Final PR
The Pakistan Credit Rating Agency Limited

Rai Umar Zafar

Haider Imran

Applicable Criteria

Related Research

  • Sector Study | Pharmaceutical (Jan 17) [View]
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PACRA Assigns Preliminary Rating to Proposed Sukuk of AGP Limited
 Rating Type Debt Instrument
 Action Initial
 Long Term A
 Short Term -
 Outlook Stable
 Rating Watch -

The rating reflects AGP's strong business fundamentals. The pharmaceutical industry has witnessed a high rate of sustained growth over the years. Cost-efficiencies as well as demand inelasticity are benefiting the industry players. While product pricing has been a challenge, the new CPI-linked pricing criteria has allowed an increase in prices with respect to inflation, indicating a positive sign going forward. At the same time, AGP's core profitability is strong; any downward revision in margins must remain range-bound. Cash flows - strong and sizeable - are adequate to service the debt initially procured by the incumbent sponsors – OBS Group – to acquire the company in 2014. With ongoing debt re-profiling, debt servicing ability would improve further. The presence of OBS Group in the pharmaceutical sector provides strength, in the form of group synergies, to AGP's positioning within the industry. Furthermore, the management is committed to maintain sufficient liquidity for the instrument.

The instrument’s rating is dependent on continued sustainability of profits and market share. Adequacy of cash flows and availability of alternative resources to make debt-related payment remain important as well. Meanwhile, compliance with internally-defined leveraging metrics is a pre-requisite. Moreover, the rating is dependent upon upholding of all major covenants of the instrument.
About the Entity
AGP Limited (AGP) is an unlisted public pharmaceutical company; the operations of entity have been in Pakistan since 1989. It is majority owned by OBS Group (OBS) (69%), followed by strategic partners: Muller & Phipps (M&P), Baltoro Growth Fund (BGF), and JS Bank. OBS Group - ranked 5th in the local pharma industry, deals in clinical research, manufacturing, marketing, sales and distribution of pharmaceutical & healthcare products.

The seven-member BoD of AGP comprises five representatives of OBS Group, and one each of M&P and BGF. The board comprises experienced professionals from pharmaceutical and financial backgrounds. The Chairman, Mr. Tariq Moinuddin, is the brains behind OBS Group. Mr. Moinuddin, CPA from Canada, carries over three decades of domestic and international professional experience. The MD & CEO, Ms. Nusrat Munshi, has close to 26 years of experience, around a decade of which is in the pharmaceutical industry. She is supported by an experienced core management team.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.