Flash Report /

Square to set up a new subsidiary

    IDLC Securities
    18 February 2020
    Published byIDLC Securities

    Square plans to invest BDT3.5bn (cUSD41mn) to set up a fully-owned pharmaceuticals subsidiary named Square Lifesciences Limited, according to a news release on the Dhaka Stock Exchange. The subsidiary will manufacture oral solid dosage products to meet future demands. Square expects to complete the project by June 2023.

    The purpose of this subsidiary is to acquire tax incentives. According to the Bangladesh Income Tax Ordinance 46(b), a newly established pharmaceuticals manufacturing unit, set up outside the city area, enjoys a tax holiday for five to seven years. Historically, Square set up subsidiaries (Square Cephalosporins Limited, Square Formulations Limited) to acquire the benefit and eventually merged the subsidiaries with the listed concern (Square Cephalosporins in 2014, Square Formulations in 2019) when the tax holiday was over.

    The investment makes better use of Square’s cash. As of December 2019, Square’s cash and cash equivalent balance amounted to BDT c35bn (cUSD413mn). The project will require c10% of its current cash balance in the next four years.

    We have a Buy recommendation on Square Pharma with an unchanged target price of BDT325.