Citi Pharma Limited

Citi Pharma Limited (PSX: CPHL) was incorporated in Pakistan as a private limited company in 2012 and was converted into a public unlisted company in 2020. CPHL was listed on the Pakistan Stock Exchange in 2021. The company is engaged in the manufacturing and sale of pharmaceuticals, medical chemicals, and botanical products.

Pattern of Shareholding

As of June 30, 2023, CPHL has a total of 228.46 million shares outstanding which are held by 9423 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 52 percent in the company followed by the local general public holding 33.26 percent shares of CPHL. Modarabas & Mutual Funds account for 9.86 percent of shares of CPHL while Insurance & Takaful companies hold 1.70 percent of shares. Around 1.45 percent of the company’s shares are held by joint stock companies. The remaining shares are held by other categories of shareholders.

Financial Performance (2021-23)

CPHL’s topline and bottom line have been posting steady growth over the period under consideration. Its margins attained their optimum level in 2022 and then fell in 2023. The detailed performance review of the period under consideration is given below.

In 2021, CPHL’s topline grew by 64.29 percent year-on-year as the demand for Paracetamol rose due to COVID-19. The cost of sales grew by 62.26 percent in 2021 on the back of an increase in the prices of raw materials internationally coupled with Pak Rupee depreciation. Gross profit multiplied by 78.62 percent in 2021 with GP margin clocking in at 13.46 percent versus 12.39 percent in 2020. Administrative expenses surged by 17 percent in 2021 as the company expanded its workforce from 420 employees in 2020 to 573 employees in 2021. Many BMR projects were underway during the year including the expansion of the Paracetamol plant, the building of three manufacturing facilities in the formulation segment, and the building of a dedicated line in Active Pharmaceutical Ingredients(API) manufacturing to eliminate the chances of cross-contamination. During 2021, distribution expenses also escalated by 11.95 percent due to higher courier expenses as well as advertising & marketing budgets. 133.15 percent higher other expenses incurred during the year were on account of higher profit-related provisioning. Other income slid by 35.4 percent in 2021 due to lower profit on saving accounts and a dip in the amortization of grant income. Operating profit improved by 119.32 percent in 2021 with OP margin standing at 9.33 percent versus 6.99 percent in 2020. CPHL’s finance cost inched down by 7.17 percent in 2021 on account of monetary easing. Net profit grew by 145.28 percent year-on-year in 2021 to clock in at Rs.351.769 million. CPHL recorded EPS of Rs.31.87 in 2020 which drastically fell to Rs.2.07 in 2021 on the back of the split of share price from Rs.100 to Rs.10 and also because of the issuance of 200 percent bonus shares during the year. NP margin stood at 6.07 percent in 2021 versus 4.07 percent in 2020.

In 2022, CPHL registered 68.75 percent higher net sales. Due to increased demand for Paracetamol, the company increased its annual capacity from 3600 tons to 5400 tons. During the year, the cost of sales grew by 67.83 percent due to high inflation and the depreciating value of local currency. CPHL recorded a 74.65 percent enhancement in gross profit in 2022 with GP margin inching up to 13.94 percent. Administrative expenses surged by 141 percent in 2022 due to listing expenses as the company was listed on the Pakistan Stock Exchange. Besides, payroll expenses also hiked during the year due to an increase in the number of employees to 587 in 2022. Higher courier expense incurred during the year was somewhat offset by a considerably lower advertising budget, resulting in a paltry 4.21 percent uptick in distribution expenses in 2022. Other expenses multiplied by 163.74 percent in 2022 due to higher profit-related provisioning. However, it was offset by 4692.90 percent higher other income recorded by CPHL in 2022 on the back of increased profit on TDRs and saving accounts. CPHL’s operating profit enhanced by 109.36 percent in 2022 with OP margin climbing up to 11.57 percent. Finance cost spiked by 74.21 percent in 2022 due to monetary tightening coupled with increased borrowings which drove up CPHL’s debt-to-equity ratio from 15 percent in 2021 to 21 percent in 2022. 10 percent super tax levied on the pharmaceutical sector further diluted the bottomline growth which was recorded at 85.83 percent in 2022. CPHL’s net profit stood at Rs.653.692 million in 2022 with EPS of Rs.2.88 and NP margin of 6.68 percent. As the company was listed on PSX in 2022, it issued 72.69 million ordinary shares at the strike price of Rs.32 which included a premium of Rs.22 per share.

