Operating since 1956, Ferozsons Laboratories caters to the pharmaceutical market of Pakistan in the fields of cardiology, oncology, gastroenterology, dermatology and anti-infective. Besides being active in local markets, the company also exports to Asian and African markets.
Moreover, the company is also the official partner of Boston Scientific Corporation, USA. The partnership give company the right to market and distribute Boston's cardiac and peripheral products and interventional devices in Pakistan. The company is also involved in the manufacturing of tablets, capsules, syrups, suspensions, creams and ointments. According to reports, the company stretched out its manufacturing capacity in 2012, hence figuring in a new production wing for the manufacturing of solid dosage forms.
Ferozsons-Gliead join hands! In June 2014, Ferozsons joined hands with Gliead Sciences to serve as its sole business partner for Pakistan. Gliead is an American research based biopharmaceutical company involved in discovering and marketing of therapeutics particularly HIV, AIDS, and Hepatitis C among others. This entitles the company to market and distribute Gliead medical solutions for treatment of Hepatitis C and Hepatitis B infections in Pakistan. Recently, Sovaldi, Gliead's drug for the treatment of Hepatitis C has been registered in Pakistan by Drug Regulatory Authority of Pakistan.
Considering that the burden of Hepatitis C disease remains one of the highest in Pakistan and Ferozson's being the only distributor of its treatment in the country, company's stock price has made waves on local bourse lately. Over the past two months, the stock has rallied by over 60 percent vis-à-vis a gain of nearly 6 percent during the same period.
Financial Performance: 1QFY15 Ferozsons growth trajectory decelerated with the beginning of FY15. Top line marked a rise of 11 percent to clock in at Rs 635 million during the quarter ended September 2014. It should be brought to attention that company seems to be focusing more on its local sales. This is evident as local sales contributed nearly 95 percent (September 2013: 89 percent) to the aggregate revenue of the company, thus taking the share of exports down to 5 percent from 11 percent in the corresponding period last year. However, cost of sales continued to accelerate with the same pace, hence keeping a check on company's gross margins. Resultantly, gross margin settled at 11 percent, which is the same level as observed in the corresponding period of last year.
On the other hand, 'other income' 'saw an uptick of nearly 1.6 times to Rs 21 million. However, the unavailability of break-up of this category leaves us unable to comment on the root cause of this gain. Possibly, some one-off gain arising from sale of property might have led to this drastic surge in other income.
Increasing selling and distribution costs remained the primary culprit of dragging bottom line in the red zone. Selling and distribution costs as a percentage of sales rose to 24 percent from 21 percent in the corresponding period last year. However, other expenses stayed flat, thus easing additional burden on the bottom line. Owing to the aforementioned factors, profitability after taxation underwent a decline to the tune of Rs 3 million or 3 percent, thus clocking in at Rs 95 million during the quarter ended September 2014.
Ferozson's journey during FY14: The last six years' financial performance of the company reminds one of a see-saw movement. This observation can be manifested with high profitability growth of the company in one year followed by a drastic decline in another.
However, during the last two years, the performance of Ferozsons has more or less remained flat. Bottom line inched up a tad by 2 percent in FY14. This is despite of a decent top line growth of 30 percent in FY14. The culprits were burgeoning cost of sales and higher taxation charges borne by the company during the year.
Referring to company's director report, mushrooming cost of sales is the outcome of rising input prices coupled with alternation in company's divisional mix. Besides, the sharp rise in taxation charges is associated with the termination of exemption under the Income Tax Ordinance 2001 in 2012. Hence, with the payment of taxes under the normal regime, profitability of the company has been thinning out sharply subsequent to the expiry of exemption. Though, in FY14, the company still managed to land in green, posting profit after tax of Rs 418 million, reflecting a modest rise of 2 percent year-on-year.
What's in stock for Ferozsons? Although Sovaldi has been registered, there remain question marks on its pricing. There are two key issues in this regard. First, pricing has to be financially viable for the company. Second, regional comparison should be given due consideration. Besides, the timing of price approval remains crucial. If it takes too long, the drug might carry the risks of being generic, which will not bode well for Ferozson's prospects.
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Ferozsons Laboratories Limited - Financial Highlights
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Rs (mn) FY12 FY13 FY14 1QFY15
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Revenue - Net 1,771 1,953 2,535 635
Cost of sales (861) (902) (1,231) (311)
Gross Profit 909 1,051 1,304 324
Other income 104 91 96 21
Administrative expenses (134) (140) (160) (40)
Selling and distribution costs (439) (502) (600) (153)
Finance costs (8) (12) (17) (4)
Other expenses (29) (33) (55) (16)
Share in profit of Farmacia 20 (4) - -
Profit before taxation 422 451 568 132
Taxation (14) (42) (150) (37)
Profit after taxation 408 409 418 95
EPS - basic and diluted 13.53 13.54 13.83 3.17
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Source: Company accounts
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