OBS Pakistan (Pvt.) Ltd

GENERAL REMARKS1. PURPOSE OF FINANCING PROPOSALWe have approved financing relationship of PKR 150 Mn with OBS Pakistan (Pvt.) Limited (referred to as the company or OBSPL) through Financing Proposal Synopsis # FIRD/MFC/SR/522/2012 dated November 27, 2012. Through this financing proposal, we seek approval for One-off Murabaha Facility of PKR 350 Million. Transaction details along with Facility Structure are given below. 2. FACILITY & TRANSACTION STRUCTURE

Facility No 2MURABAHA LOCAL (ONE-OFF)

AmountPKR 350 Million

PurposeOne off facility will be utilized for the procurement of stocks in trade locally from ICI Pakistan Ltd

JustificationFacility has been proposed keeping in view the acquisition of stocks/inventory of Astra Zeneca (AZ) from ICI Pakistan Ltd (ICI). The license agreement between ICI and AZ is being terminated due to the change in majority ownership of ICI. Now OBSPL is acquiring AZ operations in Pakistan and require financing to procure its stock from ICI.

Shariah MOShariah Modus Operandi (MO) is in process of approval and will be obtained prior to final approval; however, proposed Shariah MO for local Murabaha will have the following features: OBSPL will provide an Order Form to Burj for purchase of goods. Burj will issue instructions to OBSPL (as an agent of BBL) to procure the goods, as per Order Form Burj will make advance payment or if Credit facility available to OBSPL from its supplier(s), the payment shall be made after stipulated time period OBSPL will confirm receipt of funds for onward payment to supplier(s) OBSPL will provide invoices of the goods procured to Burj as evidence of purchases. OBSPL will provide Declaration for taking possession of the described goods along with undertaking for non-consumption / non-destruction of goods. Burj will offer to sell the goods to OBSPL at agreed cost plus profit on Deferred Murabaha basis and OBSPL will accept the offer to sell the goods made by BBL or vice versa. In case of Advance against Murabaha, the same will be converted into Murabaha Financing within 60 working days (max) in parts / lump sum effective from the date of disbursements of funds by BBL for the purchase of goods

PricingMatchingKIBOR + 2.00%One-off Processing Fee of PKR 1.75 Million (On best effort basis)

TenorOTT for Max 210 Days

RepaymentCompanys business cash flows will be mainly utilized for the repayment of the facility. The facility will be fully repaid maximum in 210 days from the draw down. However the repayment would be in tranches under Sub-Murabaha transactions of different amounts & tenors. Tentative repayment plan is under :AmountDays from the draw down1. PKR 50 Mln60 days2. PKR 50 Mln90 days3. PKR 50 Mln120 days4. PKR 50 Mln150 days5. PKR 50 Mln180 days6. PKR 100 Mln210 days

Note: Partial Payments / Early Repayments to be allowed

SecurityFirst Pari Passu hypo charge over all present and future stock-in-trade, trade debts and receivables of the company with 25% risk margin duly registered with SECP.(Initial disbursement to be allowed against Ranking Charge which will be upgraded to First Pari Passu status within 120 days from the date of first disbursement)

Ranking Hypothecation Charge of Rs. 350 Mn over All Present & Future Fixed Assets of the company located at C-14, Manghopir Road, S.I.T.E., Karachi. (Charge on Fixed Assets to be vacated upon full settlement of one-off local Murabaha Facility and/or upgradation of ranking hypothecation charge over stocks & receivables to 1st pari passu status)

Procedural Requirements (If Any)Local Murabaha will most probably be disbursed in one go however the repayments would as per above mentioned repayment plan

Note PG's of following 5 Directors backed by Personal Net Worth Statements (PNWS) will be obtained to secure total exposure: (1) Mr. Tarek M Khan (2) Mrs. AdellaTarek Khan (3) Syed Zeeshan Mobin (4) Dr. Ali Afzal (5) Dr. Jehanzeb Akram Once the customer has fully adjusted the OTT/Facility # 2 and has developed a repayment track record with us; the funded/non-funded lines will be realigned within the approved exposure of PKR 500 Mn.

