Modest growth in retail pharma market
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 2021, ISPH management expects retail pharma market growth to approach 10% YoY. Growth in non-retail pharma market is expected to accelerate in 2022, recovering from the relative slowdown in 2020 and 2021, according to management.
Solid Revenues Driven by Growth across all Business Lines
ISPH reported 9M21 net revenues of EGP15.75 billion (in line with our estimates of EGP15.90 bn), compared to EGP13.7 billion in 9M20, an increase of 15.0% YoY. This increase came on the back of pharmaceuticals market YoY growth, gradually recovering from covid-19 impact on market dynamics.
On a quarterly basis, net revenues registered EGP5.63 billion in 3Q21, compared to EGP4.83 billion in 3Q20, and compared to EGP5.37 billion in 2Q21 (+16.6% YoY, +4.9% QoQ). Sequential and annual increases are attributed to gradual pickups in revenues driven retail pharma market sequential recovery along with ISPH’s revenues seasonality that tend to increase towards the second half of the year (1H2019 and 1H2020 revenues represented less than 50% of the full-year revenues at 45% and 34%, respectively).
During 9M21, key revenue segments performance came as follows:
Pharmacy sales (retail) (64.6% of gross sales, -5.6pps YoY) showed an increase of 6.0 % YoY.
Wholesale sales (16.5% of gross sales, +2.6pps YoY) grew by c.36.8% YoY.
Tenders and Hospitals sales (18.5% of gross sales, +3.0pps YoY) increased by c.37.5% YoY.
Other revenues that include 3PL (0.4% of gross sales, flat YoY), grew by 28.0% YoY.
Gross Margin almost Flat on Strong Wholesale Business Line Growth
ISPH reported a gross profit of EGP1.26 billion in 9M21, compared to EGP1.14 billion, an increase of 10.1% YoY; implying a GPM 8.0% (-0.4pps YoY). The slight margin contraction is attributed to an unfavorable revenue mix, with higher wholesale segment sales contribution and weaker retail (high margin) sales contribution, where the wholesale segment witnesses customers receiving cash discounts in exchange for cash payments.
EBITDA margin expands on the back of achieved economies of scale and cost controls
During 9M21, EBITDA grew by 18.0% YoY to stand at EGP656.8 million, reflecting the success of initiatives to control operational expenses. The company’s EBITDA margin stood at 4.17% (up from 4.07% in 9M20), expanding by 0.10pps YoY.
ISPH managed to benefit from economies of scale during 9M21, where:
Revenue per site grew by 13% YoY, recording EGP246 million,
Revenue per vehicle grew by 15% YoY, standing at EGP20.9 million,
Revenue per employee registered EGP2.4 million, growing by 21% YoY.
Bottom line surpasses revenue growth on slightly expanding margins and economies of scale achieved
Net profit came in at EGP242 million in 9M21, compared to EGP201 million in 9M20, an increase of 20.6% YoY, implying a NPM of 1.5%, +0.1pps YoY. On a quarterly basis, NP stood at EGP137 million in 3Q21, compared to EGP112 million in 3Q20, and compared to EGP54 million in 2Q21 (+22.9% YoY, +152.3% QoQ); implying a NPM of 2.44% in 3Q21 (+0.13pps YoY, +1.42pps QoQ).
2021 Management guidance and our estimates seem achievable
Throughout 4Q21, management expects Ibnsina Pharma’s performance to continue to revert to the norm, as the retail market rebounds in 2021 and the contribution of the company’s retail segment to top-line growth increases. This comes as management witnessed a solid rebound in 9M2021.
Management is targeting for full year 2021 the following:
Revenue growth of 15-18%, compared to our estimate of 15%.
Net profit of EGP330-340 million in 2021, compared to our estimate of 337 million.
Improvements in NPM is expected based on opex control and better WC management and thus cost of debt.
Pharos 2022 Earnings Expectations
Revenues are expected to record EGP25.26 billion (+17.7% YoY) and net profits are expected to come in at EGP429 million (+27.5% YoY). This should be driven by a gradually recovering Egyptian pharma market along with management initiatives to cap opex growth, enhance WC management and thus lower the cost of debt.
ISPH had previously proposed distributing 1 bonus share for every 6 shares originally held, which brings ISPH’s paid-in capital to EGP280 million (an increase of EGP40 million), distributed over 1.12 billion shares at a par value of EGP0.25 per share, accordingly, once bonus shares are distributed, this adjusts our FV to EGP6.98/share, down from EGP8.15/share to reflect the bonus share distribution.
We are currently working on updating our assumptions and we will issue a valuation update report in due course.
ISPH is trading at 2022f P/E of 7.5x and EV/EBITDA of 4.6x.