Macter International Limited

Macter International Limited (PSX: MACTER) was incorporated in Pakistan as a private limited company in 1992 and was converted into a public limited company in 2011. The company is engaged in the manufacturing and marketing of pharmaceutical products.

Pattern of Shareholding

As of June 30, 2022, MACTER had a total of 45.811million shares outstanding which were held by 1030 diverse shareholders. Directors, CEO, their spouse and minor children had the major stake of 66.5 percent in the company. This category was followed by Banks, DFIs, NBFIs, Insurance companies, Pension and Mutual funds which collectively hold around 27.3 percent of the outstanding shares of MACTER. General public accounts for 5.95 percent of the outstanding shares of the company. The remaining ownership is divided among other shareholders.

Financial Performance (2018-23)

In 2020, while other sectors of the economy faced disruptions and slowdown, most pharmaceutical companies thrived and demonstrated remarkable resilience. This is evident by the fact that MACTER’s topline posted the highest growth in 2020 when compared to other years under consideration. The high-base effect of 2020 resulted in a sales decline in 2021.This was followed by a marginal sales growth in 2022 and then a vigorous rebound in 2023. MACTER’s bottomline slid twice during the period under consideration i.e. in 2019 and 2020 despite sales growth. Margins had been shrinking until 2020 followed by staggering rise in 2021 and 2022 only to slide again in 2023. The detailed performance review of each of the years under consideration is given below.

In 2019, MACTER’s topline posted a meager 1 percent year-on-year growth. This was on account of considerable drop of 30 percent year-on-year in institutional sales on account of change in procurement criteria of Punjab government coupled with fluctuation in exchange rate which made quotation in tenders difficult. Export sales also slid by 50 percent year-on-year in 2019 due to remittance challenges from an African country which was the main export destination of MACTER.The decline in institutional and export sales overshadowed the growth in prescription business which grew by 14 percent over last year in 2019. Cost of sales hiked by 5 percent year-on-year in 2019 on the back of steep depreciation of Pak Rupee which raised the cost of doing business. Gross profit slipped by 5 percent year-on-year in 2019 with GP margin marching down to 42.5 percent versus 45 percent in 2018. Operating expense grew by 4.6 percent year-on-year due to high payroll expense of medical representatives and sales staff coupled with advertisement and promotion expenditure incurred on new products launched during the year. Operating profit narrowed by 38 percent year-on-year in 2019 with OP margin dropping from 9.6 percent in 2018 to 5.9 percent in 2019. Finance cost multiplied by 77 percent year-on-year in 2019 on account of higher short-term and long-term borrowings to meet working capital requirements and finance CAPEX respectively during the year. This translated into a 57 percent year-on-year decline in net profit to clock in at Rs.106.44 million with NP margin nose-diving from 6.1 percent in 2018 to 2.6 percent in 2019. EPS receded from Rs.6.29 in 2018 to Rs.2.72 in 2019.

2020 proved to be momentous in terms of topline growth. During the year, MACTER recorded a staggering 35 percent year-on-year rise in its net sales. Prescription business, which has the highest share in the net sales of MACTER performed well during the first three quarters of 2020, however, with the outbreak of COVID-19, prescription sales drastically fell as outpatient departments were closed in majority of hospitals. The company then focused on institutional sales which outperformed in the 4th quarter to offset depressed prescription business. High demand of pharmaceutical ingredients coupled with supply chain disruptions caused the cost of sales to hike by 49 percent year-on-year in 2020. High cost of sales coupled with change of sales mix in the last quarter (higher institutional sales which have low margin) resulted in a curtailed GP margin of 37 percent in 2020 despite 17.6 percent growth in gross profit. Although the company stopped the medical representatives’ visits to doctors and hospitals in the last quarter to ensure safety, however, higher payroll and advertisement expense incurred in the first three quarters of 2020 pushed the operating expense up by 17 percent year-on-year in 2020. Operating profit grew by 22 percent year-on-year in 2020, albeit, OP margin faded to 5.3 percent. Finance cost radically grew by 94.4 percent in 2020 due to hike in discount rate during most part of the year coupled with increased borrowings for working capital requirements. This couldn’t let the strong operating profit to trickle down and translated into 86 percent year-on-year plunge in net profit. Net profit stood at Rs.14.93 million in 2020 with NP margin of 0.3 percent and EPS of Rs.0.38.