2.1. Ways out AnalysisPrincipal Source: Principal source for repayment is companys own financial sources including but not limited to cash flowsSecondary Source: Second source of repayment is financing and working capital limits available from other financial institutionsTertiary Source: Tertiary source of repayment is the recovery through sale of hypothecated stocks/property of the company and/or calling Personal Guarantees of Directors

2.2. Security Analysis / Cushion AvailabilityCushion Availability in Stocks & Receivables:

Post-Acquisition Cushion Availability (Hypothetical Scenario)

Cushion Availability in Fixed Assets (located at C-14, Manghopir Road, S.I.T.E., Karachi):

Note: Value of Fixed Assets is as per Valuation Report dated 30 July 2010 by PBA approved valuator M/s. Iqbal A. Nanjee & Co. (Pvt) Ltd

2.3. Deferral / Waiver Requested Ranking Hypothecation Charge on stocks & receivables will be upgraded to First PariPassu status within 120 days from the date of the disbursement of Facility # 2

Ranking Charge on Fixed Assets to be vacated upon full settlement of one-off local Murabaha Facility and/or upgradation of ranking hypothecation charge over stocks & receivables to 1st pari passu status

2.4. ExceptionsN/A

3. GROUP PROFILECompany NamesDate of EstablishmentLocationNature of BusinessMarket Check/ECIB

OBS Healthcare (Pvt.) Ltd1963KarachiManufacturing, Marketing, Distribution of Pharmaceutical ProductsClean eCIB

OBS Pharma (Pvt.) Ltd

2007KarachiManufacturing/ Marketing/ Distribution of Therapeutic MedicinesClean eCIB

Schering Plough Pakistan (Pvt.) Ltd.2005KarachiManufacturing and Distribution of Pharmaceutical ProductsClean eCIB

4. COMPANY PROFILEThe company was formed in 2008 for the acquisition of Merck Sharp &Dohme (MSD)of Pakistan (formerly a subsidiary of Merck & Co. Inc., USA) which has been operating in the Pakistani pharmaceutical market since June 1962.OBSPL is ranked amongst the top 20 pharmaceutical players in Pakistani pharmaceutical market with a strong nationwide presence. It is among the very few companies in Pakistan which has specialized in developing strategic business alliances with reputed international firms like Organon, Merck & Co. Inc. USA and Schering Plough by providing a full range of high quality professional services encompassing manufacturing, marketing and sales of pharmaceutical and consumer health products. The company aims to become the center of excellence for their partners.

OBSPL has developed expertise in major health segments like Cardiology, Neuropsychiatry, Anti-Infectives, Gastroenterology, Gynecology, Ophthalmology, Pulmonology, Endocrinology, Vaccines and Bone Disorders.The company has strong coverage all over Pakistan through 250 plus professionally trained medical representatives covering more than 20,000 healthcare professionals across the country. Their products are available in over 15,000 pharmacies across Pakistan.OBSPL continuously invest on upgrading its information systems which enable us to scientifically grow their business and help the management to have effective controls and further improve the efficiency of the organization. In addition to the systems the company also strongly believes that people are the most important asset for any organization. Moreover, OBSPL regularly invest in the training and development of their human resource through both internal and external training and development programs.In continuation of its rapid pace of expansions in June 2009, the company further signed a strategic alliance with Merck & Co. Inc., USA to acquire certain MSD brands in Sri Lanka. This was the first step for OBSPL in the international arena followed by which it looks to rapidly expand its operations in other South East Asian and CIS countries including Vietnam, Philippines, Myanmar and Uzbekistan.In December 2010, MSD as a natural progression to its business strategy and considering the successful track record of its strategic partner in Pakistan made OBSPL the custodian for their Schering Plough business in Pakistan mainly specializing in the field of Gastroenterology and Cardiology.

