The Pakistan Credit Rating Agency Limited
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Muhammad Zain Ayaz

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PACRA Assigns Initial Entity Ratings to Zafa Pharmaceuticals (Pvt.) Limited

Rating Type Entity
(13-Sep-23 )
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

ZAFA Pharmaceutical (the “Company”) is a domestic player, claiming a prominent position amongst the local players. It specializes in the formulation development, manufacturing, testing and marketing of a wide range of quality, affordable medicines. The Company’s manufacturing facilities, are the few dedicated facilities for the manufacturing of Beta-Lactam and Cephalosporin products. ZAFA’s top 5 products include Folic Acid tablets, Famila Injection, Zodip tablets, Xynosine Nasal Spray & Ciprofloxacin HCL, these contribute ~21% of total revenue. Presently, ZAFA holds a market share of 30-35% in terms of units in the folic acid market. The company is driven by its vision to offer economically and affordably priced high-quality healthcare products to the public, at significantly lower costs compared to its competitors. The Board comprises experienced and professional experts, its size is considered adequate. Global inflation, high logistics cost and massive PKR depreciation have impacted the pharma sector negatively. The Company has grown and augmented its position and is seen fortifying its production capabilities and product range. In the coming years, some new products are also in the pipeline. The financial risk profile of the company is strong with comfortable coverages and cashflows. During 9MFY22, the gross margin of ZAFA remained 36.0% (CY22: 37.2%, CY21: 37.9%). Despite the significant inflationary impact and increased operating expenses, the operating margin remained 20.7% during 9MFY23 (CY22: 8.3%, CY21: 10.6%, CY20: 11.5%). ZAFA has shown an increase in its net margin during 9MFY23 at 20.2% (CY22: 4.2%, CY21: 6.2%) mainly because of decline in finance cost. The debt on the books of ZAFA comprises mainly short-term borrowings of PKR 319mln & long-term borrowings of PKR 85mln during FY22. In CY22, the leverage ratio stood at 19.8% during 9MFY23 (CY22: 17.5%, CY21: 13.6%). The Company has an equity base of PKR 3,797mln during 9MFY23 (CY22 2,974, CY21 2,769).
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
Zafa Pharmaceuticals is a Private Limited Company; operating in Pakistan since 1973. The five-member BoD comprises experienced professionals. Mr. Jawad Amin Khan, CEO & MD of the Company has more than 30 years of experience in the pharmaceutical and health care industry. He is an MBA in Management and Marketing, also holds BS in Operational Management and International Business, Pakistan. He also holds senior positions in the Group companies which operates in the pharmaceutical industry and packaging industry. Zafa is majority owned by Mr. Jawad Amin Khan. (~91%); while other partners include Mohammad Amin khan (3.7%) (late), Mrs. Zafar Amin (3.7%), Mrs. Maria Jawad Khan (0.11%), Mrs. Saba Ahmed (1.34%), and the rest is owned by Mr. Mohammad Shah Mir Amin Khan.

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.