Retail pharma market confirmed signs of recovery in 1Q22, 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, 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. In 1Q22, retail pharma sales grew by 13% YoY, reaching EGP22.2 bn; driven by a healthy volumes’ recovery (+7% YoY) and price increases. 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 1Q22, RMDA’s private sales recorded EGP221 million (+29.2% YoY, -8.5% QoQ), where volumes have significantly rebounded annually and came almost flat sequentially (+37.5% YoY, -0.7% QoQ), driven by popular recent launches, including rising demand for the company’s antivirals and antibiotics. This is as well driven by strong recovery in retail pharma market during the quarter. RMDA’s ASP for the retail market recorded EGP38.7/unit (+4% YoY), compared to a retail market ASP of around EGP36.7/unit in 1Q22.
Tender business sales recorded an increase of 20.6% YoY and a decline of 31.3% QoQ in 1Q22, with volumes recording a slight decline of 1.2% YoY and a drop of 25.8% QoQ. Tender business performance is capped by management’s strategy to selectively participate in tenders that satisfy minimum profitability levels for the Group.
RMDA’s exports recorded revenues of EGP26 million in 1Q22 (+16.3% YoY, -8.0% QoQ), with volumes significantly growing by 152% YoY and 58.4% QoQ; primarily driven by sales to Iraq, with no revenues from Iraq recognized during 1Q20. Strong export revenue growth in Iraq (56% of total export sales), Yemen (39% of total export sales).
Solid revenues on pharma market recovery, new launches, and portfolio optimization
RMDA reported 1Q22 sales of EGP343 million (+26.7% YoY, -12.9% QoQ), broadly in line with our estimate of EGP335 million, with volumes (excluding toll manufacturing) showed an increase of 23.4% YoY and a decline of 9.8% QoQ in 1Q22. Revenue growth was driven the company’s recent launches and product portfolio optimization towards higher-priced products. The annual increase was driven as well by the Group’s portfolio of antibiotics, followed by strong sales of Colona, which became the top-selling product for the Group during the quarter. Revenues from products launched and acquired since December 2019 contributed 25% of top line during the quarter.
During 1Q22, revenue breakdown by business line witnessed the following:
Private sales (64.5% of total sales, +1.3pps YoY) grew by 29.2% YoY, with volumes growing by 37.5% YoY.
Tender sales (20.5% of total sales, -1.0pps YoY) recorded a growth of 20.6% YoY, with volumes slightly dropping by 1.2% YoY.
Export Sales (7.7% of total sales, -0.7pps YoY) grew by 16.3% YoY, with volumes surging by 152.9% YoY.
Toll manufacturing sales (7.3% of total sales, +0.5pps YoY) grew by 35.5%, with volumes surging by 102%.
Lower API costs and portfolio optimization drive margin expansion
During 1Q22, gross profit came in at EGP173 million (+49.2% YoY, -7.9% QoQ), implying a GPM of 50.5% (+7.6pps YoY, +2.7pps QoQ) in 1Q22. Gross profit margin expansion came on the back of:
lower covid APIs costs (covid-related revenues represented 8% of 1Q22 revenues),
higher contribution of private sales,
portfolio optimization towards higher priced products,
and economies of scale.
Adjusted EBITDA recorded EGP110.7 million in (+74% YoY) in 1Q22, translating to an adjusted EBITDA margin of 32.3% (+8.7pps YoY), mirroring GPM expansion in 1Q22. Selling, Marketing and General expenses recorded an increase of 15.5% YoY in 1Q22, representing 22.7% as percentage of sales (-2.2pps YoY), in line with management plans to keep SG&As below the 25% to sales mark.
Solid revenues, margin expansion, interest income, and FX gain drive bottom line growth
Attributable net profit came in at EGP71.8 million in 1Q22 (+138% YoY, -3.0% QoQ), reflecting a NPM of 20.9% (+9.8pps YoY, 2.1pps QoQ), higher than our net profit estimate of EGP51 million. RMDA’s bottom line growth was driven by:
solid revenue growth,
margin expansion,
recognizing an FX gain of EGP7.4 mn (10.3% of net profit for the quarter),
lower finance expenses in 1Q22, standing at EGP22.2 million (-7.1% YoY),
interest income contributed to 19.4% of net profit during the quarter, standing at EGP13.9 million in 1Q22.
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 (already stood at 50.5% in 1Q22), EBITDA margin reaching north of 30% (already 32.3% in 1Q22), 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 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 to new quality and firefighting requirements. Capex spending guidance excludes molecules acquisition investment costs. RMDA plans to launch 8-10 molecules in 2022.
Adding to that, management noted that the company has secured raw materials to meet production requirements until end of June. RMDA has applied to re-price 13 key products to offset the anticipated impact of currency devaluation on margins.
RMDA is currently trading at 2022f P/E of 9.0x and EV/EBITDA of 6.5x