Sanofi Aventis Pakistan Limited

Sanofi Aventis Pakistan Limited (SAPL) was incorporated as Hoechst Pakistan Limited in 1967. The company was listed on the Pakistan stock exchange in 1977. It underwent several mergers, acquisitions, and divestments over the course of years which led to the change of the company’s name to Sanofi-Aventis Pakistan Limited.

The company’s state-of-the-art manufacturing site was established in Karachi in 1972. It manufactures diversified products ranging from oral solids and liquid dosage to highly sophisticated sterile products.

Pattern of Shareholding

As per the last published annual report of the company i.e. for the year ending December 2021, SAPL has an outstanding share capital of 9.64 million shares which are held by 1102 diverse shareholders. Associated companies, undertakings, and related parties are the biggest shareholders of Sanofi Aventis with a stake of 73.43 percent. This category is majorly dominated by Sanofi Foreign Participations B.V. holding over 5 million shares. Directors, CEO, their spouses, and minor children represent 13.77 percent of the company’s shareholding followed by the general public owning 4.21 percent of shares. Moderna & Mutual funds have a representation of 2.37 percent in the company’s outstanding share capital with insurance companies running a close next, holding 2.32 percent shares of SAPL. The remaining shares are held by other categories of shareholders.

Historical Performance (CY17- CY21)

The top line of SAPL has been riding a growth trail in all the years except in CY20 where net sales depict a marginal downtick of 3 percent. Conversely, in CY20, profit after tax increased by over 2 times. This was the year when Covid-19 hit the local and international economies. While other sectors faced operational bottlenecks due to the global pandemic and the associated protocols, the pharmaceutical sector continued to operate throughout the year to ensure the timely manufacturing and availability of quality medicines across the country at the most crucial times. The slight drop in sales during the year was due to the closure of HCP clinics during the lockdown period.

71 percent of the sales came on the back of antibiotics, diabetics, and cardiology in CY20. While local sales still form the major chunk of the SAPL’s net sales, export sales grew by 74 percent year-on-year in CY20, particularly in Afghanistan. The margins of SAPL which had been declining since CY17, revived in CY20 owing to the rationalization of commercial conditions, price increases, a drop in marketing activities, and a decrease in travel costs due to the lockdown. The operating profit of the company grew by 52 percent year-on-year in CY20 culminating in an OP margin of 6.65 percent versus 4.27 percent in CY19.

In CY20, SAPL was able to contain its financial cost which dropped by 19 percent year-on-year. This was mainly due to a significant drop in short-term borrowings by streamlining the payment cycle and changing the distributor model coupled with a downward revision in discount rate during the year. The company also availed refinance scheme by SBP to ensure continued employment and ease liquidity challenges during the global pandemic.

While Covid-19 proved to be a blessing in disguise for the pharmaceutical sector which made lofty profits during the year, a glance at CY19 would give a clearer picture of the company’s performance before the unforeseen boon. In CY19, SAPL posted a healthy year-on-year topline growth of 12 percent. The major contributor to the net sales was Flagyl accounting for 22 percent of the company. Despite sales growth, the GP margin of the company drastically dropped from 30.45 percent in CY18 to 25.69 percent in CY19 owing to high inflation, devaluation of the Pak Rupee, and significant dependence on imported raw materials. Moreover, stiff price regulations also affected the company’s margins. While distribution and admin expenses didn’t give any breather during CY19, other expenses showed a rather favorable picture owing to better management of exchange loss. Then other income almost doubled mainly on the heels of the recovery of insurance claims during the period. Finance cost, however, proved to be the main culprit due to an increase in the discount rate from 10 percent to 13.25 percent and a substantial increase in short-term borrowings. Hence, the bottom line plunged by 75 percent year-on-year in CY19 with the skimpiest net profit margin of 1.07 percent among all the years under consideration.

CY21 was the time when the economy was overcoming the Covid-19 shocks. High inflation and Pak Rupee devaluation tagged along. SBP had made downward revisions in the discount rate to stabilize the economy. SAPL’s sales showed a healthy year-on-year growth of 13 percent in CY21 as the HCP clinics resumed after the lockdown period which meant greater accessibility. High prices also played their due role in topline growth. However, the GP margin marginally plummeted owing to Pak Rupee depreciation and the company’s dependence on imported active pharmaceutical ingredients and finished goods. While costs remain unabated, the company was successful in keeping a check on its operating expenses during the year. This coupled with a buoyant other income mainly coming on account of massive insurance claim recovery resulted in an impressive OP margin of 9.22 percent in CY21 as against 6.65 percent in CY20. Finance cost also nosedived owing to the low discount rate. Moreover, the running finance facility obtained in CY19 remained unutilized and hence the company didn’t obtain any fresh short-term borrowings during CY20. The bottom line bagged a year-on-year growth of 84 percent in CY21 with a net profit margin of 5.7 percent vis-à-vis 3.49 percent in the previous year.

Recent Performance (9MCY22)

CY22 was a year full of challenges characterized by multiple upward revisions in the discount rate, Pak Rupee depreciation, skyrocketed inflation, import restriction, energy crisis, and the general slowdown in economic activity. Despite all the headwinds, SAPL attained a stellar topline growth of 18 percent during 9MCY22. The growth was mainly driven by Flagyl followed by No-Spa and Claforan. GP margin also grew remarkably from 21.8 percent in 9MCY21 to 27.3 percent in 9MCY22 on account of better pricing and product mix.

Upbeat sales volume was driven by an increase in promotional activities and engagement with healthcare professionals which increased the selling and distribution expense for 9MCY22 by 34 percent. Moreover, the rise is logistics costs and relentless efforts to recover the outstanding receivables also played a considerable role in pushing the selling and distribution expenses up. Other expenses gave a major blow to the bottom line by enlarging by 3.5 times mainly due to the exchange loss owing to adverse exchange rate movement during the year.

The imposition of super tax during the year further squeezed the margins and the net profit dropped by 39 percent year-on-year in 9MCY22 culminating in an NP margin of 1.52 percent versus 2.93 percent in the same period last year.

Future Outlook

With the ongoing import restrictions owing to drying up Foreign exchange reserves, the future doesn’t look promising for the pharmaceutical sector as reportedly over 90 percent of the industry’s raw materials are imported. The pharmaceutical companies are hinting at the shortage of life-saving drugs as they are not left with even a year’s stock of raw materials. Amidst the alarming situation, drugs are sold at exorbitant prices and many essential drugs have already started disappearing from the market.

The sector is pinning hopes on the upcoming IMF deal to instill some life in the gloomy economy. Meanwhile, the black market of medicines is gaining momentum owing to compressed margins in the formal sector. That said foreign companies are waving red flags to pack their bags from Pakistan due to low returns on investment.