AGP Limited

AGP Limited (PSX: AGP) was incorporated in Pakistan as a public limited company in 2014. The company is engaged in the import, export, marketing, distribution, dealership and manufacturing of a wide array of pharmaceutical products. Aitkenstuart Pakistan (Private) Limited is the ultimate parent company of AGP. AGP distributes its products through Muller & Phipps Pakistan (Private) limited which has access to over 46,000 pharmacies across Pakistan.

Pattern of Shareholding

As of December 31, 2022, AGP has a total of 280 million shares outstanding which are held by 3279 shareholders. Aitkenstuart Pakistan (Private) Limited holds 55.8 percent shares of AGP. Collectively, associated companies, undertakings and related parties hold 74.12 percent shares of AGP. Banks, DFIs, NBFIs, Insurance, Takaful, Modarba and pension funds have a stake of 3.75 percent in AGP. Foreign companies hold 3.13 percent shares of the company while local general public accounts for 2.29 percent of the outstanding share capital of AGP. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-22)

AGP’s topline has been riding an upward trajectory since 2018; however, its bottomline started tumbling since 2021. Margins which improved in 2019 started nose-diving thereafter to bottom out in 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, AGP’s topline posted a year-on-year rise of 16 percent to clock in at Rs. 6,253 million. AGP’s flagship brand Rigix hit the record sales of Rs.1 billion in 2019 with a market share of 17.5 percent. One time price adjustment allowed by DRAP also played its due role in driving up the topline. AGP’s retail portfolio grew by 23 percent year-on-year in 2019, however, due to less public spending on healthcare, institutional portfolio declined by 44 percent. Sales to Afghanistan also grew by 22.5 percent year-on-year in 2019 which also buttressed the topline growth. Despite Pak Rupee depreciation, high inflation, and disruption in the availability of imported raw materials due to geopolitical tension, better sales mix, inventory management and cost control measures enabled AGP to record 20 percent year-on-year growth in gross profit. GP margin also rose from 56.5 percent in 2018 to 58.5 percent in 2019. Despite increase in sales volume, distribution expense grew by 12 percent year-on-year. Administrative expenses grew by 24 percent year-on-year in 2019 as the company enhanced its workforce during the year to manage its expanding operations. Other expense also grew by 10 percent year-on-year in 2019 on account of higher provisioning against WWF and WPPF as well as Central Research fund (CRF). However, as a percentage of sales, other expense still stood at 2.7 percent. Other income dropped by 34 percent year-on-year in 2019 as there was no gain on the sale of fixed assets and no liabilities written back during 2019. Operating profit grew by 26 percent year-on-year in 2019. OP margin also rebounded to 33 percent in 2019 versus 30 percent in the previous year. Finance cost mounted by 13 percent year-on-year in 2019 on the back of high discount rate in 2019. AGP’s long-term liabilities considerably declined during 2019 as the company repaid a huge amount. During the year, AGP acquired nutraceutical plant; however, the capital expenditure was financed through internally generated funds rather than debt financing. As of December 2019, AGP doesn’t have any short-term liability on its books. AGP’s debt-to-equity ratio considerably reduced from 41 percent in 2018 to 29 percent in 2019. Imposition of super tax also had a negative effect on the bottomline, yet AGP managed to boast a 20 percent year-on-year growth in its net profits which stood at Rs. 1446.39 million in 2019 with an NP margin of 23 percent versus 22.4 percent in the previous year. EPS also picked up from Rs.4.31 in 2018 to Rs.5.17 in 2019.

The topline growth stood at 11 percent in 2020 on the back of 9 percent increase in the domestic retail portfolio and over 41 percent growth in sales to Afghanistan. Rigix, Osnate-D, Ceclor and Anafortan plus continued to be the star products of AGP and drove major sales growth. Cost of sales grew by 19 percent year-on-year in 2020 due to Pak Rupee depreciation and a one-off provisioning of COVID-19 antibody testing kits. Gross profit grew by a mere 6 percent year-on-year in 2020 whereas GP margin dipped to 55.6 percent. Administrative expenses grew by 44 percent year-on-year in 2020 mainly on the back of increase in salaries and wages due to workforce enhancement as its Nutraceutical plant became operational in 2020. COVID-19 related preventive measures taken at the company premises also pushed the administrative expenses up during 2020. Marketing expenses were greatly contained and grew by only 8 percent year-on-year due to travel restrictions owing to COVID-19. Other expense grew by 10 percent year-on-year on the back of higher provisioning against WWF, WPPF and CRF. Other income grew by 180 percent year-on-year and stood at 0.5 percent of the topline in 2020 as against 0.2 percent in 2019. Other income grew on the back of government grant and increased income on deposit accounts in 2020. Operating profit could post a trivial 1 percent year-on-year growth in 2020 while OP margin plummeted to 30 percent. Finance cost shrank during the year due to low discount rate and settlement of long-term financing during the year. With no short-term borrowings on its book, debt-to-equity ratio further shrank to 24 percent in 2020. There was no super tax was applicable in 2020. Consequently, bottomline posted a 10 percent year-on-year rise in 2020 to clock in at Rs.1587.43 million with an NP margin of 23 percent. EPS grew to Rs.5.67 in 2020.

