Abbott Laboratories Pakistan

The second-largest pharmaceutical company in Pakistan, Abbott Laboratories (Pakistan) Limited (PSX: ABOT) was incorporated in 1948 as a private marketing company, with its first manufacturing facility commissioned in 1962 in Karachi. Over the years, the healthcare company has established dominance in pharmaceuticals, nutrition, diagnostics, and diabetes care. Abbott is involved in the manufacturing of a diversified range of more than 200 pharmaceutical and general healthcare products to meet the demands of local as well as international market.
Globally the company was founded more than 125 years ago by Dr Wallace C. Abbott out of Chicago, USA. The global health giant has presence in over 150 countries and employs more than 74,000 people. Abbott's range of product includes generic pharmaceuticals, medical devices, laboratory diagnostics and nutrition. The pharmaceutical segment contributes about 75 percent to the company's revenue and includes products such as Brufen, Entamizole, Klaricid and Duphaston.
Nutrition segment is the most profitable segment of the company and has 30 percent market share. It includes products like Ensure and Pediasure. The company has two plants in Karachi located at Korangi and Landhi. Abbott Pakistan employs more than 2400 people across the country.
Historical performance
Abbott has managed to almost double its revenues while earnings per share have gone from 16.8 rupees in 2011 to 41 rupees in 2016. The profitability margins have witnessed an upward trajectory with gross margins increasing by 4 percent mainly due to lower cost of raw material and a better product mix over a five year period. The nutrition segment has been instrumental in driving up the gross margins of the company.
Abbott continues to diversify its product range and has been launching on average 6 to 8 products each year which has resulted in overall growth of the company. In addition to product launches, the company has increased its branding activities and expenditure on advertisement. The aggressive marketing strategy has paid off and market penetration has increased as a result.
FY17 saw the company increase its top line by 12 percent while gross profit clocked in at 39 percent on a year-on-year basis. Segment-wise, pharmaceutical sales clocked in the highest growth at 13 percent while nutritional sales increased by 10 percent and diagnostic and diabetes care by 2 percent as compared to FY16.
Snapshot 1QFY18
Abbott's top line for the quarter grew by 17% as compared to 1QFY17 which the company attributed to good performance across all business divisions. Growth in the top line was led by pharmaceutical sales which increased by 17% followed by nutritional and others segment which increased by 16 and 21 percent respectively as compared to 1QFY17 by 21%. Gross margins fell slightly in the period owing to rupee depreciation as well as an increase in the cost of some active pharmaceutical ingredients (APIs). The company's marketing and distribution expenses also saw an increase of almost 35 percent as compared to the same period in the previous year on account of increased marketing efforts on Abbott's leadership brands.
Share price performance vs. KSE-100
During the past year Abbott has mostly underperformed the benchmark KSE-100 index. Although the stock closely trailed the KSE-100 till Aug-17, the stock has widened the gap, underperforming by a wider margin since the Jan-18. Even though, the script continues to demonstrate positive fundamentals, general volatility in the stock market over the past year has led to limited investor interest in the script.
Pattern of shareholding:
Abbott Pakistan being a multi-national company has majority of its shareholding outside Pakistan. The parent company holds about 78 percent of the total outstanding shares. Mutual funds and general public as compared to last year have increased their holding in the company and now have 5.7 percent and 10.1 percent shares respectively. They were able to increase their holding as one of the foreign funds decreased its position during 2016.
Future outlook
Pakistan is a key market for Abbott going forward and the company is intent on improving its product mix. However, the company noted in its recent quarterly report that it is facing rapid cost escalations on account of inflation coupled with a depreciating rupee. As the drug market pricing is controlled in Pakistan, corresponding price adjustments have not materialized. This has forced the company to instead focus on reducing manufacturing and operating costs by improving productivity and cost rationalization efforts.

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Pattern of Shareholding (As of Dec 31, 2017)

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Directors, CEO, and their Spouces and minor children                41,641    0.04%

Associated Companies, Undertakings and related parties          77,189,066   78.84%

M/S. Abbott Asia Investments Limited                            76,259,451

Trustees Abbott Pakistan Staff Provident Fund                      490,926

Trustees Abbott Pakistan Staff PensionFund                         438,689

Mutual Funds                                                     5,585,001    5.60%

Executives                                                           6,280    0.01%

Public Sector Companies & Corporations                             830,624    0.85%

Banks, DFI, NBFC, Insurance Co, Takaful, Modaraba & Pension      1,902,736    3.60%

Individuals                                                      9,891,482    9.36%

Others                                                           2,453,472    1.71%

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