Nizhnekamskneftekhim Common RTS: NKNC; MICEX: NKNC Nizhnekamskneftekhim Preferred RTS: NKNCP; MICEX: NKNCP

0.585 0.423 0.300 0.198 1.095 0.470 0.508 0.280 1.295 0.325 0.860 0.245 0.923 0.256 0.423 0.150 1.096 0.175 0.475 0.085 0.475 0.135 0.320 0.075

Recent Price Recent Price

0.750

$0.82 $0.5
C

Div'd Yld

4.7% 7.7%
A

Target Price Target Price

$0.94 $0.49

Recommen dation Recommen dation

Buy Hold
2012 4.5 9.3

Div'd Yld

C High 0.363 C LowC 0.458 P HighC

0.160

Institutional Decisions (1Q11) Buy Sell Hold 2 1 1 P/E EV/EBITDA EV/S

Trading Multiples /
(Emerging markets median) 2011 2010 5.1 16.9 6.1 12.1

P Low

NKNC

NKNCP

1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0

3.35 7.01 4.16 6.43 2.61 5.94 0.56 0.79 0.56 0.72 0.40 0.70

% Total Return 6m 12m 18m 24m Est12m 2015

B

Capital Structure as of 31/03/2011

ST Debt $196.9 mln LT Debt $234.1 mln Common stock 1,611,256,000 Preferred stock: 218,983,750 Market Cap: $1,435

17% 84% 89% 275%

B

15%

Indicators, RAS (US$) Earnings per Share

D

2004 0.06 0.006 0.006 1 611 219 7.3 1 274.4 744.6 257.1 32.0 1 176.1 343.9 260.9 115.5 29% 22% 10%

2005 0.04 0.006 0.006 1 611 219 16.1 1 616.6 790.2 511.7 12.6 1 488.7 367.0 265.8 76.0 25% 18% 5%

2006 0.07 0.020 0.020 1 611 219 13.6 1 744.4 955.0 473.4 19.9 1 748.6 375.4 264.7 122.3 21% 15% 7%

2007 0.09 0.026 0.026 1 611 219 6.4 2 052.5 1 146.1 445.1 112.5 2 296.4 455.4 346.3 160.2 20% 15% 7%

2008 0.04 0.012 0.012 1 611 219 17.3 1 889.2 951.1 401.8 229.1 2 853.0 528.3 375.1 70.9 19% 13% 2%

2009 0.01 0.002 0.002 1 611 219 34.6 1 950.5 986.8 311.8 238.4 1 902.0 263.3 184.3 13.4 14% 10% 1%

2010 0.13 0.039 0.039 1 611 219 3.9 1 928.6 1 176.3 255.3 165.4 3 108.9 613.7 510.4 236.3 20% 16% 8%

2011

Nizhnekamskneftekhim (NKNH) is the largest Russian producer of synthetic rubbers, monomers and other petrochemicals. NKNH was established in 1967. NKNH is one of the world's largest suppliers of isoprene and butyl rubbers, with respective global market share of 35% and 15%. The company exports about 50% of its production and employs over 17000 people.
Current Position Assets Cash Other Current Assets Non-Current Assets Liabilities Current Liabilities Non-Current Liabilities Shareholder Equity CAGR Sales Gross income EBITDA Net Income Total Assets 593.2 370.4 986.8 5yr 15.9% 10.8% 13.9% 25.5% 3.6% 457.3 295.0 1 176.3 3yr 10.6% 10.5% 13.8% 13.8% -2.1% 633.7 278.9 1 384.1 5yr Est-s 7.4% 2.8% -13.8% -26.7% 2.5% Full Year 1 902.0 3 108.9 Full Year 0.007 0.129 Full Year 9.7% 16.4% Full Year 0.7% 7.6% E E E E

0.11 0.033 0.033 1 611 219 7.0 2 359.4 1 309.9 235.2 124.8 3 936.2 812.8 440.6 193.7 21% 11% 5%

0.03 0.008 0.008 1 611 219 16.8 2 177.4 1 357.3 0.0 0.0 4 435.6 706.2 243.3 50.2 16% 5% 1%

Dividends per Common Share Dividends per Preferred Share Common Shs Outst'g, mln Preferred Shs Outst'g, mln Average P/E Ratio Total Assets (US$ mln) Net Assets (US$ mln) LT Debt (US$ mln) ST Debt (US$ mln) Sales (US$ mln) Gross income (US$ mln) EBITDA (US$ mln) Net Income (US$ mln) Gross Margin EBITDA Margin Net Margin

2009

2010

1Q11

89.7 398.8 1462.0

108.4 482.2 1338.0

251.6 633.2 1411.9

BUSINESS: Nizhnekamskneftekhim is the largest producer and exporter of petrochemicals in Russian Federation. The company's produce is mainly used in production of automotive and aeronautical tyres, as well as in production of FMCG package and medical components.