Acquiring Astra Zeneca Operations in PakistanICI Pakistan Limited (ICI) has been the Licensee in Pakistan of Astra Zeneca (AZ) a Swiss based company, for the manufacture, marketing, distribution and the sale of their certain pharmaceutical products. This business has been carried on by the Life Sciences division of ICI. AZ is a global, innovation-driven, integrated biopharmaceutical company which discover, develop, manufacture and market prescription medicines for six important areas of healthcare, which include some of the worlds most serious illnesses: cancer, cardiovascular, gastrointestinal, infection, neuroscience, and respiratory and inflammation.

License Agreement between ICI and AZ permits AZ to terminate the Agreement in the event there is a change in the majority ownership of ICI. As of last year, Lucky Holdings Limited is in the process of acquiring the majority ownership of ICI following which AZ does not wish to continue its relationship with ICI, and therefore the License Agreement will in due course be terminated.

This alliance would result in guaranteed performance as OBSPL will be fully compliant and aligned with ICIs medico-marketing strategies and ethical business practice. OBSPLs model will also provide ICI with the flexibility of placing their own managers thereby ensuring full implementation of their marketing strategies, compliance policies, code of ethics, etc. Also, there is a guaranteed price increase for selected products (in addition to general price increase if any) in one year and fast track new product registration coupled with market introductions.As discussed with OBSPL; 70% of AZs sales come from locally manufactured pharmaceutical products and remaining 30% from directly imported finished stocks. Since ICI has no manufacturing facility hence all the local manufacturing was being done through Searl Pakistan Ltd (Searl) under toll manufacturing contract. Whereas the distribution of the AZs products was being carried out 100% by United Distributors Ltd (UDL). As per OBSPLs understanding with AZ the same business model will be followed going forward. The finished goods will be imported by OBSPL directly from AZ UK whereas the raw material and APIs for locally manufactured products will be imported from different sources, preferably from European countries, as identified by AZ. The business model is graphically represented as follows:

After this acquisition; the projected Profit & Loss position of OBSPL for next two yearsis expected to be as follows:

NOTE: Since the year-end of OBSPL is June, that is why three (3) month sales effect of AZ is incorporated with OBS resulting in expected sales of PKR 2.7 Bn for 2013. However, in 2012 the full year effect would lift the sales of OBSPL to PKR 4.8 Bn.4.1. Directors / Shareholders / SponsorsShareholding structure of the group companies is tabulated as follows:

OBS PAKISTAN (PVT.) LTD.SHAREHOLDING (%)

Mr. Tarek M Khan9.9968%

Mrs. AdellaTarek Khan0.0006%

Syed Zeeshan Mobin0.0006%

Dr. Ali Afzal0.0006%

Dr. Jehanzeb Akram0.0006%

Dr. Kawaja A.Moiddin0.0006%

Ms. Qurat-ul-Ain Zeeshan0.0006%

OBS Healthcare (Pvt.) Ltd.*89.999%

TOTAL 100.000%

*OBS HEALTHCARE (PVT.) LTD.SHAREHOLDING (%)

Mr. Tarek M Khan70%

Syed Zeeshan Mobin10%

Dr. Ali Afzal10%

Dr. Jehanzeb Akram10%

TOTAL100%

4.2. Management NAMEDESIGNATIONQUALIFICATION / EXPERIENCE

Mr. Tarek M. KhanChief Executive OfficerOver 25 years of experience. Graduate of Concordia University, Montreal Canada, Graduate Diploma in Public Accountancy (GDPA) from Mc Gill University, CMA from Ontario, Certified Public Accountant (CPA) from California.

Mr. Emile H.A.M Van DongenExecutive Director International Business

More than 20 years of experience. MBA from University of Georgia.

