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The Pakistan Credit Rating Agency Limited
Press Release

Date
07-Nov-19

Analyst
Usama Liaquat
usama.liaquat@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Pharmagen Limited

Rating Type Entity
Current
(07-Nov-19)
Previous
(08-May-19)
Action Maintain Upgrade
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong positioning of Pharmagen Limited in its respective market. The pharmaceutical industry has witnessed a high rate of sustained growth over the years. Cost-efficiencies as well as demand in-elasticity are benefiting the industry players. The new CPI-linked pricing criteria has allowed an increase in prices with respect to inflation, indicating a positive sign. The company imports majority of its raw material, where currency fluctuation and pricing risk could affect margins, however majority of the cost increase can be passed through to its customers. Pharmagen has improved its working capital position by obtaining additional financing facilities - as a result there has been a marked improvement in profitability and turnover during the FY19. The profits were diluted to an extent owing to provisions on Pharmagen Healthcare business. Predominant proportion of the business is signed with eminent pharmaceutical corporates - both multinational and local. The company's ongoing supply arrangements with GSK and prospects of enhancing the range of products to be supplied will add-on to the growth levels. Pharmagen intends to derive benefits from downward integration in Moringa Pharmaceuticals which would help Pharmagen, to diversify in different segments and reduce the concentration risk. This will take some time and funds too. The capacity enhancement have boosted Pharmagen's operations and financial results. Long association of experienced management team adds comfort.
The ratings are dependent on the company's ability to sustain margins. Improvement in business volume and profitability will be viewed positively. Meanwhile, management of debt (current and planned), thereby impacting coverages, is considered important. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of financial profile owing to delays in cash flow receipts, may impact the ratings.

About the Entity
Pharmagen Limited is a public limited-unquoted pharmaceutical company operating in Pakistan since 1990. The company is engaged in the manufacturing and sale of pharmaceutical products and over the years it has become the leading producer of APIs (Active Pharmaceutical Ingredients) in Pakistan. Pharmagen is majority owned by Parvez Hussain Sufi’s family (~60%), while other strategic partners include Rasheed Khan’s family (~15.2%), and Maj. Gen. (Retd.) Rahim Khan’s family (~2.1), along with trusts, Naghat Rasheed Trust and Kashmir Education Foundation holding (~1.8%) and (~20.9%) respectively.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.