IBL HeathCare Limited

IBL HeathCare Limited (PSX: IBLHL) was incorporated in Pakistan as a private limited company in 1997. The company changed its status into a public limited company in 2009. The company is engaged in the marketing, selling and distribution of healthcare products. IBLHL is a wholly owned subsidiary of The Searle Company Limited (PSX: TSCL).

Pattern of Shareholding

As of June 30, 2022, the company has a total of 64.905 million shares outstanding which are held by 4883 shareholders. Associated companies undertakings and related parties particularly TSCL is the major shareholder of IBLHL with a stake of 72.12 percent in the company. This is followed by local general public holding 13.29 percent shares of IBLHL. Modarbas and Mutual funds account for 3.26 percent shares of the company. The remaining shares are held by other categories of shareholders.

Performance Trail (2018-22)

The topline of IBLHL has been riding an upward trajectory in all the years under consideration with the maximum growth recorded in 2020 i.e. during the outspread of COVID-19. The bottomline only slid in 2019 and then kept growing thereafter. The margins of the company boast their finest version in 2021 to slightly drop in 2022.

In 2019, the company’s revenue posted a 17 percent year-on-year rise, yet the bottomline slid by 19 percent year-on-year. During the year, Pak Rupee witnessed drastic devaluation which multiplied the cost of sales of the company as its business is solely based on imports. Increase in duties and other stringent rules imposed on formula milk and nutritional products also took its toll on the GP margin of the company which slid to 28 percent in 2019 from 31.5 percent in the previous year. The gross profit posted a marginal uptick of 4 percent during the year. Other income slightly grew during the year mainly on the back of rental income from investment property. However, the growth of operating expenses on account if inflationary pressure resulted in operating profit shrinking by 8 percent year-on-year in 2019. OP margin also dropped to 13.4 percent in 2019 from 17 percent in 2018. Other expense provided some breather to the bottomline as it plunged by 56 percent year-on-year in 2019 on the back of lesser exchange losses. Finance cost grew by 264 percent during the year as the company made short-term running finance facility during the year coupled with high discount rate. However, in absolute terms, finance cost is only Rs.5.06 million in 2019. The bottomline dropped by 19 percent year-on-year in 2019 to clock in at Rs.121.38 million with an EPS of Rs.2.24 versus Rs.2.76 in 2018. The NP margin stood at 7.7 percent in 2019 down from 11 percent in the previous year.

In 2020 while many industries were grappling against the outburst of COVID-19 which brought in a new set of challenges for the economy, the pharmaceutical sector enjoyed hefty sale and profit during the year. The topline of IBLHL tremendously grew by 68 percent year-on-year in 2020. The robust revenue growth was driven by the addition of new portfolio along with the growth in existing business of the company. The gross profit of the company registered 83 percent year-on-year growth during 2020 with a GP margin of 30.4 percent. Distribution expense more than doubled during the year mainly on the back of sales promotion and marketing activities undertaken during the year coupled with the rise in salaries and wages. Yet, operating profit was able to muster 66 percent year-on-year growth during 2020. However, OP margin remained at the same level of 13 percent. Finance cost multiplied by 513 percent to clock in at Rs. 31 million during the year owing to high discount rate in most of the months of FY20 coupled with an increase in short-term running finance. The debt-to-equity ratio increased from 50 percent in 2019 to 58 percent in 2020. The bottomline posted 82 percent year-on-year rise to clock in at Rs.220.03 million in 2020. EPS stood at Rs.4.07 in 2020 while NP margin rested at 8.3 percent.

In 2021, the world hadn’t recovered from the shocks of COVID-19 which provided the pharmaceutical companies another year of robust sales growth. During the year IBLHL added pharma and consumer products to its portfolio which coupled with the existing portfolio mustered a 13 percent year-on-year growth in topline. The sale of high margin pharma products as well as exemption of duties on nutrition and medical disposables resulted in a considerable 23 percent year-on-year growth in the gross profit of IBLHL during 2020. The GP margin also flew to 34 percent during the year. Other income didn’t appear to behave favorably as it slid by 40 percent year-on-year in 2020 owing to lesser rental income on investment property and lesser interest income on loan to International Brands Limited. Operating expenses kept growing mainly on the heels of increased sales promotion and marketing drives as well as increase in salaries and wages, yet IBLHL boasted a 26 percent year-on-year growth in operating profit. OP margin grew to 14.8 percent in 2020. The company obtained long-term financing under refinance scheme initiated by the SBP for the payment of wages and salaries. Moreover, running finances also grew during the period. However, low discount rate kept the finance cost in check which dropped by 3 percent year-on-year in 2021. The bottomline grew by 37 percent year-on-year in 2021 to clock in at Rs.300.49 million with an EPS of Rs. 4.63. NP margin clocked in at 10 percent in 2021.

In 2022, the company attained a 22 percent year-on-year growth in topline which is mainly driven by the disposable business and nutrition portfolio. Despite sharp currency devaluation which increased the cost of sales for the company, better sales mix and revised pricing kept its gross margin almost at the same level as 2021. The company made “other loss” worth Rs.60.11 million in 2022 as against “other income” in the previous year. This was mainly on account of exchange losses made during the year on the back of Pak Rupee devaluation. The inflationary pressure also pushed up the operating expenses, yet operating profit managed to post a 17 percent year-on-year growth. OP margin marginally slid to 14.2 percent in 2022. Finance cost shrank during the year despite soaring discount rate as the company repaid the long-term loan obtained in 2021 under refinance scheme. The imposition of super tax enormously increased the income tax expense for IBLHL and resulted in only 1 percent growth in its bottomline in 2022. The net profit of the company stood at Rs.302.86 million in 2022 with NP slipping to 8.3 percent. EPS clocked in at Rs.4.67 in 2022.

Recent Performance (1HFY23)

During 1HFY23, IBLHL’s topline grew by 14 percent year-on-year on the back of tender received by the disposable division. High cost of sales on the back of sharp devaluation in Pak Rupee lowered the GP margin to 33 percent in 1HFY23 from 34 percent during the same period last year. The company also posted a huge rise in its other loss on the back of net exchange losses made during the year. While the operating expenses stayed in check and grew only marginally, operating profit could only register a 2 percent year-on-year growth in 1HFY23 with OP margin clocking in at 13.7 percent from 15 percent in 1HFY23. High discount rate coupled with increased short-term borrowings by the company inflated the finance cost by 166 percent in 1HFY23. This pushed the bottomline down by 2 percent year-on-year in 1HFY23 with NP margin clocking in at 8.5 percent versus 9.8 percent during the same period last year. EPS remained almost intact at its level in 1HFY22 i.e. Rs.2.4.

Future Outlook

Currency devaluation is not only magnifying the cost of sales of IBLHL but is also resulting in huge other losses for the company. This coupled with the rising finance cost is eroding the margins and profitability of the company and will continue doing the same as the macroeconomic indicators seem to show no improvement in the near future. Restricting the finance cost by tweaking the capital structure to include more equity financing can help the company overcome the rising finance cost. Moreover, local sourcing of raw materials can help company avoid the exchange losses. In the absence of the suggested or other strategies, the margins are expected to melt off further in the coming times.