Dr. Ali AfzalExecutive Director Technical Operations & Regulatory AffairsBachelors in Medicine and Surgery (MD), Various Business Management Courses from American Management Association and Management Center Europe

Syed Zeeshan MobinGroup Director Finance & Corporate ServicesOver 21 years of experience. CMA & Gold Medalist Chartered Accountant

Dr. Jehanzeb Akram Director Business Development & ExportsOver 15 years of experience. Bachelors in Medicine and Surgery (MD) & MBA

Mr. Amjad Khan

Group Director Internal AuditOver 20 years of experience. Bachelors Degree in Business Administration from Bishops University Canada, ISO Certified Auditor & Certified Public Accountant

4.3. Organization StructureThe key decision maker is Mr. Tarek M. Khan (CEO) along with his wife Mrs. AdellaTarek Khan. Mr. Khan is aged 56 years and has over 25 years of varied business experience in auditing, financial controls, and senior management positions in Canada, Saudi Arabia and Pakistan. Besides Mr. Khan, the company has a balanced set of Executive and Non-Executive directors who are well qualified and are in mid of their careers. Moreover, the company has developed system of hierarchy in management and chain of command that ensures automatic replacement of every key position on immediate basis. This system endorses that the company is dependent on robustness of system instead of individuals.4.4. Products & ServicesMajor products of OBSPL are as follows:

#PRODUCTSCATEGORIES

1CozaarCardiovascular Diseases

2HayzaarCardiovascular Diseases

3FortzaarCardiovascular Diseases

4ZocorCardiovascular Diseases

5ReneticCardiovascular Diseases

6InvanzInfections Control

7TienamInfections Control

8SingulairAsthma Control

9FosanaxoOrthopedics

10GardasilCervical Cancer

11DecadronInjections

12AldometBlood Pressure

13SinemetParkinson Disease

As far as top performers in terms of sales are concerned, Decadron (Injections) holds major share (29.8%) in sales followed by Aldomet (Blood Pressure) with 13.6% share. Renitec (Cardiovascular Diseases) has 3rd largest contribution (11.1%) in sales along with Sinemet (Parkinson Disease) comprising 11.0% share in sales.

Product list of ICI - AZ is as follows:

#PRODUCTSCATEGORIES

1ArimidexAnti Neo Plastics, Immunomodulators and Drugs used in Palliative Care

2CasodexAnti Neo Plastics, Immunomodulators and Drugs used in Palliative Care

3DiprivanDrugs used in Anesthesia

4InderalCardiovascular Diseases

5MeronemAnti-infective Drugs

6NolvadexAntineoplastics, Immunomodulators and Drugs used in Palliative Care

7SeroquelPsychotherapeutic Drugs

8TenoretCardiovascular Diseases

9TenorminCardiovascular Diseases

10ZestoreticCardiovascular Diseases

11ZestrilCardiovascular Diseases

12ZomigAnti Migraine Preparations

Above mentioned products are likely to be procured from ICI Pakistan Limited under the proposed one-off Murabaha facility of PKR 350 Mn. Specific details of products will be finalized prior to disbursement.

4.5. Sales& BuyersOBSPL products are sold to the general masses.Major distributors of the company are as follows:

NAMELOCATION/ADDRESSYEARS OF ASSOCIATIONSELLING TERMS

PharmalinkKarachiMay - 2011Cash / Credit - 30 Days

Chandka DistributorsLarkanaMay - 2011Cash / Credit - 30 Days

Farhat Ali, Pharma LinkLahoreMay - 2011Cash / Credit - 30 Days

Muller & Phipps PakistanLtdKarachi196621 Days from Invoice Date

Haroon EnterprisesLahoreMay - 2011Cash / Credit - 30 Days

Haroon EnterprisesMardanMay - 2011Cash / Credit - 30 Days

Tariq Nazir& Co. SukkerMay - 2011Cash / Credit - 30 Days

Oncolink Pharma, LahoreMay - 2011Cash / Credit - 30 Days

United Distributors Pakistan Limited(UDPL) is the distributor for AZs products in Pakistan. OBSPL will continue to use UDPLas its distributor for the sale of AZs products.