CPHL’s topline grew by 26.76 percent in 2023 due to increased demand, however, the company faced immense cost pressure due to drastic depreciation in the value of the local currency, high indigenous inflation, and commodity super cycle in the international market as well as import restrictions imposed during the year. Devastating floods in the southern region of the country at the onset of the financial year also created supply chain impediments. This resulted in the GP margin falling down to 12.16 percent in 2022 despite the 10.57 percent higher gross profit recorded during the year. Administrative expenses slid by 29.28 percent in 2023 due to the high-base effect as the company paid listing charges of Rs.127.668 million in 2022. During the year, the company enhanced its workforce to 594 employees versus 587 employees in 2022. CPHL’s distribution expense escalated by 46.59 percent in 2023 due to higher courier charges, marketing & advertising budget as well as payroll expense. Higher profit-related provisioning and loss on investment in shares resulted in 24.93 percent higher other expenses incurred in 2023. Other expense was offset by 26.42 percent higher other income recorded in 2023. This was on account of higher profit earned on TDRs and markup on investment in Yaqeen Developers Limited, a related party of CPHL. Operating profit multiplied by 18.72 percent in 2023, however, OP margin fell to 10.84 percent. Finance cost surged by 443.71 percent in 2023 due to an unprecedented level of discount rate as well as a tremendous rise in working capital-related borrowings during the year. CPHL’s debt-to-equity ratio soared to 29 percent in 2023. Net profit grew by 0.66 percent year-on-year to clock in at Rs.657.984 million with EPS of Rs. 2.88 and NP margin of 5.31 percent.

Recent Performance (9MFY24)

CPHL’s net sales grew by 7.63 percent in 9MFY24. High cost of sales pushed down GP margin to 14.09 percent during 9MFY24 versus 14.29 percent in 9MFY23. This was despite a 6.11 percent growth in gross profit during the period. Administrative and distribution expenses multiplied by 10.34 percent and 7.04 percent respectively during the period on the back of high inflation. Other expenses grew by 55.28 percent during 9MFY24 supposedly due to profit-related provisioning. However, it was offset by robust other income recorded during the period which was derived through short-term investments. CPHL’s operating profit for the period was 25.75 percent higher when compared to the similar period of last year. Magnificent other income also pushed OP margin up to 13.83 percent in 9MFY24 versus 11.84 percent during the same period last year. CPHL was able to trim down its finance cost by 27.67 during 9MFY24 by paying off its loans. Despite the imposition of super tax, CPHL was able to record 27.75 percent growth in net profit during 9MFY24. Net profit stood at Rs.681.397 million in 9MFY24 with EPS of Rs.2.98 versus EPS of Rs.2.33 recorded during 9MFY23. NP margin also improved from 6.02 percent in 9MFY23 to 7.15 percent in 9MFY24.

Future Outlook

CPHL has entered into a joint venture with Hangzhou Newsea Technology Co Ltd, a renowned player in the Chinese pharmaceutical industry. The new venture will focus on producing active pharmaceutical ingredients (APIs) that CPHL doesn’t currently manufacture, enhancing its product range. This will enable CPHL to produce a majority of APIs locally which will reduce its dependence on imported ingredients and render cost efficiency besides catalyzing its supply chain. Furthermore, CPHL’s recent announcement of transitioning from traditional energy to solar energy also warrants cost savings, boosting its financial performance.