Modest growth in retail pharma market, RMDA Outperforms
The retail pharma market continued to sequentially recover during 9M21, which confirms the sustainability of the gradual sequential recovery expected in 4Q21. According to IQVIA, retail pharma sales recorded EGP62.0 billion during 9M21, showing a modest of 6% 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 decline of 3% to reach 1.75 billion units sold during 9M21. During 2021, we expect the retail pharma market to record sales of EGP86.5 billion (+7.3% YoY) and non-retail pharma sales to record EGP42.3 billion (+10.0% YoY), bringing 2021f total pharma sales to EGP128.8 billion, up from EGP119.0 billion in 2020, with growth of 8.2% YoY. 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 3Q21, RMDA’s private sales recorded EGP240 million (+27.2% YoY, +35.9% QoQ), where volumes have significantly rebounded annually and sequentially (+25.5% YoY, +53.0% QoQ), driven by popular recent launches, including rising demand for the company’s antivirals and antibiotics. During 9M21, RMDA’s private sales recorded EGP587 million, an increase of +25.9% YoY. RMDA’s ASP for the retail market recorded EGP37.7/unit (+13% YoY), compared to a retail market ASP of around EGP34.7/unit as of September 2021.
Tender business sales recorded an increase of 144.0% YoY and a drop of 18.5% QoQ in 3Q21, with volumes recording an increase of 43.4% YoY by 13.9% QoQ; the quarterly decline is in line with management's strategy to reduce the contribution of tenders to the Group’s revenues in order to maintain higher margins in response to strong price competition amongst pharma players within the segment.
RMDA’s exports recorded revenues of EGP14 million in 3Q21 (-16.6% YoY, -40.9% QoQ). During 9M21, export sales recorded EGP59 million in 9M21, a surge of 106.6% YoY (despite volumes falling by 9.3% YoY); primarily due to a solid performance of Anviziram and Remdesivir (characterized by lower volumes and higher prices). Accordingly, revenues from Levant, a new market for Rameda, came in at EGP15.3 mn in 9M21. Strong export revenue growth in Iraq and Yemen was driven by improved market conditions and the easing of import restrictions.
Private sales and covid related antivirals drive topline growth
RMDA reported 3Q21 sales of EGP315 million (+33.7% YoY, 17.9% QoQ). For the 9M21, revenues stood at EGP852 million, an increase of 26.7% YoY. Revenue growth was driven by strong demand of the company’s COVID-19 related antiviral products (particularly from export markets which collectively generated 60% of overall export revenues), strong antibiotic sales, and higher average selling price on the back of management’s portfolio optimization towards recently launched and recently acquired higher-margin products.
During 9M21, revenue breakdown by business line witnessed the following:
Private sales (68.9% of total sales, -0.5pps YoY) grew by 25.9% YoY, with volumes growing by 20.5% YoY.
Tender sales (17.6% of total sales, -4.1pps YoY) slightly grew by 2.9% YoY, with volumes dropping by 23.5% YoY.
Export Sales (7.0% of total sales, +2.7pps YoY) surged by 106.6% YoY, with volumes dropping by 9.3% YoY.
Toll manufacturing sales (6.6% of total sales, +1.8pps YoY) grew by 75.1%, with volumes growing by 40.2%.
Covid-Antivirals related costs pressure operating margins
RMDA reported gross profit of EGP146 million in 3Q21 (+29.5% YoY, +14.2% QoQ), implying a GPM of 46.3% (-1.5pps YoY, -1.5pps QoQ). For the 9M21, gross profit came in at EGP389 million, an increase of 22.8% YoY, and implying a GPM of 45.7% (-3.1pps) in 9M21. Gross profit contraction came on the back of higher API costs associated with the production of COVID-19 related antiviral medicines which was ramped up during the period to support their growing demand. Adjusted EBITDA recorded EGP216.2 million in (+16.7% YoY) in 9M21, translating to an adjusted EBITDA margin of 30.8% (-2.2pps YoY).
Solid revenues, lower finance and depreciation expenses drive bottom line growth
Attributable net profit registered EGP107.1 million in 9M21 (+55.6% YoY), reflecting a NPM of 12.6% (+1.5pps YoY). On a quarterly basis, attributable net profit came in at EGP45.3 million in 3Q21 (+82.0%, % YoY, +43.4% QoQ) in 3Q21, broadly in line with our net profit estimate of EGP41 million, implying a NPM of 14.4% (+3.9pps YoY, +2.6pps QoQ). RMDA’s bottom-line growth was driven by a decrease in finance costs and depreciation & amortization as a percentage of revenues during the period. Net Financing expenses as a percentage of sales stood at 3.1% in 9M21 (-0.9pps YoY) and depreciation as a percentage of sales stood at 3.5% (-2.0pps YoY).
Well positioned to capture growth opportunities
RMDA will continue to show healthy revenue growth, growing at a CAGR of around 19.2% between 2021-26f, RMDA intends to expand its market share, reaching c.1.11% in 2026f, as per our estimates. We expect healthy margins going forward on account of new molecule launches and the capitalization on the increased production capacity coupled with improving sector dynamics and health-awareness focused government programs. Moreover, RMDA succeeded in securing the company’s antiviral API needs for 2022 at significantly lower pricing, which should reflect positively on RMDA’s profitability in 2022.
During 2021, RMDA acquired and launched a total of 5 products YTD and are on schedule to launch 4 more products by year-end, which will accordingly contribute positively to revenue growth and margins in 2022 and going forward.
RMDA is currently trading at 2022f P/E of 12.6x and EV/EBITDA of 8.2x.