PACRA Assigns Initial Entity Ratings to Pharmatec Pakistan (Pvt.) Limited

Pharmatec Pakistan (Pvt.) Limited (“Pharmatec” or “the Company”), is a dynamic concern operating within the pharmaceutical sector of Pakistan since 1993. The Company's core operations include carrying out toll manufacturing of oral products for renowned MNCs including Haleon Pakistan Limited and Abbott besides manufacturing and marketing a diverse portfolio of over 50 products covering multiple therapeutic segments including cardiovascular, diabetes, analgesics, antibiotics, and vitamins among others. Over the years, the Company has invested in upgrading and expanding its production facilities which are now both GMP and GLP compliant and are capable of manufacturing a wide array of products including injectables, creams, ointments, gels, liquid/drops, tablets, and capsules. Despite a large number of registered manufacturers, Pakistan’s pharmaceutical sector is dominated by a few top players, where the top 50 players hold a market share of ~80%. The industry is majorly reliant on imported APIs to meet its raw material needs hence it is exposed to an inherent risk posed by exchange rate fluctuations. Being price regulated, there is limited ability to pass on the prices unilaterally. However, the deregulation of prices of non-essential medicines, decline in interest rates, and currency stabilization during FY24 have helped improve the profitability matrix of the industry. The assigned ratings take comfort from the Company’s longstanding association with the leading MNCs which provide a sustainable revenue stream. Notably, Pharmatec is the sole manufacturer of the renowned Panadol brand in the country. To address the revenue concentration risk associated with toll manufacturing, the company has steadily expanded its own product portfolio over the years which now contributes ~51% to the topline. Moreover, a substantial revenue is earned through exports which provides a natural hedge against foreign exchange fluctuations. During FY24, the Company’s topline clocked in at PKR 4,846mln reflecting ~20.5% growth YoY, primarily driven by price hikes augmented by volumetric growth. Over the years, the Company has sustained healthy profitability margins. The governance structure of the Company has room for improvement as the board comprises only two members and there is a lack of independent oversight, However, a well-defined organizational structure is present, and sufficient internal control mechanisms are in place. The financial risk profile of the Company is characterized by an adequate working capital cycle, healthy coverages, and a low-leveraged capital structure. Going forward, the sponsors intend to expand the production capacity and broaden the product portfolio of the Company.
The ratings are dependent on the Company’s ability to enhance its topline with sustainability in the profitability matrix. Materialization of the envisaged expansion strategy in line with the shared financial projections will be imperative. Maintaining adequate leverage and prudent financial management will remain vital for the sustainability of the ratings.

About the Entity
The Company was incorporated in 1973 as Sterling Products Pakistan (Pvt.) Limited, a subsidiary of Sterling Winthrop Inc. USA. Later, in 1993, its name was changed to Pharmatec Pakistan (Pvt.) Limited subsequent to a management buyout of the Company as Sterling Winthrop divested its operations in Pakistan. Mr. Pervez Hayat Noon holds ~98% of the stake. He graduated from Babson College, Boston, USA, and possesses extensive experience of over 4 decades in the pharmaceutical industry. The board comprises two members i.e. Mr. Pervez Hayat Noon (the Chairman) and Dr. Shahida Qaisar (the CEO).