4% 18,266 9,742 9,133 7,307 4,262 48,710 A L IN T IS A R ( P V T . ) L T D . FY 21 F 61,173 3,942 65,114 40,431 12,664 7x 88,651 4% 3,463 49,272 MagTech Pakistan (Pvt.) Ltd. – Investment Proposal Page 56 7. CONCLUSION – VALUE PROPOSITION & OFFERING 7.1 Value Proposition The firm provides proficient services and solutions in their dedicated area of technical business expertise. The Company is currently charging reasonable prices from domestic consumers and has negotiated a long-term contract with their Principals. One of the key terms of business agreed with the Principal has been concessional prices of 60%. In the future, the Company anticipates to raise prices of it solutions while keeping their original gross profit(s). Accordingly, this would further boost the profitability of the business in the future years. The offer to Investors is therefore based on predictive and sound business model, which is expected to exist for a significant period of time with a longer growth phase of at least 10 – 20 years before the stability and maturity phases of the business step in. 7.2 Conclusion / Value Offering The average Equity value of the firm using the 3 methods employed i.e. DCF, FCFE and FV / EBITDA method turns out to be Rs. 200 million (approximately). The MagTech Management is currently offering 25% shares to prospective Investors. The going value for the Management’s interest in offering quarter (25%) of its total Equity stake would therefore be Rs. 50 million (give or take). A L IN T IS A R ( P V T . ) L T D .