MACTER’s net sales plummeted by 7 percent year-on-year in 2021 on account of high-base effect as institutional sales were exceptionally high in 2020 on account of remarkable public tender business. In 2021, prescription business started recovering as patient flow to the hospitals resumed, however, it couldn’t reflect in the topline due to abrupt fall in public tender business during the year. As prescription sales have high margins, gross profit improved by 4 percent year-on-year in 2021 with GP margin recuperating to 41.1 percent. Operating expense trimmed down by 7 percent year-on-year due to lower supply-chain impediments as well as cost cutting measures carried out in 2021 which included streamlined promotional and Training & development activities convened during the year. Operating profit grew 56 percent bigger in 2021 with OP margin jumping up to 8.9 percent. Finance cost also gave breather as it slipped by 44.5 percent year-on-year in 2021 on account of lower discount rate and curtailed borrowings. As a consequence, bottomline grew 16.2 times fatter in 2021 to clock in at Rs. 257.03 million with EPS of Rs.6.65 and NP margin of 5 percent.

2022 also appears to be sluggish in terms of sales growth. MACTER recorded a skimpy 3 percent year-on-year rise in its topline in 2022. Prescription sales grew by 10 percent year-on-year in 2022, however, 42 percent lesser institutional sales contained the growth momentum during the year. Gross profit enlarged by 12 percent year-on-year in 2022 with GP margin reaching 44.7 percent which was the result of high prescription sales. Distribution expense spiked by 12 percent year-on-year in 2022 due to new product launches in oncology and gynecology segments coupled with enhanced engagements with leading doctors and hospitals. Operating profit strengthened by 15 percent year-on-year in 2022 with OP margin reaching its optimum value of 9.9 percent. Finance cost slashed by 70.2 percent despite monetary tightening during the year. This was the effect of repayment of loans by issuing right shares worth Rs. 1100 million during the year. Net profit picked up by 23.5 percent year-on-year in 2022 to clock in at Rs.317.53 million with NP margin of 6 percent and EPS of Rs. 7.19.

Recent Performance (2023)

MACTER’s net sales grew 26 percent bigger in 2023. This was contributed by superior performance in both prescription and institutional business during the year. Export sales also performed commendably due to opening of Afghanistan market. Sharp depreciation in the value of Pak Rupee coupled with high import cost of pharmaceutical ingredients, high indigenous inflation and energy charges drove the cost of sales up by 32.6 percent in 2023. Imposition of 1percent incremental sales tax on sales and non-adjustable input sales tax further stressed the margins during the year. Gross profit rose by 17 percent year-on-year in 2023, however, GP margin slid to 41.7 percent. Operating expense grew by 19 percent year-on-year due to increased promotional campaigns, brand building and expansion in sales team. Operating profit grew by 17 percent year-on-year in 2023, however, OP margin lowered to 9.3 percent. Finance cost multiplied by 59.6 percent in 2023 due to increased borrowings and higher discount rate. Net profit grew by 24 percent year-on-year in 2023 to clock in at Rs.392.87 million with NP margin of 5.9 percent and EPS of Rs.8.58.

Future Outlook

With new product launches, focused advertising and promotional campaigns inclination towards export market, MACTER’s sales are expected to stay strong. However, this doesn’t ensure strong bottomline and margins amid exorbitant cost of sales and cost of borrowing. MACTER’s financial strength is contingent upon the DRAP’s decision to allow upward price revisions to compensate for unprecedented inflation and Pak Rupee depreciation.