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

Financial Performance (2019-24)

Except for a year-on-year dip in 2021, MACTER’s topline has posted growth over the period under consideration. MACTER’s bottom line slid twice during the period under consideration i.e. in 2019 and 2020 despite sales growth. The company’s margins which had been shrinking until 2020 posted a staggering rise in 2021 and 2022. In 2023, the margins dipped. In 2024, gross and operating margins recovered while net margins continued to slide. The detailed performance review of the period under consideration is given below.

In 2019, MACTER’s topline posted a meager 0.71 percent year-on-year growth. This was on account of the considerable drop of 30 percent year-on-year in institutional sales on account of change in procurement criteria of the 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 the last year in 2019. Cost of sales hiked by 5.3 percent year-on-year in 2019 on the back of the steep depreciation of the Pak Rupee. Gross profit slipped by 4.91 percent year-on-year in 2019 with the GP margin marching down to 42.5 percent versus the GP margin of 45 percent recorded in 2018. Operating expenses grew by 4.6 percent year-on-year due to high payroll expenses of medical representatives and sales staff coupled with advertisement and promotion expenditures incurred on new products launched during the year. Operating profit narrowed by 37.6 percent year-on-year in 2019 with OP margin dropping from 9.58 percent in 2018 to 5.93 percent in 2019. Finance cost multiplied by 77.11 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 56.78 percent year-on-year decline in net profit which clocked in at Rs.106.44 million in 2019. NP margin nose-dived from 6.1 percent in 2018 to 2.61 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 35.44 percent year-on-year rise in its net sales. The 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 the majority of hospitals. The company then focused on institutional sales which outperformed in the 4th quarter to offset depressed prescription business. High demand for pharmaceutical ingredients coupled with supply chain disruptions caused the cost of sales to hike by 48.61 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 36.85 percent in 2020 despite 17.57 percent growth in gross profit. Although the company stopped the medical representatives’ visits to doctors and hospitals in the last quarter to ensure safety, higher payroll and advertisement expenses incurred in the first three quarters of 2020 pushed the operating expenses up by 16.67 percent year-on-year in 2020. Operating profit grew by 21.78 percent year-on-year in 2020, albeit, the OP margin faded to 5.33 percent. Finance costs radically grew by 94.37 percent in 2020 due to a hike in discount rate during most part of the year coupled with increased borrowings for working capital requirements. This didn’t let the operating profit trickle down and translated into an 85.97 percent year-on-year plunge in net profit. Net profit stood at Rs.14.93 million in 2020 with an NP margin of 0.27 percent and EPS of Rs.0.38.

MACTER’s net sales plummeted by 7 percent year-on-year in 2021 on account of the high-base effect as institutional sales were exceptionally high in 2020 on account of remarkable public tender business. In 2021, the prescription business started recovering as patient flow to the hospitals resumed, however, it couldn’t reflect in the topline due to an abrupt fall in public tender business during the year. As prescription sales have high margins, gross profit improved by 3.8 percent year-on-year in 2021 with GP margin recuperating to 41.13 percent. Operating expenses were trimmed down by 6.59 percent year-on-year due to lower supply-chain impediments as well as cost-cutting measures carried out in 2021 which included streamlined promotional Training & development activities convened during the year. Operating profit grew 55.94 percent bigger in 2021 with OP margin jumping up to 8.94 percent. Finance cost also gave a breather as it slipped by 44.47 percent year-on-year in 2021 on account of lower discount rates and curtailed borrowings. As a consequence, the bottom line grew by 1621.55 percent 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 3.3 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 increased by 12.26 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 10.96 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 14.87 percent year-on-year in 2022 with OP margin reaching its optimum value of 9.95 percent. Finance costs were 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 4 percent year-on-year in 2022 to clock in at Rs.317.53 million with an NP margin of 6 percent and EPS of Rs. 7.19.

MACTER’s net sales grew 25.78 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 the opening of the Afghanistan market. The sharp depreciation in the value of the Pak Rupee coupled with the high import cost of pharmaceutical ingredients, high indigenous inflation, and energy charges drove the cost of sales up by 32.63 percent in 2023. The imposition of a 1 percent incremental sales tax on sales and non-adjustable input sales tax further stressed the margins during the year. Gross profit rose by 17.30 percent year-on-year in 2023, however, the GP margin slid to 41.68 percent. Operating expenses grew by 19.47 percent year-on-year due to increased promotional campaigns, brand building, and expansion in the sales team. Operating profit grew by 17 percent year-on-year in 2023, however, OP margin lowered to 9.25 percent. Finance costs multiplied by 59.55 percent in 2023 due to increased borrowings and higher discount rates. Net profit grew by 23.73 percent year-on-year in 2023 to clock in at Rs.392.87 million with an NP margin of 5.9 percent and EPS of Rs.8.58.

MACTER registered a 12.8 percent year-on-year rise in its topline in 2024. While the prescription business posted a commendable rise of 23 percent in 2024, it was offset by an intended drop in government tender participation due to delays in payment. This resulted in lower institutional sales in 2024. Higher participation from the prescription business resulted in an improved sales mix which drove the gross profit up by 14.25 percent in 2024. GP margin also ticked up to 42.22 percent in 2024. 9 percent uptick in distribution expenses was the result of higher payroll expenses as well as sales promotion expenses incurred during the year. Administrative expenses surged by 34 percent in 2024 primarily on account of higher salaries and benefit expenses, repair and maintenance as well as legal and professional charges incurred during the year. Operating profit picked up by 15.28 percent in 2024 which culminated in an OP margin of 9.46 percent. Finance costs mounted by 63.88 percent in 2024 due to a higher discount rate. This resulted in an 8.73 percent increase in net profit which was recorded at Rs.427.16 million in 2024 with EPS of Rs. 9.32 and NP margin of 5.67 percent.

Recent Performance [1QFY25]

During the first quarter of FY25, MACTER registered a 30.6 percent year-on-year improvement in its net sales. This came on the back of higher prescription business. During the period under consideration, the company launched two new products which also received great traction. Gross profit strengthened by 43.13 percent in 1QFY24 with GP margin picking up from 38.1 percent in 1QFY24 to 41.8 percent in 1QFY25. Operating expenses mounted by 25 percent in 1QFY25 predominantly due to higher payroll expenses as well as sales promotion expenses incurred during the year. The company recorded a 161.94 percent taller operating profit in 1QFY25 with OP margin clocking in at 8.5 percent versus OP margin of 4.2 percent recorded during the same period last year. Finance cost inched down by 14.29 percent in 1QFY25 due to discount rate cuts as well as payment of outstanding liabilities during the period. This translated into 253.37 percent year-on-year growth in net profit which clocked in at Rs.92.96 million in 1QFY24. EPS stood at Rs.2.03 in 1QFY25 versus EPS of Rs.0.57 recorded during the same period last year. NP margin jumped up from 1.6 percent in 1QFY24 to 4.3 percent in 1QFY25.

Future Outlook

With new product launches, focused advertising and promotional campaigns, and inclination toward the export market and high-margin prescription business, MACTER’s sales and margins are expected to stay strong. Deregulation of the prices of non-essential medicines has allowed pharmaceutical companies to share the cost burden with their consumers, which is also helping to maintain healthy margins. MACTER is one of the few South Asian companies that is investing in biosimilars and hence is well-poised to capture a niche market both locally and internationally.