The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Maintains 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 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 the local pharmaceutical sector has also been strengthened by the supply chain disruption caused by the 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, the recent depreciation of the Pak Rupee against the USD will put some pressure on the 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 period in comparison with most of its 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 flavour towards the 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 the new acquisition of a reputable brand, which will enable the Company to increase its product range and improve sales volumes.
The ratings are dependent on the 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. The Instrument's rating is dependent upon upholding all major covenants.

About the Entity
AGP Limited (AGP) is a listed pharmaceutical company; the operations of the 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. 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 the 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, inclusive of 10 years of pharmaceutical industry experience. She is supported by an experienced core management team.

About the Instrument
AGP Limited issued a rated, secured, privately placed Islamic certificates (Sukuk) of PKR 2,448mln in Jun'17 to refinance the existing long term loan of the Company. The Sukuk has a tenor of five (5) years from the issue date. The profit is being paid quarterly in arrears at the rate of 3M Kibor+1.3% p.a. Principal is being paid in twenty equal quarterly instalments which commenced from Sep'17. The instrument is secured by first pari passu charges on all present and future fixed assets of AGPL to the extent of 2,411mln. There is also a call option attached to the Sukuk exercisable in full or partial at any time on a profit payment date, subject to a 30 day's notice at a premium of 0.05% on the outstanding face value.

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.