Square Pharmaceuticals Limited

Ticker: SQURPHARMA
Market: DSE & CSE

Key Comps
Market Cap Annualized Sponsor %
Govt. % Institute % Foreign % Public %
EPS
(BDT in bn)
(BDT)
249.1
155.3
12.18
54.2%
0.0%
10.3%
15.1%
20.4%
Compnay vs Indus- Audited Annualized Current Quarter Q-oProfit
Audited LTM P/E
Income Vs Audited Quarter
Growth
try
Q
P/E
(5 Yr
Y-o-Y
Growth
Y-o-Y
CAGR)
SQURPHARMA
21.1%
26.9%
51.8%
8.9%
16.4%
25.9x
21.9x
Pharmaceuticals
19.7%
14.0%
17.8%
-8.8%
14.0%
26.6x
24.2x
Close Price

New Export Market, New Production

Capacity
Square Pharmaceuticals Limited (SPL) is the flagship company of Square
Group. It is the largest generic drug producer of Bangladesh with 19.2% of
market share. Its business also ranges from Active pharmaceutical Ingredients
(API), AgroVet Products, Pesticides, Fabrics and Textile to Hospital. SPL offers
more than 738 products in different dosage forms. Total sales turnover of SPL
is now more than BDT 26.7 Billion (USD 339.8 mn), growing at 12.0%
(CAGR) during last 5 years and 14.7% in FY 2014-15.

Huge Market
According to IMS, Bangladeshs present pharmaceutical market (including
institutional sales) size is BDT 132.0 bn. Local pharmaceutical market size is
BDT 110.0 bn, and it is expected to hit BDT 157 bn by 2018 with a CAGR of
9.3%. Pharmaceutical export market size was USD 69.1 mn (BDT 5.4 bn) in FY
2013-14 against Indias USD 14.8 bn.

Increasing Demand
With a population growth of 1.3%, life expectancy of general people of Bangladesh has been increased 4 years on an average in last 5 years (Source: BBS).
Heaexpenditure of Bangladesh was 3.7% against Indias 3.9% of GDP in 2013
(Source: WB). At present SPL is exporting in more than 40 countries including UK and some EU countries.

Strong Financial Performance with Established Position

SPLs 5 years CAGR of revenue and net profit is respectively 12.0% & 16.4%.
Its 5 years average ROE & ROA are respectively 20.8% & 16.6%.The companys financial leverage is lowering year to year, as it uses less debt financing. The
Debt to Capital ratio is .03x, which reduced in half according to last year.

Value Drivers

SPL is the largest Pharmaceutical company and will be the most beneficent as a result of TRIPS agreement extension, if it can utilize this opportunity properly. Because, Bangladesh would not need to pay royalty for
producing patent drug till 2032.

SPL got US FDA approval, and it is expected that the export revenue will
boost up. (On 16th June, US FDA has released Establishment Inspection
Report (EIR ) on recent Pre Approval Inspection (PAI ) to Square Pharmaceuticals Ltd).

The expiration of patent of some Blockbuster Drugs (specially for Arthritis & cholesterol, eg Adalimumab, rosuvastatin calcium) within 2016 will
create a big opportunity for SPL. Around 6 of the top 20 prescribed drugs
will face patent expiration within next 5 year. (SPL is already producing
rosuvastatin calcium in the brand name of Rosuva & after patent
expiration, it will be easy to get raw materials at a cheap price from different sources.)

Top 10 prescribed drugs in Bangladesh covers around 8.8% of total

market share, among them 4 drugs are SPLs which covers around 4.1%
of total market share. By introducing new drugs for heart disease, diabetes
mellitus, hypertension etc. SPL will be able to acquire more market share.

Square Formulations Limited, one of SPLs subsidiary company going to

start its operation with annual capacity of 8000 million tablets and 2000
million capsules. After full capacity utilization, it is expected that it will
have a positive change in the net profit of SPL.

Newly formed Pesticide Unit is trying to become the market leader in

agrochemicals sector in Bangladesh.

Key Financials(In mn BDT)

Revenue
Gross Profit
EBITDA
Operating Profit
Net Income
Total Asset
Total Debt
Total Equity

Profitability
Gross Profit Margin
EBITDA margin
EBIT margin
ROE

ROE Decomposition
Net Profit Margin
Asset Turnover
Financial Leverage

Growth
Sales Growth
Gross Profit Growth
Operating Profit Growth
Net Profit Growth
%

Stock

DSEX

Last
Week

-0.9%

0.2%

Last
Month

3.4%

-5.4%

Last
Year

7.7%

-10.9%

Velocity
(6 Months)

0.1%

19.52%

Risk

Year end

Q
No.

Mar
2
Annualized P/ P/B
E

20.5x
23.4x

5.0x
3.7x

2012

2013

2014

2015

19,798.1
7,890.3
5,385.1
4,150.9
3,620.1
24,562.2
3,223.4
19,258.8

20,202.0
8,893.1
5,960.2
4,841.6
4,213.8
27,551.7
2,948.8
22,593.9

23,268.4
10,307.7
7,148.9
5,967.7
4,946.2
31,046.1
1,776.2
26,749.0

26,684.6
11,741.7
8,758.1
7,049.6
5,981.6
35,191.2
916.3
31,091.6

2012

2013

2014

2015

39.9%
27.2%
21.0%
20.6%

44.0%
29.5%
24.0%
20.1%

44.3%
30.7%
25.6%
20.0%

44.0%
32.8%
26.4%
20.7%

2012

2013

2014

2015

18.3%
0.8x
1.3x

20.9%
0.8x
1.2x

21.3%
0.8x
1.2x

22.4%
0.8x
1.1x

2012

2013

2014

2015

16.6%
17.9%
18.3%
11.1%

2.0%
12.7%
16.6%
16.4%

15.2%
15.9%
23.3%
17.4%

14.7%
13.9%
18.1%
20.9%

2012

2013

2014

2015

0.1x
8.9x

0.1x
13.6x

0.06x
33.7x

0.03x
44.4x

Valuation Metrics

2012

2013

2014

2015

P/CF
PEG
Price/Sales
Dividend Yield
EV/EBITDA

17.2x
1.6x
3.2x
1.1%
12.0x

12.5x
1.0x
3.3x
1.4%
11.3x

20.1x
1.5x
5.5x
1.1%
17.8x

21.2x
1.1x
5.1x
1.2%
15.2x

Debt to Capital
Interest Coverage

Risks & Challenges

The cost controlling will be eminent if any drug is listed as essential drug
by the authority.

India has its own API Park and as a result, it can offer competitive prices
in global markets compared to Bangladesh. The API Park of Bangladesh
has already been delayed by years.

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