Retail pharma market partially recovered, RMDA outperforms
Retail pharma has partially recovered in 2021, which confirms the sustainability of the gradual sequential recovery expected in 2022. According to IQVIA, retail pharma sales recorded EGP86.45 billion in 2021 (in line with our estimates of EGP86.5 billion), showing a modest of 7% YoY, according to the latest available data. Such YoY growth is higher than 2020 retail pharma market growth (+4% YoY growth) but is still below 2019 double-digit growth levels of c.17% YoY. Retail pharma market volumes recorded a slight decline of 2% to reach 2.44 billion units sold during 2021. We expect 2022f retail pharma market sales to record EGP95.2 billion (+10.1% YoY), non-retail pharma market to record EGP48.0 billion (+13.4% YoY), and total pharma market sales to record EGP143.2 billion (11.2% YoY).
During 4Q21, RMDA’s private sales recorded EGP242 million (+25.0% YoY, +0.6% QoQ), where volumes have partially rebounded annually and came almost flat sequentially (+8.3% YoY, +0.7% QoQ), driven by popular recent launches, including rising demand for the company’s antivirals and antibiotics. During 2021, RMDA’s private sales recorded EGP829 million, an increase of +25.6% YoY. RMDA’s ASP for the retail market recorded EGP36.3/unit (+8% YoY), compared to a retail market ASP of around EGP35.4/unit by the end of 2021.
Tender business sales recorded an increase of 87.9% YoY and a surge of 152.3% QoQ in 4Q21, with volumes recording an increase of 17.7% YoY and a jump of 100.5% QoQ. For 2021, tender sales recorded EGP252 million (+26.0% YoY), despite lower volumes (-12.1% YoY). Solid tender business performance is driven by gradual adoption to the UPMA practices along with 3Q20 and 4Q20 being a weak base when the UMPA new ordering system started.
RMDA’s exports recorded revenues of EGP29 million in 4Q21 (+35.4% YoY, +111% QoQ). During 2021, export sales recorded EGP88 million in 2021, a surge of 76.4% YoY (despite volumes falling by 18.5% YoY); primarily due to a solid performance of the company’s antivirals (characterized by lower volumes and higher prices). Strong export revenue growth in Iraq (53% of total export sales), Yemen (20% of total export sales), Levant (17% of total export sales), and Libya (7% of total export sales) were driven by improved market conditions and the easing of import restrictions.
New launches and portfolio optimisation drive topline growth
RMDA reported 4Q21 sales of EGP394 million (+37.1% YoY, 25.2% QoQ). For 2021, revenues stood at EGP1.24 billion, an increase of 29.8% YoY, broadly in line with our estimate of EGP1.1 billion. Revenue growth was driven the company’s recent launches and product portfolio optimization towards higher-priced products. New launces added to the company’s portfolio since the beginning of 2020 contributed a significant 33% of total 2021 revenues.
During 2021, revenue breakdown by business line witnessed the following:
Private sales (66.5% of total sales, -2.2pps YoY) grew by 25.6% YoY, with volumes growing by 16.6% YoY.
Tender sales (20.2% of total sales, -0.6pps YoY) recorded a growth of 26% YoY, with volumes dropping by 12.1% YoY.
Export Sales (7.1% of total sales, +1.9pps YoY) surged by 76.4% YoY, with volumes dropping by 18.5% YoY.
Toll manufacturing sales (6.2% of total sales, +0.9pps YoY) grew by 51.6%, with volumes growing by 32.8%.
Higher API costs caps annual GPM expansion
During 2021, gross profit came in at EGP578 million, an increase of 29.3% YoY, and implying a GPM of 46.3% (-0.2pps) in 2021. Gross profit margin slight contraction came on the back of higher API costs associated with the new launched antivirals which were ramped up during the period to support their growing demand. However, RMDA has secured these APIs at a considerably lower cost for 2022. On a quarterly basis, RMDA reported a gross profit of EGP188 million in 4Q21 (+45.4% YoY, +29.1% QoQ), implying a GPM of 47.8% (+2.7pps YoY, +1.5pps QoQ).
Adjusted EBITDA recorded EGP338.7 million in (+28.4% YoY) in 2021, translating to an adjusted EBITDA margin of 27.2% (-0.3pps YoY) on the back of the slight GPM contraction for 2021. Selling, Marketing and General expenses recorded an increase of 17.4% YoY in 2021, representing 24.4% as a percentage of sales (-2.6pps YoY), in line with management plans to keep SG&As below the 25% to sales mark.
Solid revenues and operating leverage drive bottom-line growth
Attributable net profit came in at EGP181.1 million in 2021 (+61.4% YoY), reflecting an NPM of 14.5% (+2.8pps YoY), higher than our net profit estimate of EGP146 million. RMDA’s bottom-line growth was driven by solid revenue growth along with enhanced operating leverage. Net Financing expenses as a percentage of sales stood at 2.8% in 2021 (-0.9pps YoY). Interest income contributed to 33.1% of net profit during the year, standing at EGP59.9 million in 2021. On a quarterly basis, attributable net profit came in at EGP74 million in 4Q21 (+70.1% YoY, +63.3% QoQ), implying an NPM of 18.8% (+3.6pps YoY, +4.4pps QoQ).
Promising Outlook for 2022
RMDA expects the market to return to its pre-pandemic growth rates reaching the low double digits, mirroring the recovery witnessed past couple of months during the end of 2021. Management guides for revenues growth of 15-20%, excluding new molecule acquisitions and net income growing by more than 40-50%. The growth will be primarily driven by the Private and Toll segments while reducing the company’s exposure to the tender market and maintaining sales levels in the export markets. Margins to be enhanced further in 2022 with GPM reaching north of 50% in 2022 EBITDA margin reaching north of 30%, supported by the introduction of food supplements (vitamin C, zinc, calcium and vitamin D) at high margins due to flexible pricing and plans to maintain SG/As to revenues below the 25% mark. Moreover, the company managed to secure more favorable raw materials pricing.
Management's focus is on improving the cash conversion cycle remains to be a priority and targets to reduce the CCC to between 250-270 days. Spending on CAPEX for 2022 to be minimal, with capex spending of EGP50 million mainly to upgrade some old machinery in the solid dosage area and to comply with new quality and firefighting requirements. Capex spending guidance excludes molecules acquisition investment costs. RMDA plans to launch 8-10 molecules in 2022.
RMDA is currently trading at 2022f P/E of 12.1x and EV/EBITDA of 7.7x