Research Notes

JSC KuibyshevAzot ranks among the world’s top ten largest producers of caprolactam and is a leading manufacturer in Russia. The company is also one of the leading Russian producers of nitrogen fertilizers. A large-scale investment program to upgrade production facilities and favorable market conditions are to improve the company’s financial results and support its development. We believe that the following factors boost investor’s interest to shares of the company:

• KuibyshevAzot is presently the leading producer of caprolactam in Russia. The company accounts for 47% of the total output in Russia. It also occupies leading positions in the Russian market of nitrogen fertilizers: 3.7% of the ammonium market, 4.9% of the urea market and 6.3% of the ammonium nitrate market.

• In 2007 the financial results of the company have seen strong growth. At the end of September revenue improved 45% y-o-y to USD 480 mn, net profit almost tripled to USD 53 mn.

• The company saw serious upgrades in the last several years to expand production facilities and reduce costs. Caprolactam output grew by 38%, ammonium nitrate production was boosted by 46% and urea output rose by 28%. The company also launched the production of a new product based on caprolactam (polyamide-6). After the commissioning of new equipment in Q4 2007, the total output of this product is to increase by 32% to 96,000 tons a year.

• In 2008 KuibyshevAzot might launch an IPO. An initial public offering would strongly improve liquidity of the company’s shares and boost investors’ interest.

Our fair value for JSC KuibyshevAzot’s commom stock is USD 3.25 per share, while our fair value for the company’s preferred stock is USD 2.05 per share. These estimates imply an upside of 57% and 43%, respectively.

We assign a Buy recommendation for common and preferred shares of the company.

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Michael Frolov

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