4.6. Resources & Suppliers

NAMELOCATION/ADDRESSYEARS OF ASSOCIATIONBUYING TERMS

Klockner Pentaplast GHBHGermany2060 Days from BL/Airway Bill Date

Merck Sharp &Dohme B.VHolland6120 Days from Airway Bill Date

West Pharmaceutical ServicesSingapore20Sight LC

Aventis Pharma S.AFrance2990 Days from BL/Airway Bill Date

DSM Fine ServicesAustria1545 Days from BL/Airway Bill Date

OBSPL will procure imported finished goodsdirectly from AZ - UK while the raw material and APIs for local manufacturing will be procured from different sources identified by AZ but preferably from some European countries. Further Searle will do the toll manufacturing services for the locally manufactured products. The buying terms for theimports of stocks would range from 90-180 days from BL / Airway Bill Date.

4.7. Plant Capacity& Infrastructure

OBS Pakistan (Pvt.) Ltds manufacturing site is approximately 2.97 acres and is located at S.I.T.E Industrial Area, Karachi. Break-up of OBSPL plant capacity is as follows:

Installed Capacity per year (Tablets) = 430 million Installed Capacity per year (Vials) = 30 million Installed Capacity per year (Capsules) = 20 million Installed Capacity per year (Soft Gelatin Capsules) = 20 million

Manufacturing facility also has a Water Purification Plant for production of RO, DI & WFI for use in manufacturing of Sterile and Oral products, along with a sophisticated and modern Waste-water Treatment Plant.

4.8. Existing Banking & Financing Arrangements/ RelationsBANKS PKR MnSHORT TERMLONG TERM

Faysal Bank400-

JS Bank Limited395-

Syndicate loan-71.25

Soneri Bank Limited200-

Burj Bank Limited150-

Total1,14571.25

5. INDUSTRY ANALYSIS

Pharmaceutical industry of Pakistan is one of the most structured industries. Pakistan meets 80% of its domestic demand of medicines from local production and 20% through imports. Any surpluses are exported to 40 different countries of the world. Approx. 85% of the local market share is held by the top 50 drug manufacturers, with the share of MNCs estimated at 53%. At present the pharmaceutical industry in Pakistan is a sizeable industry producing 125 categories of medicines with an annual turnover of USD 1.2 billion and an annual growth rate of 10-11%. During 2012, total export value of Pakistani-manufactured medicines around the world stood at USD 400 million. Many different companies sell a diverse range of drugs and pharmaceutical products, the biggest household names of which include:

Getz Pharma Glaxo Smith Kline Hilton Pharma Abbot Laboratories Sanofi Aventis Bosch Pharmaceuticals Sami Pharmaceuticals Novartis Pharmaceuticals Roche Martin Dow Pharma Ferozsons Laboratories

#COMPANIESSALES VALUE (PKR MN) 1Q 2012SHARE (%)

