A local giant in the pharma industry, Highnoon Laboratories Limited (PSX:HINOON) was incorporated in 1984 as a private limited company in Lahore. It went public in 1985 , and since then it has risen to a position of prominence in the domestic pharma scene. Today, the company's market capitalisation stands north of Rs 10 billion - more than twice what it was a year ago.
Highnoon has been allied with the best-known research houses of the global pharmaceutical industry. It became the first pharmaceutical company of Pakistani origin to be in the top twenty league of Pakistan's pharmaceutical industry.
The company leads in terms of therapeutics, and boasts a wide portfolio of cardiovascular, respiratory, alimentary tract and metabolism, and diabetes products. Among others, its star products include Kestine, Tres Orix Forte, Combivair, and Uslanic.
Prior Performance
Despite a strict regulatory environment that has restricted price increases on most pharmaceutical products since 2001, Highnoon Laboratories has been on an unabated growth course. Save for a dip in sales in CY12 (due to revenues from Solvey Pharmaceuticals products not being recognised on full sales value after the acquisition by Abbott), the company has been going in only one direction - up. Profits and margins have seen plentiful growth over the six-year period, with gross profit more than doubling and the bottom line figure skyrocketing by over 530 percent.
Highnoon's exceptional performance in the market is all the more commendable given the fact that it does not have a consumer healthcare segment. Since the price-frozen drugs haven't been giving pharma companies enough growth, most companies like GSK, Abbott, and Searle have adopted the strategy of emphasising on consumer healthcare segment (oral health, nutrition, dietary supplements, etc) in order to boost margins. Highnoon, however, has not adopted this strategy.
The company has also been growing its exports. As per the company's website, it has over 190 product registrations in various countries and over 100 currently in various stages of registration. Moreover, it has recently strengthened its footprint in Afghanistan by placing a marketing and sales team for promotion of its products in the region. Last year, it acquired controlling shares in Biocef (Private) Limited.
While exports have been growing, they account for just six percent of the company's revenues (as of CY14). The majority of sales thus come from the domestic market. Here, the respiratory, cardiology, and alimentary tract segments constitute 78 percent of the company's portfolio, and it maintains market leadership in these therapeutic segments.
Highnoon seems like the type of company that emphasises volume over value. As of CY14, its production volume increased to over 55 million units - an increase of 15 percent year-on-year. Competitive pricing might be one of the reasons why net margins haven't been too impressive. But as of late, even these have come up.
Recent Performance
The past year has arguably been the most impressive for Highnoon. For the year ended 2015, the company's top line has grown by 19 percent year-on-year, while bottom line shot up by an astounding 63 percent. The investors were rewarded with a cash dividend of Rs 7.50 per share.
Highnoon maintained a lower cost of sales and higher margins on account of yield improvement and productivity enhancement. The company undertook plant expansion and capacity-enhancing programs in 2015 that it kept pace with, modernising and expanding its production facilities. New machines were also being added to support growth, as per the last quarterly Director's Report.
The company has been investing in its product portfolio. Its distribution, selling and promotional expenses went up on account of an increased focus on core products as well as new product launches. No doubt, these efforts have been successful, as is evident in the sales growth. While the full-year numbers aren't available yet, there has likely been a growth in exports as well (8 percent year-on-year as of 9MCY15). Most importantly, however, Highnoon's net margins have reached the double-digit mark for the first time.
Outlook
The pharma industry is currently in a crisis as pharma companies went to the Sindh High Court in January and increased the prices of their drugs, saying it was not viable to manufacture the medicines at the designated rate. DRAP is scrambling to address the numerous pending cases. But Highnoon seems to be one company that is doing just fine in this environment, investing in new products and enhancing its productivity in order to keep growing.
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