The topline growth further dwindled in 2021 and was recorded at 7 percent year-on-year. While domestic sales grew by 14.8 percent in 2021, export sales drastically fell by 23 percent year-on-year due to political unrest and closure of Afghan border. During the year, AGP acquired twenty two well established brands from a renowned multinational company, Sandoz AG through equity investment. This acquisition increased the product portfolio of AGP in the anti-infective and oncology segment; however, the full potential of the acquired product portfolio on AGP’ financial performance was not unleashed in 2021. Exchange rate volatility and inflationary pressure particularly at the end of the year pushed the cost of sales up by 7 percent year-on-year in 2021; however, the company was able to maintain its GP margin at 55.5 percent. The resumption of marketing and promotional activities coupled with an increase in the head count to meet tall sales targets pushed the marketing expense up by 15 percent year-on-year in 2021. Administrative expense registered an enormous 73 percent year-on-year surge in 2021 mainly due to payroll expense. Other expense slid by 14 percent year-on-year due to a drop in exchange loss. Other income grew by 46 percent year-on-year in 2021 owing to increase in mark-up income on deposit accounts coupled with amortization of government grant. Due to increase in operating expenses, operating profit plunged by 4 percent year-on-year in 2021. OP margin also climbed down to 27 percent in 2021. Finance cost considerably declined by 41 percent year-on-year in 2021 due to a drop in discount rates coupled with the settlement of Sukuk during the year. Debt-to-equity ratio fell as low as 18 percent in 2021. Despite favorable movement in finance cost, the bottomline couldn’t sustain and posted a decline of 1 percent year-on-year to clock in at Rs.1564.93 million in 2021 with an NP margin of 21 percent. EPS dropped to Rs.5.59 in 2021.

Among all the years under consideration, the highest topline growth of 38 percent year-on-year in 2022. This came on the back of a massive 25 percent growth in domestic sales and 75 percent growth in export sales as Afghan sales performed exceptionally well during the period. The topline growth was also buttressed by one time order from Director General Health Punjab which increased the institutional sales to around Rs.1 billion in 2022. Cost of sales massively grew by 53 percent year-on-year in 2022 due to radical drop in the value of Pak Rupee, high inflation and steep rise in energy and fuel charges. Gross profit increased by 27 percent year-on-year in 2022, however, GP margin dwindled to clock in at 51 percent. Administrative expenses grew by only 4 percent despite significant growth in the size of business and unprecedented level of inflation in 2022. Conversely, marketing expenses posted an enormous 58 percent year-on-year increase as the part of company’s strategy to pitch sales by strengthening sales teams. Other expense also grew by 51 percent year-on-year in 2022 on the back of local currency devaluation. Other income grew by 183 percent in 2022 to reach at 1.3 percent of sales in 2022 on the back of dividend income from subsidiary company OBS AGP. Operating profit grew by 8 percent year-on-year in 2022, however, OP margin dipped to 21 percent. Despite, huge repayments of long-term loans made during 2022, high discount rate as well increased short-term borrowings in 2022 pushed the finance cost up by 52 percent year-on-year in 2022. Increased taxation due to imposition of super tax also produced an adverse effect on the bottomline which shrank by 9 percent year-on-year in 2022 to clock in at Rs.1428.03 million with an NP margin of 14 percent – the lowest among all the years under consideration. EPS also ticked down to Rs. 5.1 in 2022.

Recent Performance (1QCY23)

AGP continued to outperform previous year when it comes to sales performance. Topline grew by 27 percent year-on-year in 1QCY23 backed by both local and Afghanistan sales. However, macroeconomic impediments didn’t let the robust topline trickle down to produce a comparable growth in the bottomline which slid by 28 percent year-on-year in 1QCY23 to clock in at Rs.325.16 million with an NP margin of 10 percent versus 18 percent during the same period last year. Profound currency depreciation, rise in energy and fuel prices and inflation put pressure on GP margin which dropped from 50 percent in 1QCY22 to 46 percent during 1QCY23. Administrative and marketing expenses continued to rise in line with expansion of company’s operations and sales network as well as inflation. 7 times high exchange loss pushed the other expense up by 129 percent year-on-year in 1QCY23. Other income didn’t support either as it dropped by 25 percent year-on-year in 1QCY23 due to lesser income on deposits as well as lesser government grant. Operating profit plunged by 24 percent year-on-year with OP margin dropping down to 14 percent in 1QCY23 from 23 percent during the same period last year. Increase in borrowings as well as high discount rate pushed the finance cost up by 110 percent year-on-year in 1QCY23. Debt-to-equity ratio rose to 28 percent in 1QCY23. EPS also slumped from Rs.1.61 in 1QCY22 to Rs.1.16 in 1QCY23.

Future Outlook

The macroeconomic and political environment will continue to pose grave challenges to the company. However, the company is striving hard to minimize the impact of adverse operational environment by cost rationalization, increased local and export sales and also by acquiring new brands to widen its product portfolio and market share. The company has recently acquired certain brands from Viatris Inc. and its effect will be evident in the second quarter performance of AGP.