1GLAXO SMITH KLINE4,877,96711.0%

2ABBOTT LAB PAK LTD2,869,7276.5%

4PFIZER INC2,014,2854.5%

5NOVARTIS PH.PAK LTD2,009,6894.5%

3GETZ PHARMA2,104,0364.7%

6SAMI1,649,2583.7%

7SANOFI-AVENTIS PAK1,588,4833.6%

8SEARLE1,300,0422.9%

9HILTON1,225,4322.8%

10MERCK (PRIVATE) LTD1,179,9582.7%

11BOSCH1,000,1782.3%

12NESTLE884,2162.0%

13BAYER PAK PVT LTD735,6351.7%

14ROCHE692,5621.6%

15GLOBAL PHARMA623,7691.4%

24MARTIN DOW509,9861.1%

16BARRETT HODGSON608,2761.4%

23INDUS533,1971.2%

18GEOFMAN PHARMA571,5421.3%

17AGP (PRIVATE) LTD571,6001.3%

21HIGHNOON538,0851.2%

20OBSPL546,7851.2%

22ATCO535,5101.2%

19FEROZSONS547,4801.2%

27CCL456,7541.0%

25I.C.I500,7861.1%

28JOHNSON & JOHNSON445,4371.0%

26HIGH-Q INTL463,2821.0%

29ELI LILLY428,3421.0%

30MACTER402,4790.9%

31OTHERS11,946,03226.9%

PAKISTAN PHARMA MARKET44,360,810100.0%

Total number of pharmaceutical companies is 379 out of which 350 are local companies and 29 are multinational companies. 70%-75% of the companies are located in the South region, while remaining players have set-ups in central and north regions. The expected growth this year in sales of both prescription and over-the-counter (OTC) medicines will be largely due to the knock-on effects of Pakistans humanitarian assistance program and pricing pressures, plus higher inflation levels. A stable political and security situation could create potential for the pharmaceutical market to expand significantly, reaching to a value of $4.13 billion in 2020. However, it cautions that, with inflation expected to average around 7% over the forecast period, real growth in pharmaceutical expenditure is expected to be much lower.Access to adequate health care for much of Pakistan's rural population is a major barrier to the market's development and, with multinational firms dominating the sector; the country has a significant negative trade balance in pharmaceuticals. The domestic industry is focused on generics but there are signs that the larger locally-owned companies are looking to move up the value chain, for example, the largest domestically-owned manufacturer, Getz Pharma, has recently announced plans to invest in the local production of pegylated interferon, as part of its strategy of producing high-value, hard-to-make generics.The industry has invested substantially to upgrade itself in the last few years and today the majority industry is following Good Manufacturing Practices (GMP), in accordance with the domestic as well as international guidance. Currently the industry has the capacity to manufacture a variety of products ranging from simple pills to sophisticated Biotech, Oncology and Value Added Generic compounds. Market DynamicsPharmaceutical companies import at least 85% of their raw material with a 60-day lag before the consignment reaches its destination. The material can be imported form anywhere, provided it meets the U.S. and U.K. specifications. There are some special products like blood products, e.g.; immunological, anti-cancer drugs, certain anti-diabetic drugs, antidotes and products manufactured from biotechnology, which are being imported in the finished form. Most companies in Pakistan import pharmaceutical products from USA, UK, China, Switzerland, Japan and France as well as from new sources such as Singapore, Hong Kong, South Korea and India. Based on the chemical potency, raw material is normally processed and stored for 45-50 days on average. Majority of the active ingredients are being imported from various countries. Main suppliers include Japan, Germany, UK and US. On average imports are effected for two month production requirements. In established companies, supplier credit terms are also available. Finished goods inventory is held for an additional 45-50 days with most companies requiring their distributors to maintain a 2-month stock. However, in majority of the cases payment terms from distributors are on cash or maximum 15-30 days credit. Normal production time can range from 0-30 days-however; this may be longer for products that require gestation of ingredients. As the bulk of raw materials are imported, import financing is required by the companies in the form of letters of credit and import loans.

Recent Development in the Industry Expansion PotentialGoing forward, the sector is likely to witness marginal strengthening of the generics sector, albeit more in terms of volumes than values. The share of generics is also likely to increase further as major drugs come off-patent in the near term, to the likely benefit of the generics-dominated local industry. Pakistans pharmaceutical sector has the potential to double its export in next five years provided pricing and contracting challenges are addressed in an efficient way.Local pharmaceutical companies have started entering generic markets and their managements continue to focus on increasing number of products under generic portfolio (portfolio growth), exploring opportunities for export of medicines (market diversification in light of post WTO era), maintaining focus in specialized vaccinations and treatment medicines (high margin niche market) and toll manufacturing for multinationals (adds credibility to the companies).The government is considering providing incentives to the pharmaceutical industry so that it could compete in the international export market. The policy recommendations have been made to the government to enlarge the size of the pharmaceutical sector by providing necessary financial and technical support to help penetrate in the export market in the areas of bulk drugs where competitiveness is almost purely determined by economics of scale.In addition, these products can also play a vital role in meeting domestic health care needs at affordable prices. In this regard, adequate funds should be allocated and efficiently utilized for conducting pharmacological and clinical investigation on various medicinal plants which could lead to new products or strengthening the scientific basis of existing products.

