The Pakistan Credit Rating Agency Limited
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Kanwal Ejaz

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PACRA Maintains Entity Ratings of AGP Limited

Rating Type Entity
(26-Oct-21 )
(29-Oct-20 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

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. The importance of local pharmaceutical sector has also been strengthened by the supply chain disruption caused by COVID-19 pandemic. CPI-linked pricing criteria has allowed an increase in prices with respect to inflation and indicated a positive sign for the sector. However, recent depreciation of Pak Rupee against USD will put some pressure on sector’s profitability. The ratings reflect AGP's established market position and long track record in the pharmaceutical industry. 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. AGP has planned its future diversification by expanding its plant facilities in Nutraceutical products, which is adding an additional flavor towards existing products range. AGP is also planning to extend its existing product range by expanding its current manufacturing facilities of plant-1. Going forward AGP is also expected to receive benefits with new acquisition of a reputable brand, which will enable the Company to increase its product range and improved sales volumes. Currently 86% 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.

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.