Earnings Report /
Egypt

Rameda Pharmaceuticals: Topline price driven; interest income boosts bottom line performance

  • Imposed movement restrictions pressured private sales

  • Tender business segment achieves highest growth

  • Management efforts to control costs shield margins

Al Ahly Pharos Securities Brokerage
16 August 2020

Imposed movement restrictions pressured private sales

According to IMS Health’s latest available data, during 1H2020, Egypt’s retail pharmaceutical market registered total sales of EGP36.20 billion, slightly up by 0.8% YoY, and volumes sold recorded a modest decline of 4.8% YoY reaching 1.13 billion units in 1H2020.  

During the same period, RMDA’s private sales segment showed a decline of 19.5% YoY in volumes sold, with private sales value growing by 9.7% YoY, mainly attributed to higher average selling prices. The drop in private sales volumes is mainly attributed to social distancing and imposed movement restriction measures, leading to lower demand on non-chronic medicine and the inability of RMDA’s salesforce to effectively market the company’s products.

The total pharma market registered a growth of around 9% YoY, out of which around 29% is the non-retail market growth in 1H2020. Despite weak private sales growth, RMDA’s tender sales outperformed non-retail market growth, growing by 47.9% YoY, with tenders volumes growing by 21.4% in 1H2020, which supported the company’s performance and hedged against weak retail market growth.

RMDA’s export sales slumped by 51.8% YoY during 1H2020, attributed to a drop of 47.7% in exports volumes on the back of export restrictions imposed by the Egyptian government to secure enough inventory of APIs in order to meet local demand and export markets closing borders along with international flight stoppage. RMDA’s plans to enter Sub-Saharan Africa and the Commonwealth of Independent States (CIS) are currently on hold due to COVID-19’s impact on international trade; the company expects to enter these promising export markets once countries are able to reopen their borders.

Tender business segment achieves the highest growth amid weak private sales and pressured export sales

RMDA reported 2Q20 sales of EGP205 million, compared to EGP194 million in 2Q19 and EGP232 million in 1Q20, an increase of 5.6% YoY and a decline of 11.8% QoQ. During 1H20, revenues grew by 13.8% YoY to EGP437 million. During 2Q20, revenue growth was driven by higher average selling price on the back of management’s portfolio optimization towards recently launched and recently acquired higher-margin products. As a result, sales value excluding toll manufacturing grew by 7.2% YoY in 2Q20, despite a drop of 9.8% in total volumes sold.

During 2Q20, the tender business segment achieved the highest growth, with 48.7% YoY growth in sales value and 20.0% growth in volumes sold, partially offsetting weak private sales performance and pressured exports sales.

  • Private sales (61.8% of total sales, -5.8pps YoY and -3.0pps QoQ) declined by 3.4% YoY and 15.9% QoQ.

  • Tenders sales (30.7% of total sales, +9.8pps YoY, +2.2pps  QoQ) grew by c.48.7% YoY.

  • Exports sales (3.5% of total sales, -1.6pps  YoY, +1.3pps QoQ) declined by 27.3% YoY and increased by 38.5% QoQ.

  • Toll manufacturing sales (4.0% of total sales, -1.7pps YoY, -0.5pps QoQ) declined by 25.7% YoY and 22.1% QoQ.

Pressured toll manufacturing sales come as third-party toll clients faced API procurement issues brought on by disruptions in global trade amid the COVID-19 pandemic. RMDA will leverage its recent upgrades to capitalize on excess capacities and expand on toll manufacturing with its new lyophilised production capabilities installed in 2019 once global market dynamics stabilize.

RMDA launched four molecules in 1H20 with plans to launch an additional four to six additional molecules before year-end. RMDA noted that 100% of the company’s salesforce have returned to work at full capacities.

Management efforts to control costs shield margins

RMDA reported gross profit of EGP98.5 million in 2Q20, compared to EGP92.5 million in 2Q19 and compared to EGP106.2 million in 1Q20; an increase of 6.4% YoY and a drop of 7.2% QoQ, implying a GPM of 48.0% in 2Q20 (+0.4pps YoY, +2.3pps QoQ). The improvement in GPM can be mainly attributed to a decline in raw material costs as a percentage of revenue to reach c.18.9% of revenues (-8.75pps YoY) which was achieved through portfolio optimization and EGP appreciation.

EBITDA declined by 13.1% YoY to reach EGP53.1 million, implying an EBITDA margin of 25.9% in 2Q20 (-5.6pps YoY). The drop in EBITDA and EBITDA margin is mainly attributed to a surge of 52.2% in SG&As.

Net profit came in at EGP19.7 million in 2Q20, up from EGP12.3 million in 2Q19, but down from EGP23.8 million in 1Q20, an increase of 59.7% YoY and a decline of 17.1% QoQ, with a NPM of 9.6% in 2Q20 (+3.3pps YoY, -0.6pps QoQ). Annual bottom line improvement is mainly due to the recognition of EGP17.1 million of interest income from investments in treasury bills along with a decline of 19.4% in finance cost attributed to reduced debt servicing costs.

Ready to capture growth opportunities

Solid pharma market dynamics serve RMDA’s ability to capture growth opportunities in the growing pharmaceutical market. The company’s performance in 2019 was adversely affected by all the expansions and upgrades that took place over the last two years. Now that all expansion works have come to an end, the renovated production facilities are ready to cater for complete in-house production as well as new toll manufacturing agreements. RMDA has developed a solid and diverse client base, including well-known regional and international pharmaceutical companies such as Sanofi, which has in turn enabled Rameda to benefit from enhanced brand equity, and acts as a testament to the quality and the standards of Rameda’ s production facilities.

In our view, going forward, RMDA will continue to show outstanding revenue growth, growing at a CAGR of 23% over our forecast horizon and expand its market share, reaching c.1.6% in 2023, 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.

RMDA is currently trading on an annualized EV/EBITDA of 12.1x and an annualized FY20e P/E of 35.7x.