6. PEER ANALYSISThe pharmaceutical industry is highly patent/license oriented industry, each company having different patents/license with unique cost structure for every product and pricing caps from the government authorities, therefore, comparative analysis cannot be used for benchmarking in this sector.

7. FINANCIAL ANALYSIS7.1.1. SalesYear-end (June)201220112010

Sales (PKR in Mn)1,8371,5121,656

Growth21.5%-8.7%11.0%

Sales increased by 21.5% on YoY basis in FY12. Manufacturing turnover increased by 17.15% while trading turnover increased by 28.42%. Previously in FY11 sales momentum was slightly disturbed as production batches for Cozaar & Hyzaar were not executed and the production capacity was distributed amongst other product batches in order to ensure optimum utilization of manufacturing capacity.As per the Management Accounts of December2012, sales have increased by 3.09% on YoY basis to PKR 947 billion.

7.1.2. ProfitabilityYear-end (June)201220112010

Gross Profit (PKR in Mn)821643786

GP Margin44.69%42.49%47.48%

NP Margin10.03%7.07%14.04%

The company earned a gross profit of Rs. 821 million (FY12) recording a healthy GP margin of 44.69% as compared to 42.49% in FY11. This is due to a 64.7% and 13.2% decrease in sale allowances in manufacturing and trading respectively.Net margin has increased to 10.03% (FY12) as compared to previous year of 7.07% due to a decrease of 7% in administrative expenses.As per the Management Accounts of December 2012, the GP margin and NP margin have decreased to 43.82% and 8.37% respectively. NP margin has decreased due to an increase of 9.6% and 27% in distribution cost and administrative expenses respectively, and more specifically due to a 25% increase in Freight on delivery, a 29% increase in travelling and entertainment and a 42% increase in repairs and maintenance.7.1.3. LiquidityYear-end (June)201220112010

Current Ratio1.001.161.47

Current ratio of the company has been 1.0 (FY12) as compared to 1.16 (FY11), the major contributor to this factor was payable to a group company Schering Plough Pakistan, which has risen to Rs. 106 million in FY12 as compared to NIL in FY11.The company also generated cash flows from operating activities amounting to Rs. 254.4 million in FY12.As per Management Accounts of December 2012, the Current ratio of the company has increased to 1.12. This increase is due to a 322% increase in short-term investments, a 48% increase in Trade Debs and a 50% increase in finished goods stock-in-trade.Year-end (June)201220112010

Total Liab / Net Worth1.11.01.0

Debt / Net Worth0.10.20.4

DSCR2.01.32.0

FCCR5.03.14.6

7.1.4. LeverageLeverage ratios have been on an improvement trend over the last 3 years as illustrated in the table, primarily on account of reduction in long-term debt of the company.

As per Annual Accounts of FY12, Total Liability to Net Worth ratio has increased to 1.13x as compared to 1.01 (FY11) due to a 95% increase in current liabilities and more specifically in Bills Payable of 151.5%, however, since the long term liabilities has been decreasing continuously therefore especially the long-term syndicate facility availed by OBSPL, Debt to Net Worth ratio has further declined to 0.1x as compared to 0.2x (FY11).

Moreover, due to the increase in profitability and generation of cash through operationsas explained above, the Finance Cost Coverage Ratio has increased.

As per Management Accounts of December 2012, Total Liability to Net Worth ratio has increased to 1.15x due to a 10.8% increase in current liabilities and more specifically in Short term borrowings of 118.1% and in Creditors of 72%. The Debt to Net Worth ratio has remained constant at 0.1x, while Debt Service Coverage Ratio and Finance Cost Coverage Ratio have decreased to 1.4x and 4.7x respectively.

7.1.5. Asset Coverage Cycle / Efficiency RatiosYear-end (June)201220112010

Days Trade Debtors5623

Days Stocks146110104

Days Trade Creditors353

Cash Cycle148111125

The cash cycle for FY12 is 148 days which has increased from 111 days in FY11 due to the increase in inventory turnover. OBSPL continues to have a shorter turnover for trade creditors, and also a decrease in days trade debtors.This number of days is highly favorable for the pharmaceutical industry.

