Major Expansions and Strategic Moves at Pakistan Pharma Invest 2024
Staff Report: Topline Securities hosted Pakistan Pharma Invest 2024, where the third session featured Lucky Core Industries (LCI) Limited. The speaker of the session was Mr. Atif Aboobukar, CFO of LCI.
Regarding the pharmaceutical business, management communicated that 70% of the current portfolio is non-essential. With the addition of Pfizer’s portfolio, the non-essential component will increase to 80%, as almost all of Pfizer’s brands are non-essential except for one, which has a lower revenue share.Searle and Citi Pharma Project Growth
Pfizer’s acquisition is expected to conclude in September 2024, with the Competition Commission of Pakistan having already approved it on August 4, 2024. LCI acquired seven Pfizer brands and a manufacturing facility capable of producing six dosage forms (tablets, capsules, etc.) along with four types of packaging capabilities.
In FY24, LCI’s revenue from its pharmaceutical business was Rs12.2bn. The Pfizer acquisition will add an additional Rs6bn to the topline.
At the start of FY24, the company increased non-essential drug prices by approximately 20%. Following a court decision on deregulation, prices were increased again in April-May 2024. The increase in essential drugs was lower compared to non-essential drugs in FY24, which was in line with DRAP policy.
The company has received regulatory approvals for a greenfield veterinary medicine manufacturing facility. The project will cost Rs723mn, and civil work has already commenced, with an expected operational date in FY26. The veterinary medicine sector has 60-70% localization, prompting LCI to enter this business.
The current soda ash production capacity is 560k tons per annum. An expansion of 200k tons is expected to be completed in 2-3 years, depending on economic demand. The project is in the design phase, which will take one year, followed by 1-2 years of construction.
LCI plans to add 1,200 tons of capacity in masterbatches, which are color additives for plastics and part of the chemicals and agriculture segment of the company.
Sales volumes of the soda ash segment increased by 13% YoY to 549k tons, supported by record export sales of 150k tons. The domestic soda ash market decreased to 590k tons in FY24, compared to 610k tons in FY23. The total industry capacity of soda ash is 910k tons, with LCI holding 560k tons.
The polyester segment’s volumes decreased by 10% YoY to 102k tons in FY24 due to the abysmal state of the textile sector, which has been impacted by high energy costs.
Regarding the float glass project with Tariq Glass, management communicated that the project has been delayed due to the economic situation, which has led to the closure of glass furnaces. However, LCI is committed to proceeding with the project once the situation normalizes.
The LOTCHEM acquisition was not completed due to the expiration of the timeline, and there are currently no plans to pursue this transaction further.
LCI plans to maintain a 50% dividend payout ratio from its continuing operations moving forward.
AGP Limited (AGP) – Key Takeaways
The last session of Pakistan Pharma Invest 2024, organized by Topline Securities, featured AGP Limited. The speakers included Mr. Kamran Nasir (CEO of AGP Limited), Mr. Kamran Mirza (CEO of AGP’s subsidiaries), and Mr. Junaid Aslam (CFO of AGP) along with his team.
Management expects full-year 2024 revenue of the OBS group (5 entities) to reach Rs40bn, growing at around 40%, with half of the growth attributed to price increases and the other half to volumetric growth. The company is expected to launch more than eight new products. It is noteworthy that the listed company AGP comprises three entities.
AGP’s consolidated gross margins were 53% for 1Q2024. Management anticipates an increase in gross margins for the 2Q, with even more significant growth expected in the upcoming quarters.
The full impact of the price increases following the deregulation of non-essential products will be evident in 3Q2024 and 4Q2024. The third quarter (September) will see the impact of a 40%+ price increase, while the fourth quarter will witness the impact of around 90% of the price increase.
Seventy percent of AGP’s standalone accounts cater to the non-essential segment, while 50% of the portfolio in the consolidated accounts falls under the non-essential segment.
Regarding dividends, management indicated that the company would prioritize shareholder payouts if there are fewer acquisition opportunities. However, management believes that strategic acquisitions remain beneficial for shareholder value creation. They also stated that AGP is a preferred partner for many multinational corporations in acquiring their brands due to AGP’s expertise, governance, and transparency.
AGP began exporting three years ago and currently contributes over Rs1.5bn worth of pharmaceuticals to Afghanistan. Even more growth is expected this year due to the addition of other export markets. To hedge against PKR devaluation, the company aims to further expand into new export markets.
Despite the shift to a 29% tax rate on taxable income compared to the previous 1% tax on export sales, management stated that the tax impact will be minimal.
AGP holds a 65% stake in OBS AGP (formerly Sandoz) and a 92% stake in OBS Pakistan (formerly Viatris/Pfizer). AGP’s consolidated revenue, which includes AGP, OBS AGP, and OBS Pakistan, ranks 13th in the industry.
Until 2018/19, the company’s focus was on maximizing profitability. This then shifted to internal growth, leading to a significant surge in revenues. Recent acquisitions have further propelled growth, resulting in a 3-year CAGR of 39%.
AGP’s leading brands include Azomax, Rigix, Osnate, Ceclor, Norvasc, Anafortan, Sapsler-P, and Zatofen. AGP offers over 110 products and more than 250 SKUs.
AGP’s future outlook includes a focus on expanding institutional and OTC trade businesses, introducing new therapies, a strategic shift towards chronic segments for stable revenue, and plans to further enhance manufacturing capacity to support significant sales growth with quality as its hallmark.
