AGP Limited

AGP Limited (PSX: AGP) was incorporated in 2014 as a public limited company under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). It was listed on the country’s stock exchange in 2018.

The company’s business essentially comprises of importing, marketing, exporting, dealership, distribution, wholesale, and manufacturing of various kinds of pharmaceutical products.

Shareholding pattern

As at December 31, 2019, associated companies, undertakings and related parties are the largest shareholders of the company, holding over 71 percent shares. Within this category, the largest number of shares, nearly 53 percent, are held by Aitkenstuart Pakistan (Private) Limited, followed by Muller & Phipps (Pakistan) (Private) Limited and Aspin Pharma (Private) Limited. Some 16 percent shares are held under “others” category, while the directors, CEO, their spouses, and minor children own less than 1 percent shares in the company.

Historical operational performance

For the past five years, topline has seen an upward trend, whereas profit margins have also been relatively stable.

During CY16, topline growth was at a little over 12 percent. Although revenue from local manufacturing, that saw an 11 percent rise, was the biggest contributor to the total revenue pie, it was local trading that saw the biggest increase year on year from Rs 5 million in CY15 to Rs 281 million in CY16 while exports actually reduced, nearly halving year on year. Due to a slight reduction in cost of production as a percentage of revenue, gross margin remained more or less stable at 58 percent, while net margin was supported by a much lower tax expense that increased the former to almost 26 percent, up from last year’s 17 percent.

Topline growth was stable at 12 percent in CY17. This was again brought about by increases in revenue from local manufacturing and trading, whereas export revenue continued to shrink; it fell from Rs 187 million in CY16 to Rs 10 million in CY17. Cost of production reduced slightly to 39 percent, down from last year’s 41 percent. This helped to improve gross margin to nearly 61 percent. However, this was offset by the rise in distribution expense to make up over 22 percent of revenue. The increase was due to a combination of salaries, traveling and sales promotion expenses. This kept net margin more or less flat at 26 percent.

There was a nearly 14 percent rise in sales revenue during CY18. This was attributed to a number of product launches during the year, in addition to a large government institutional order for Hepatitis C products. However, this could not be translated into a higher gross margin due to small margins in the government institutional order and a currency devaluation. The lower gross margin translated into lower net margin as well that was recorded at 22.4 percent.

In CY19, at 16 percent, AGP Limited witnessed the highest topline growth seen in the past four years. With this, the company cross the Rs 6 billion mark in sales. Of this, Rs 1 billion was contributed by its flagship brand “Rigix”, an antihistamine, that has a market share of 17.5 percent. It was also supported to some extent by the one-time price adjustment allowed by the Drug Regulatory Authority of Pakistan (DRAP). This allowed cost of production to claim a lower share in revenue at 41.5 percent. This also translated into an improved net margin of 23 percent, although only to a certain extent due to a higher tax expense.

Quarterly results and future outlook

During the first quarter of CY20, the company saw a 9 percent increase in topline year on year. This was attributed to good performance in the domestic portfolio along with improvement seen in institutional business. Moreover, sales to Afghanistan also saw an upwards trend that was impacted last year due to heavy levies by the Afghan government. An agreement was reached towards the end of CY19, therefore the increase in sales is exhibited in CY20. This continued until the end of the first quarter of CY20 when the pandemic hit the country and borders were closed. Although at close to 45 percent, cost of production was higher than what is observed historically, it was lowest among the three quarters of CY20. Therefore, gross, and net margin was also the highest in 1QCY20.

In 2QCY20, AGP Limited saw the lowest sales revenue among the three quarters and year on year comparison also reveals an 8.5 percent decline. There was a decrease in domestic portfolio while export sales were also negatively impacted due to border closure owing to the coronavirus outbreak. With cost of production gradually increasing, net margin reduced to 22.6 percent. Marketing and distribution expenses were the lowest in value terms during the quarter due to no promotional activities during the lockdown.

By the third quarter of CY20, revenue for the quarter was close to Rs 2 billion- the highest among the three quarters. Year on year too, there was an increase of almost 30 percent. This was due to resumption of activities as Covid-19 cases began to decline. There was volumetric growth in both, export, and local sales. Cost of production neared 48 percent- the highest among the three quarters, which meant that the high revenue did not translate into high profitability, due to currency devaluation.

Although finance cost’s share in revenue has been on a gradual decline over the years, it has seen considerable decline in CY20 owing to the government’s initiative to reduce interest rates in an attempt to support businesses during the pandemic. The company is also looking to increase production capacity and launch new products.