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, 2024, CPHL has a total of 228.46 million shares outstanding which are held by 8686 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 52.11 percent in the company followed by the local general public holding 35.57 percent shares of CPHL. Modarabas & Mutual Funds account for 7.1 percent shares of CPHL while joint stock companies hold 3.44 percent shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2021-24)
CPHL’s topline and bottom line have been posting steady growth over the period under consideration. Its margins followed an upward trajectory until 2022 followed by a plunge in 2023. In 2024, margins picked up yet again with operating and net margins attaining their optimum level. 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 GP margin of 12.39 percent recorded 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 construction 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 budget. 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 OP margin of 6.99 percent recorded 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 NP margin of 4.07 percent posted 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 141.10 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 expenses incurred during the year were 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 local currency, high indigenous inflation, commodity super cycle in the international market as well 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 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 expenses escalated by 46.59 percent in 2023 due to higher courier charges, marketing & advertising budget as well as payroll expenses. Higher profit-related provisioning and loss on investment in shares resulted in 24.93 percent higher other expenses incurred in 2023. Other expenses were 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. This greatly diluted the bottomline growth which inched up by only 0.66 percent year-on-year in 2023 to clock in at Rs.657.984 million with EPS of Rs. 2.88 and NP margin of 5.31 percent.
CPHL’s net sales grew by a paltry 0.10 percent in 2024. During the year, the company faced supply chain disruptions due to import restrictions. Demand also remained weak during the year due to inflationary pressure. Cost of sales slid by 0.61 percent in 2024 particularly due to favorable movement in the value of local currency during the second half of FY24. This resulted in a 5.25 percent uptick in gross profit with GP margin jumping up to 12.78 percent. Administrative expenses grew by 8.35 percent in 2024 primarily due to higher payroll expenses which was the consequence of inflationary pressure as well as workforce enhancement. CPHL expanded its workforce from 594 employees in 2023 to 615 employees in 2024. Distribution expenses mounted by 16.66 percent in 2024 on account of higher delivery/courier expenses, marketing & promotional charges as well as salaries of the sales force. During the previous year, the company incurred a loss on investment in shares which created a high base for 2024. Hence, despite increased profit-related provisioning done in 2024, CPHL recorded a 1.73 percent downtick in other expenses in 2024. Conversely, other income strengthened by 67.57 percent in 2024 on the back of higher profit recognized on TDRs, the mark-up on investment in Yaqeen Developers Limited, exchange gain, dividend income as well as realized and unrealized gain on an investment in shares recorded during the year. Operating profit picked up by 17.69 percent in 2024 with OP margin reaching its highest level of 12.74 percent. Despite monetary tightening, finance costs shrank by 22.35 percent in 2024 on account of the settlement of long-term liabilities as well as a decline in outstanding short-term liabilities during the year. Net profit grew by 26.67 percent in 2024 to clock in at Rs.833.463 million with EPS of Rs.3.65. NP margin attained its optimum level of 6.72 percent in 2024.
Recent Performance (1QFY25)
Unlike FY24 where the company’s sales had been grappling against economic headwinds, FY25 appears quite encouraging for CPHL thus far with a 19.38 percent year-on-year rebound in its net sales recorded in 1QFY25. This was on account of improved formulation sales recorded during the period coupled with improvement in prices due to regulation of the pricing of non-essential medicines. With the use of its in-house Active Pharmaceutical Ingredients (API) in the formulation process and a reduction in electricity prices due to transition to solar energy, CPHL was able to record 73.86 percent improved gross profit in 1QFY25 with GP margin clocking in at 13.29 percent, up from GP margin of 9.12 percent recorded during the same period last year. Administrative expenses inched down by 3.87 percent in 1QFY25 maybe on account of a drop in utility expenses (switch to solar energy). Distribution expenses ticked up by 5.34 percent in 1QFY25 probably due to increased courier/postage charges incurred on account of improved sales volume. Higher provisioning for WWF, WPPF, CRF, and ECL appears to be responsible for a 133 percent surge in other expenses in 1QFY25. Other income slid by 13.17 percent in 1QFY25 possibly on account of lower mark-up income due to monetary easing. Despite the contraction, CPHL’s other income was able to conveniently offset its other expenses in 1QFY25. CPHL recorded 59.75 percent year-on-year growth in its operating profit in 1QFY25 with OP margin climbing up to 12.56 percent from OP margin of 9.38 percent recorded during 1QFY24. The decline in outstanding borrowings as well as the lower discount rate resulted in a 25.61 percent slide in finance cost in 1QFY25. CPHL’s net profit boasted a staggering 133.33 percent year-on-year growth in 1QFY25 to clock in at Rs.201.497 million with EPS of Rs.0.88 and an NP margin of 6.25 percent. This was against the EPS of Rs.0.41 and NP margin of 3.5 percent recorded in 1QFY24.
Future Outlook
CPHL is making relentless strides to navigate the economic challenges in the home market by enhancing its sales volume and geographical presence besides focusing on cost reduction and R&D.
The company has recently started the export of finished nutraceuticals in the US market which has opened up a fresh revenue stream for the company besides adding to its credibility subsequent to approval from FDA.
Last year, the company entered into a joint venture with Hangzhou Newsea Technology Co Ltd, a renowned player in the Chinese pharmaceutical industry to produce APIs that CPHL doesn’t currently manufacture, enhancing its product range.
Earlier this year, the company entered into a strategic partnership with India’s Murli Krishna Pharma Private Limited for the supply of APIs.
Most recently, CPHL, Martin Dow, and Chinese pharmaceutical giant Kingbo Pharmatec signed an agreement to develop new biotech products by establishing a manufacturing facility in Indonesia. This will not only reduce the company’s dependence on imported medicines but will also enhance its geographical presence and export revenue.
CPHL is also planning to enhance its presence in Indonesia by partnering with Mersi Pharma, an Indonesian Pharmaceutical company, to set up Paracetamol and Amoxicillin API manufacturing facilities. The company also intends to introduce its nutraceutical products to the Indonesian market.
In short, CPHL is leaving no stone unturned to diversify its operations, product lines, and revenue streams and is positioning itself as an industry leader for sustainable growth and innovation.
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