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The Pakistan Credit Rating Agency Limited

Date
29-Dec-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Faizan Arif
faizan.sufi@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Corporate Rating Methodology (Jul 17) [View]

Related Research

  • Sector Study | Pharmaceutical (Jan 17) [View]
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PACRA Assigns Initial Entity Ratings of Pharmagen Limited
 Rating Type Entity
Current
(29-Dec-2017)
 Action Initial
 Long Term BBB
 Short Term A2
 Outlook Stable
 Rating Watch -

The ratings reflect Pharmagen Limited (PL) 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. The company imports majority of their raw material, thus increased currency fluctuation and pricing risk. However, PL is poised to derive benefits from group synergies in the form downward integration at front end. This could help PL, to diversify in different segments and reduces the concentration risk. Nevertheless, overall financial profile is considered adequate. Although coverages are low, the company's designed financial strategy keeps sizeable cushion in short-term borrowing lines to meet shortfalls in operational cash flows in servicing debt obligations; this provides flexibility in management of financial affairs. Long association of experienced management team adds comfort.

The ratings are dependent on the company's ability to sustain margins. Meanwhile, management of debt (current and planned), thereby impacting coverages, is considered important. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of financial profile owing to delays in cash flow receipts, may impact the ratings
About the Entity
Pharmagen Limited is a public limited-unquoted pharmaceutical company operating in Pakistan since 1990. The company is engaged in the manufacturing and sale of pharmaceutical products and over the years it has become the leading producer of APIs (Active Pharmaceutical Ingredients) in Pakistan. The company’s manufacturing facilities comprises three plants including Semi-Systhetic Penicillins plant, Semi-Systhetic Cephallosporins plant and multipurpose plant, with a production capacity of 810 tons/annum, 241 tons/annum and 755 tons/annum respectively. PL is majority owned by Pervez Hussain Sufi’s family (~60%), while other strategic partners include Rasheed Khan’s family (~15.2%), and Maj. Gen. (Retd.) Rahim Khan’s family (~2.1), along with trusts, Naghat Rasheed Trust and Kashmir Education foundation holding (~1.8%) and (~20.9%) respectively.

PL’s board of directors, comprising seven members including Chairman and Chief Executive Officer (CEO), dominated by the sponsoring families. The seven member BoD comprises four members from Mr. Sufi’s family representatives, two from Maj. Gen. (Retd.) Muhammad Rahim Khan’s family and one from Mr. Rasheed Khan’s family. Maj. Gen. (Retd.) Muhammad Rahim Khan’s, holds the office of Chairman, while CEO, Mr. Sufi (CEO) - oversees daily operations and is assisted by an experienced 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.
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