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New Export Market, New Production

Capacity

Square Pharma-ceuticals LimitedTicker: SQURPHARMA

Market: DSE & CSE

Square Pharmaceuticals Limited (SPL) is the flagship company of Square

Group. It is the largest generic drug producer of Bangladesh with 19.2% of

market share. Its business also ranges from Active pharmaceutical Ingredients

(API), AgroVet Products, Pesticides, Fabrics and Textile to Hospital. SPL offers

more than 738 products in different dosage forms. Total sales turnover of SPL

is now more than BDT 26.7 Billion (USD 339.8 mn), growing at 12.0%

(CAGR) during last 5 years and 14.7% in FY 2014-15.

Huge Market

According to IMS, Bangladeshs present pharmaceutical market (including

institutional sales) size is BDT 132.0 bn. Local pharmaceutical market size isBDT 110.0 bn, and it is expected to hit BDT 157 bn by 2018 with a CAGR of

9.3%. Pharmaceutical export market size was USD 69.1 mn (BDT 5.4 bn) in FY

2013-14 against Indias USD 14.8 bn.

Increasing Demand

With a population growth of 1.3%, life expectancy of general people of Bangla-

desh has been increased 4 years on an average in last 5 years (Source: BBS).

Heaexpenditure of Bangladesh was 3.7% against Indias 3.9% of GDP in 2013

(Source: WB). At present SPL is exporting in more than 40 countries includ-

ing UK and some EU countries.

Strong Financial Performance with Established Position

SPLs 5 years CAGR of revenue and net profit is respectively 12.0% & 16.4%.

Its 5 years average ROE & ROA are respectively 20.8% & 16.6%.The compa-

nys financial leverage is lowering year to year, as it uses less debt financing. TheDebt to Capital ratio is .03x, which reduced in half according to last year.

Value Drivers

SPL is the largest Pharmaceutical company and will be the most benefi-

cent as a result of TRIPS agreement extension, if it can utilize this oppor-

tunity properly. Because, Bangladesh would not need to pay royalty for

producing patent drug till 2032.

SPL got US FDA approval, and it is expected that the export revenue will

boost up. (On 16th June, US FDA has released Establishment Inspection

Report (EIR ) on recent Pre Approval Inspection (PAI ) to Square Phar-

maceuticals Ltd).

The expiration of patent of some Blockbuster Drugs (specially for Arthri-

tis & cholesterol, eg Adalimumab, rosuvastatin calcium) within 2016 will

create a big opportunity for SPL. Around 6 of the top 20 prescribed drugs

will face patent expiration within next 5 year. (SPL is already producingrosuvastatin calcium in the brand name of Rosuva & after patent

expiration, it will be easy to get raw materials at a cheap price from differ-

ent sources.)

Top 10 prescribed drugs in Bangladesh covers around 8.8% of total

market share, among them 4 drugs are SPLs which covers around 4.1%

of total market share. By introducing new drugs for heart disease, diabetes

mellitus, hypertension etc. SPL will be able to acquire more market share.

Square Formulations Limited, one of SPLs subsidiary company going to

start its operation with annual capacity of 8000 million tablets and 2000

million capsules. After full capacity utilization, it is expected that it will

have a positive change in the net profit of SPL.

Newly formed Pesticide Unit is trying to become the market leader in

agrochemicals sector in Bangladesh.

Risks & Challenges

The cost controlling will be eminent if any drug is listed as essential drug

by the authority.

India has its own API Park and as a result, it can offer competitive prices

in global markets compared to Bangladesh. The API Park of Bangladesh

has already been delayed by years.

Key Financials(In mn BDT) 2012 2013 2014 2015

Revenue 19,798.1 20,202.0 23,268.4 26,684.6

Gross Profit 7,890.3 8,893.1 10,307.7 11,741.7

EBITDA 5,385.1 5,960.2 7,148.9 8,758.1

Operating Profit 4,150.9 4,841.6 5,967.7 7,049.6

Net Income 3,620.1 4,213.8 4,946.2 5,981.6

Total Asset 24,562.2 27,551.7 31,046.1 35,191.2

Total Debt 3,223.4 2,948.8 1,776.2 916.3

Total Equity 19,258.8 22,593.9 26,749.0 31,091.6

Profitability 2012 2013 2014 2015

Gross Profit Margin 39.9% 44.0% 44.3% 44.0%

EBITDA margin 27.2% 29.5% 30.7% 32.8%

EBIT margin 21.0% 24.0% 25.6% 26.4%ROE 20.6% 20.1% 20.0% 20.7%

ROE Decomposition 2012 2013 2014 2015

Net Profit Margin 18.3% 20.9% 21.3% 22.4%

Asset Turnover 0.8x 0.8x 0.8x 0.8x

Financial Leverage 1.3x 1.2x 1.2x 1.1x

Growth 2012 2013 2014 2015

Sales Growth 16.6% 2.0% 15.2% 14.7%

Gross Profit Growth 17.9% 12.7% 15.9% 13.9%

Operating Profit Growth 18.3% 16.6% 23.3% 18.1%

Net Profit Growth 11.1% 16.4% 17.4% 20.9%

Risk 2012 2013 2014 2015

Debt to Capital 0.1x 0.1x 0.06x 0.03x

Interest Coverage 8.9x 13.6x 33.7x 44.4x

Valuation Metrics 2012 2013 2014 2015

P/CF 17.2x 12.5x 20.1x 21.2x

PEG 1.6x 1.0x 1.5x 1.1x

Price/Sales 3.2x 3.3x 5.5x 5.1x

Dividend Yield 1.1% 1.4% 1.1% 1.2%

EV/EBITDA 12.0x 11.3x 17.8x 15.2x

Key CompsClose Price Market Cap

(BDT in bn)

Annualized

EPS

(BDT)

Sponsor % Govt. % Institute % Foreign % Public % Year end Q

No.

249.1 155.3 12.18 54.2% 0.0% 10.3% 15.1% 20.4% Mar 2

Compnay vs Indus-

try

Audited

Income

Y-o-Y

Annualized

Vs Audited

Growth

Current

Quarter

Y-o-Y

Quarter Q-o-

Q

Profit

Growth

(5 Yr

CAGR)

Audited

P/E

LTM P/E Annualized P/

E

P/B

SQURPHARMA 21.1% 26.9% 51.8% 8.9% 16.4% 25.9x 21.9x 20.5x 5.0x

Pharmaceuticals 19.7% 14.0% 17.8% -8.8% 14.0% 26.6x 24.2x 23.4x 3.7x

% Stock DSEX

LastWeek

-0.9% 0.2%

Last

Month

3.4% -5.4%

Last

Year

7.7% -10.9%

Velocity

(6 Months)

0.1% 19.52%

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