Earnings Report /
Bangladesh

IDLC-SL Pharma Sector Update: For the quarter ended Q1 FY23

  • Single digit industry revenue growth in Q1 FY23 can be attributed to the base effect of Q1 FY22.

  • Gross margin fell likely as a result of costly API purchases due to BDT depreciation.

  • Rise in opex to sales is likely the result of inflationary pressure that led to a rise in operating expenditures.

IDLC Securities
13 December 2022
Published byIDLC Securities
  • Sector revenue rose c4% yoy in Q1 FY23. Single digit industry revenue growth in Q1 FY23 can be attributed to the base effect of Q1 FY22. In Q1 FY22, as the economy resumed and doctors returned to their practices, the sales of prescription drugs rose which led to c. 20% revenue growth that quarter. In Q1 FY23, ACME, Navana, Renata, Square significantly outperformed the industry. ACI Pharma and Beacon significantly underperformed the industry as their yoy growth rates fell by c19% and c11% respectively.

  • Sector gross margin fell 31 bps yoy in Q1 FY23. Overall gross margin fell likely as a result of costly API purchases due to BDT depreciation against the USD. Beacon, Navana, Orion, and Square experienced a rise in gross margin. Beximco’s and Renata’s yoy gross margin fell 213 bps and 44bps respectively.

  • Sector opex to sales ratio rose 161 bps in Q1 FY23. Overall rise in opex to sales is likely the result of inflationary pressure that led to a rise in operating expenditures. Navana’s Beximco’s, and Orion’s opex to sales registered a 187 bps fall, 160 bps fall, and an 8 bps rise respectively. ACI Pharma and Beacon’s opex to sales rose by 1,561 bps and 534 bps respectively.

  • Sector financial expenses grew c71% yoy in Q1 FY23. Majority of the companies have a foreign exchange loss account included in their financial expenses. We believe that the rising trend of financial expenses is most likely due to exchange loss which arose from currency depreciation. This is corroborated by the BDT depreciation trend that occurred this year. The BDT depreciated c18% yoy in Sep 2022. BXPHARMA, Renata and ACI Pharma experienced c87%, c431% and c145% yoy growth in their financial expenses which stood far above industry growth. ACME, IBNSINA and Orion experienced c14%, c5% and c4% yoy growth in their financial expenses which stood far below industry growth.

  • Sector NPAT grew c3% yoy in Q1 FY23. Single digit earnings growth in Q1 FY23 was driven by single digit revenue growth, gross margin contraction due to costly raw materials, rising opex to sales arising from inflationary pressure and soaring financial expenses possibly as a result of foreign exchange loss. Navana and Square outperformed industry earnings growth. Beacon and Renata underperformed industry earnings growth as they fell c35% and c10% yoy respectively.

  • Ibn Sina and Navana availed the benefits of the tax cut in Q1 FY23. The government announced a 2.5% tax cut for FY23. Only Ibn Sina and Navana were able to avail this tax benefit in Q1 FY23.

  • We reiterate BUY recommendation for SQUARE with TP 300 and BUY recommendation for Ibn Sina with TP 380.