The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Debt Instrument Rating of AGP Limited | Sukuk | Jun-17

Rating Type Debt Instrument
Action Maintain Maintain
Long Term A+ A+
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect AGP's established market position and long track record in the pharmaceutical industry. The pharmaceutical industry has witnessed a high rate of sustained growth over the years. Cost-efficiencies as well as demand inelasticity are benefiting the industry players. CPI-linked pricing criteria has allowed an increase in prices with respect to inflation and indicated a positive sign for the sector. AGP's core profitability is strong and sustained over the periods in comparison with most of the peers. Ratings incorporate AGP's sizeable cash flows and their adequacy to service the debt. Consequently, debt servicing ratios and interest coverages showed improvement. Financial performance of the company not get affected during outbreak of Covid-19. AGP receives benefits from strategic alliance with Mylan, to promote their product portfolio in Pakistan that enables volumetric growth as well as growth in locally manufactured goods. AGP is also expanding its plant for future diversification into Nutraceutical products. Currently 79% business is through sole distributor Muller & Phipps Pakistan (Pvt) Limited (M&P); going forward this concentration risk may pose challenge. However, the comfort can be taken from the presence of M&P's shareholding in AGP. Presence of OBS Group in the pharmaceutical sector provides strength, in the form of group synergies, to AGP's positioning within the industry.
The ratings are dependent on continued sustainability of profits and market share. Adequacy of cash flows and availability of alternative resources to make debt-related payment remains critical. Meanwhile, compliance with internally-defined leveraging metrics is a prerequisite. Moreover, the instrument rating is dependent upon upholding of all major covenants.

About the Entity
AGP Limited (AGP) is a listed pharmaceutical company; the operations of entity have been in Pakistan since 1989. It is majority owned by Aitken Stuart Pakistan (Private) Limited with shareholding previously held by OBS Pakistan (Private) Limited; although the sponsor remains the same, followed by strategic partners: Muller & Phipps (M&P), Baltoro Growth Fund (BGF), Bank Alfalah, High Q Pharmaceuticals and Aspin Pharma. OBS Group - ranked 17th in the local pharma industry, deals in clinical research, manufacturing, marketing, sales and distribution of pharmaceutical & healthcare products.
The seven-member BoD comprises three representatives of OBS Group, and one each of M&P and BGF and two independent directors. The board comprises experienced professionals from pharmaceutical and financial backgrounds. The Chairman, Mr. Tariq Moinuddin Khan, is the sole brain behind OBS Group. Mr. Khan, CPA from Canada, carries over three decades of domestic and international professional experience. The MD & CEO, Ms. Nusrat Munshi, has close to 30 years of experience, around a decade of which is in the pharmaceutical industry. She is supported by an experienced core management team.

About the Instrument
AGP issued a privately placed and secured Sukuk of ~PKR 2.4bln in order to reprofile its long term debt. With a tenor of 5 years, the Sukuk’s principal and profit (3MK+1.3%) will be paid in 20 equal quarterly installments, starting from the 3rd month of issue date (Sep’17). As of Sep-20, an amount of PKR 841mln is outstanding. The instrument, initially, is secured through first pari passu charges over all present and future non-current assets (~PKR 3.1bln) of AGP and Aspin Pharma (associate). AGP’s management is committed to maintain sufficient liquidity for the instrument.

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.