LLC "Telecom Management" (a TAIF related company) owns 44.6% in Nizhnekamskneftekhim; Svyazinvestneftekhim owns 25.2% (the stake is under LLC "TAIF Invest" trust management). Tatarstan Government owns a golden share in the company. CEO: V. M. Busygin. Web: http://www.nknh.ru/

Quarterly Sales, US$ mln 1Q 2009 2010 2011 341.0 700.1 1 022.1 2Q 453.9 771.5 3Q 518.8 801.6 D

We initiate our coverage of Nizhnekamskneftekhim ("NKNC"). NKNC specializes in the production of petrochemicals, mainly, synthetic rubbers (SR), plastics and monomers, having significant share of the global isoprene and butyl rubber markets. The company manufactures over 100 products; over 50% of total output is exported to a total of 59 countries. The largest export market for the company is China (15 %), while various countries in Europe and the CIS in aggregate account for more than 53 % of the companys exports. The companys profitability essentially depends on the dynamics of the world prices for SRs and plastics, which is a reflection of the growth of the global economy in general. The current state of the global petrochemicals market has been extremely favorable since October 2010. Spot prices for natural rubber RSS4 (a benchmark for other types of rubbers) have grown more than 30 % and are now $4825 per ton. We are concerned the pace of SRs spot price appreciation may slow down: growth prospects for the global economy this year have become less obvious, as almost all macroeconomic indexes signal a slowdown. That forces us to take a cautious stance in forecasting petrochemical products prices for the short and medium term. In our model we assume RSS4 prices will average $4200 per ton in 2011, growing by a modest 3 % per annum thereafter.

Long-term prospects for the company do not look attractive either: China looks poised to aggressively expand capacity by 2020 and is expected to become self-sufficient in almost every type of synthetic rubber. At the same time the European market is supposed to experience a major shift in consumption patterns due to a tightening of government regulation with regard to the environmental and transportation concerns, implying that demand for basic SRs will shift to specialized new generation ones and should be seen a long term threat to NKNCs exports. Meanwhile, the domestic SR market is expected to increase in-line with the local automotive market, estimated to grow 5 % annually. By 2020 the domestic market is expected to increase up to 0,7 million tons, which, certainly, will not be sufficient to replace the slump in European and Chinese exports, while about 90% of the domestic SR market is already being supplied by Russian producers. In determining NKNC valuation, we have decided to combine our DCF with the closest comparables we could find. Although our DCF approach alone does not suggest any meaningful upside to the companys valuation, NKNC looks inexpensive based on comparable trading multiples. That said, our estimated target prices for NKNCs shares are $0.94 per common and $0.49 per preferred share, implying a Buy and a Hold recommendation for commons and preferreds, respectively. Ilya Klenin (May 25, 2011) e-mail: ilya.s.klenin@olma.ru

4Q 609.5 833.6 -

Earnings Pers Share , US$ 1Q 2009 2010 2011 -0.029 0.026 0.064 2Q 0.023 0.036 3Q 0.020 0.051 4Q -0.006 0.016 -

EBITDA Margin, % 1Q 2009 2010 2011 14.6% 13.4% 16.9% 2Q 11.5% 20.4% 3Q 9.4% 19.7% 4Q 5.3% 12.0% -

Net Margin, % 1Q 2009 2010 2011 -15.4% 6.9% 11.4% 2Q 9.5% 8.6% 3Q 7.0% 11.6% 4Q -1.7% 3.4% -

OLMA Research Head of Department - Dmitry Parfenov Equity Markets - Anton Startsev Metals & Mining, Chemicals - Ilya Klenin Financial Institutions - Ruslan Yunusov Utilities - Roman Gabbasov Tel.: (495) 960-31-21
Notes (A) Bloomberg estimates, (B) OLMA estimates, (C) C stands for common, P stands for Preferred, (D) Per total shares outstanding, (E) Totals may not add up due to currency conversion error; All figures in the report - IFRS, figures in bold OLMA estimates

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