As per Management Accounts of December 2012, Days Trade Debtors, Days Stocks and Days Trade Creditors have increased to 7 days, 179 days and 5 days respectively.The increase is due to an increase in the stock-in-trade, especially a 50% increase in the finished goods inventory. Due to this increase the cash cycle has increased to 181 days which is considered favorable for the pharmaceutical industry.8. SAFETY ASSESSMENT

8.1. Risks &MitigantsS #Risk FactorExtent of Risk*Mitigant

1. Business RiskImport Cost Risk

Operational Risk

Product RiskLow

Low

LowThe depreciation of PKR against USD/EURO, has affected the prices of raw materials imported. The Ministry of Health MOH has regulated the prices, which results in decreased profits for the manufacturer. But, MOH is granting price revisions to hardship cases to help cover the manufacturing costs.

OBSPL have the capacity and expertise to acquire and run the pharmaceutical business which is evident from the fact that they have previously acquired and managed MSDs operations quite well.

Product risk is minimal forOBSPL Products and the upcoming AZ products as their sales have remained stable and they have an established market. The risk is further mitigated by the fact that demand for medicines is inelastic.

2. Financial Risk

LowImproving sales volumes, healthy profit margin and low leverage and sound capital structure.

3. Management Risk

LowOBSPL is managed by experienced professionals having expertise in pharmaceutical sector and financial affairs.

4. Security Risk

LowAdequate security is being provided against the financing to cover the risk of non-payment/default.

5. Succession Risk

LowOBSPL is a private limited company, with a strong management team and a good succession plan in place for their management team.

* High; Moderate or Low

8.2. Critical Success Factors Stable Industry: The client is in the business of manufacturing pharmaceuticals a product whose demand remains mostly unaffected during economic downturns.

Experienced Management: A competent team of individuals run the company, which is highlighted with their superior track record.

Strategic Alliance: OBSPL has strategic alliance and business partnership with Merck & Co. which is a global research driven pharmaceutical company with annual sales of approx. USD 24 billion and ranked no 9 in the world and with Astra Zeneca a global, innovation-driven, integrated biopharmaceutical company which discover, develop, manufacture and market prescription medicines for six important areas of healthcare, which include some of the worlds most serious illnesses.

8.3. Third Party Check / InformationThird party check was conducted with Soneri Bank Ltd., JS Bank and Faysal Bank when the relationship was established in 2012. Further, the e-CIB of the company and the group companies is clean without any restructuring/rescheduling/write-offs during the last 5 years.

9. RELATIONSHIP STRATEGYWe have proposed a one-off short-term funded facility of PKR 350 Mn under local Murabaha to facilitate OBSPL in procurement of stocks from AZ. However, once this facility is fully adjusted, we will realign funded and non-funded limits within the approved exposure, so that we can meet OBSPLs increased working capital requirements due to the acquisition of AZ. This will enable us to capture the sizeable import business in future. Further, we will try to identify and capture the cross sell opportunities in the form of ancillary business (payrolls, cash management etc.) with OBSPL and its other group companies.

We expect to fetch trade import business of PKR 150 Mn and expected earning from the relationship is PKR 5.9 Mn with yield of above 3.0%. This includes PKR 3.9 Mn of Net Revenue from Financing and expected Fee Income of PKR 2.0 Mn.

10. RECOMMENDATIONSOBSPL holds a good reputation within the industry and its management has shown full commitment in fulfilling the financial obligations of the project on time.

Due to sound financial performance, good credit and repayment history and market reputation of the company, the above financing facility is being recommended for approval.

Proposed By

__________________________________________________________M. Shoaib KhanM. Haris MunawarShahid Ali KhanRelationship ManagerTeam LeaderRegional Head CBG - South

Recommended By

_______________M. R. MirzaGroup Head CBGPage | 1