Square Pharmaceuticals: Q2 FY22 – c21% yoy NPAT growth driven by c15% revenue growth

Square reported BDT 5.2 EPS (NPAT BDT 4,644mn) in Q2 FY22 against BDT 4.3 (NPAT BDT 3,838mn) in Q2 FY21, implying c21% yoy growth in earnings. The growth was driven by c15% yoy growth in revenue, almost c93% growth in earnings of the associate companies, and 280 bps dent in tax rate due to the tax rate cut in the FY22 budget. During 6M FY22, Square reported BDT 10.9 EPS (NPAT BDT 9,590mn) against BDT 8.8 (NPAT BDT 8,571mn) in 6M FY21, implying c24% yoy growth in earnings.

Earnings of the associates grew by c93% yoy in Q2 FY22. We think it is due to strong growth in textiles and RMG business. For example, Square Textiles, one of the three associates under Square Pharma, generated 3.2 times yoy growth in earnings in Q2 FY22.  

Tax rate cut reduced the effective tax rate by 280bps. The effective tax rate of Square stood c22% in Q2 FY22 against c25% in Q2 FY21. In the FY22 budget, the tax rate of the listed companies was reduced by 250bps. The tax impact aided the bottom line to grow further.   

We reiterate BUY with TP at BDT 280 with an upside of 25.9%. The TP implies 13.7x FY22f P/E, 3.2x FY22f EV/Sales and 9.2x FY22f EV/EBITDA. Currently, SQUARE BD is trading at 11.3x LTM P/E.