Equity Analysis /
Pakistan

AGP Limited: 2QCY19 – Strong result, surprise dividend

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

    Intermarket Securities
    6 August 2019

    AGP has posted 2QCY19 NPAT of PKR318mn (EPS: PKR1.13), up 12%yoy, in line with our expectations. The company also announced an interim dividend of PKR1.25/sh, which is a positive surprise. This brings 1HCY19 NPAT to PKR743mn (EPS: PKR2.65), up 10%yoy (pre-tax: up 14%yoy). 

    Key highlights from AGP’s 2QCY19 result include:

    • Sales clocked in at PKR1,559mn, up a strong 19%yoy, and above our projected 11%yoy growth, likely led by the 15% price hike announced (for all drugs other than those in hardship) in mid-1QCY19. 
    • Gross margins came in at 58.7%, in line with our expectations, underscoring AGP’s ability to maintain margins in a difficult operating environment due to better cost absorption ability.
    • The impact on the bottom line was diluted by a 17%yoy increase in operating expenses, while finance costs also rose by 17%yoy. 
    • The effective tax rate for the quarter came in at 23% vs. 15% in 1QCY19.  

    While AGP’s PAT is inline with our expectations, we are encouraged by the strong lift in sales, sustained margins and the surprise dividend. AGP remains best in class, in terms of reported earnings having displayed relatively stronger resilience from the PKR devaluation so far (with GMs coming off by a modest 3.0ppt vs. more than 5ppt for the broader pharma space since CY17 after the 34% PKR deval since Dec’17). We have a Buy on AGP.

    Risks: (i) Regulatory tightening by DRAP, (ii) persistent depreciation of the rupee (iii) rising counterfeit and smuggled products and (iv) slowing exports.