PACRA Revises Entity Ratings of Martin Dow Limited

Martin Dow Limited (herein referred to as "MDL" or the "Company"), is an operating and holding company of the Martin Dow group and one of the leading pharmaceutical groups in Pakistan. The Akhai family entered the pharmaceutical industry in 1960. As of now, four companies operate within MDL group (MDG) which include; (i) Martin Dow Limited (ii) Martin Dow Marker Limited (iii) Martin Dow Specialties (Private) Limited & (iv) Seatle (Private) Limited. Martin Dow has a diversified portfolio that includes both chronic and acute therapeutic segments. The business growth is driven through organic portfolio growth and new launches. MDL had also been known for its high-end acquisitions. In the past, Martin Dow achieved the largest acquisition in the Pakistan Pharma industry at that time by acquiring industrial assets and leading brands of ROCHE in 2010 followed by the acquisition of Merck Pakistan in 2016. The group produces and sells well-known brands under its domain, including Rocephin, Synflex, Concor, Evion, Glucophage, Lexotanil & Sangobion. The group is well poised in the industry with a group size of PKR ~30bln as of Dec 22. The rating takes comfort in the company’s association and strategic alliances with renowned multinational groups such as Roche, Merck, Sanofi & Boehringer Ingelheim. From time to time the Company has invested in modernizing and integrating new technologies into its manufacturing facilities. The board of MDL comprises experienced and professional experts. The Board size is considered adequate as the management is mindful of the corporate governance requirements and fulfills the applicable statutory criteria. Currently, the pharmaceutical sector faces industry-specific challenges which hinder its growth and profitability matrix. These challenges include high cost of borrowing triggered by significant increase in KIBOR, massive PKR devaluation resulting in increased cost of imported APIs as well as causing hefty foreign exchange losses during CY22. Being price controlled pharma companies also can not pass on the impact of these price escalations to end consumers. The company’s margins have diluted at all levels on the back of the adverse macroeconomic environment. The financial risk profile of the company has depleted marginally owing to a stretched working capital cycle, modest coverages, and stressed cashflows. The company has a leveraged capital structure with short-term borrowings significantly dominating the debt portfolio in order to meet working capital needs. Also, long-term borrowings are availed to fund brand acquisitions and expansion. Going forward, the financial risk profile of the company is expected to improve as MDL is taking strong initiatives in production and supply chain areas besides pursuing a robust product localization plan, the impacts of which are expected to contribute positively to the company’s margins. Moreover, the positive effect of the special CPI allowance by DRAP in May-2023 shall be visible on the financial performance of MDL starting Q3 of 2023.
The ratings are dependent on management’s ability to sustain its growth in revenues, margins, and profitability. Prudent management of the working capital, and maintaining sufficient cash flows and coverages are imperative. Further improvement in governance structure remains important for the ratings.

About the Entity
MDL was incorporated in Pakistan on February 6, 1995, as an unlisted public limited company. In 2010, MDL acquired the Roche facility in Pakistan along with the acquisition and brand licensing of the global product lines from Hoffman-La Roche, Switzerland. Mr. Ali Akhai is the ultimate beneficial owner of the Company. MDL has a 4 members board including the Chairman, Mr. Ali Akhai, Mr. Javed Ghulam Muhammad (CEO), Mr. Abdul Samad and Mr. Syed Dawood (Independent Director).