IBL Healthcare Limited

IBL Healthcare Limited (PSX: IBLHL) was set up as a private limited company in 1997 as a subsidiary of The Searle Company Limited. International Brands Limited is its ultimate parent company. It was converted into a public limited company in 2008. IBL Healthcare Limited markets, sells and distributes healthcare products.

Shareholding pattern

As at June 30, 2021, over 72 percent shares are held under the associated companies, undertakings and related parties within which The Searle Company limited is a major shareholder. The local general public owns about 13 percent shares followed by 9 percent held under “others” category. The directors, CEO, their spouses and minor children own less than 1 percent shares, while the remaining about 5 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has consistently experienced a growing topline since FY15 while profit margins slightly declined between FY16 and FY19, before rising, again, very slightly until FY21.

In FY18, the company registered a revenue growth of 14 percent despite currency devaluation and the uncertainty associated with general elections to be held at the end of it. But because the company is dependent on imports, the currency devaluation caused an increase in production cost as the latter consumed over 68 percent of revenue. In addition, exchange loss further drove expenses up that led net margin to reduce to almost 11 percent for the year, compared to 16.6 percent in the previous year.

Topline growth in FY19 stood at 16.7 percent to reach Rs 1.6 billion in value terms. With continuous currency devaluation, production cost elevated to nearly 72 percent of revenue that shrunk gross margin to 28 percent. Moreover, similar to the rest of the companies in the industry, IBL Healthcare spent considerably on distributions and promotions that are evident from distribution expense making almost 13 percent of revenue. Thus, net margin fell to single digits for the first time since FY14, at 7.6 percent.

Revenue in FY20 increased by whopping 68 percent to reach Rs 2.7 billion in value terms. This was attributed to “induction of consumer and medical disposable business”. Moreover, the addition of high margin local products in the existing portfolio contributed positively to topline and profits. The higher revenue reflected in better gross margin that was recorded at 30.5 percent for the year. However, operating and net margin grew only marginally to 13.25 percent and 8.3 percent, respectively, since distribution expense escalated to consume 16 percent of revenue. Prominent increases were seen in salaries, sales promotions and marketing, rent and vehicle running expenses.

Topline in FY21 crossed Rs 3 billion as it posted a growth of 12.7 percent. In addition to existing portfolio, revenue grew on the back of addition of pharma and consumer products. Moreover, the company also benefitted from exemptions on duties of nutrition and medical disposables. With production cost down to nearly 66 percent of revenue, gross margin rose to 34 percent. But net margin was only marginally better at 10 percent since distribution expense continued to make a larger share in revenue, while other income also declined that had been contributing more than Rs 45 million to the bottomline consecutively for four years. While net margin did not peak, bottomline at Rs 300 million stood at an all-time high.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 13.7 percent year on year. This was again attributed to addition of products in various categories. Moreover, the higher profit margin in nutrition portfolio and addition in pharma products contributed positively to the bottomline. This is reflected in higher gross margin for the period at 33.8 percent compared to 28 percent in 1QFY21. The effect of this was also seen in net margin that stood at 10.2 percent compared to 7.5 percent in the same period last year.

The second quarter saw revenue higher by over 33 percent year on year as similar trend followed with addition of products in various categories and higher margins in nutrition portfolio. While gross margin at 35 percent, was marginally better on the back of lower production cost, net margin was marginally lower at 9.5 percent compared to 9.8 percent due to higher tax expense and lower other income.

The third quarter too saw higher revenue year on year, at almost 12 percent. This was attributed to awarding tenders for disposable division and nutrition business. But production cost grew to over 69 percent of revenue, to bring gross margin down to 30.5 percent versus almost 38 percent in the same period last year. This also reflected in the net margin that was lower at 8.8 percent compared to 13.8 percent in 3QFY21. The company has successfully managed to post a consistent growth in topline.

While 9MFY22 production cost is not significantly higher than 9MFY21, the persistent currency devaluation and inflationary pressures is bound to adversely impact it, while the higher tax expense has also brought down net margins.