The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of AGP Limited

Rating Type Entity
(23-Oct-23 )
(26-Oct-22 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

AGP Limited (herein referred to as "AGP" or the "Company"), is an operating and holding Company that operates under the umbrella of AGP group. It is one of the leading names in the pharmaceutical sector of Pakistan. On a consolidated basis, AGP stands at 15th position in terms of revenue and 4th in terms of growth as per the latest IQQVIA report. The Company entered the pharmaceutical business in 1989. AGP is mainly owned by OBS Group (OBS) through Aitken Stuart Pakistan (Pvt) Ltd and a strategic and distribution alliance with international partner Muller & Phipps. AGP has a pharma products portfolio more focused towards acute therapeutic segments, however, recent and future planned brand acquisitions will enable its presence in the chronic therapeutic segments as well. The business growth is driven by organic portfolio growth and new brand acquisitions in the chronic disease segment. The Company has a strong corporate governance structure with established policies and procedures enabling efficient oversight and decision-making of the BoD. On the executive front, AGP is run by a professional team having diversified exposure and extensive experience in the sector. The healthcare services industry is considered a low-risk industry in view of limited demand cyclicality. CPI-linked pricing criteria have allowed an increase in prices with respect to inflation and indicated a positive sign for the sector. However, the massive depreciation of PKR has diluted the sector’s profitability in recent years. The Company has achieved impressive growth in its topline mainly on the back of brand acquisitions including a portfolio from Sandoz AG and a recent acquisition of 17 brands of Viatris Inc from Pfizer which will enhance the company’s product range and is expected to add a further PKR 3bln in the topline. Ratings incorporate AGP's strong and sustained gross margins over the last three years along with sizeable cash flows to service their debt and meet the working capital requirements of the Company. However, the net margin has diluted marginally owing to a considerable increase in finance costs on the back of elevated interest rates. Currently, 86% of business is through a sole distributor, Muller & Phipps Pakistan (Pvt) Limited (M&P); going forward this concentration risk may pose challenges. However, the comfort can be taken from the presence of M&P's shareholding in AGP. Capital structure is moderately leveraged where borrowings are comprised of a mix of both long-term and short-term to support brand acquisitions and meet working capital requirements. The financial risk profile is expected to improve further as the company enters the consolidation phase in the future after acquisitions. Also, the benefits of the recent price hike on the basis of special CPI allowed are yet to be seen.
The ratings are dependent on the continued sustainability of profits and market share. Adequacy of cash flows and the availability of alternative resources to make debt-related payments remains critical. Meanwhile, compliance with internally-defined leveraging metrics is a prerequisite.

About the Entity
AGP Limited (AGP) is a listed pharmaceutical company; operating in Pakistan since 1989. It is majority owned by Aitken Stuart Pakistan (Private) Limited with shareholding previously held by OBS Pakistan (Private) Limited; although the sponsor remains the same, followed by strategic partners: Muller & Phipps (M&P), Baltoro Growth Fund (BGF), Bank Alfalah, High Q Pharmaceuticals and Aspin Pharma. The seven-member BoD comprises three representatives of OBS Group, one each of M&P and BGF and two independent directors. The Chairman, Mr. Tariq Moinuddin Khan, is the sole brain behind OBS Group. Mr. Khan, CPA from Canada, carries over three decades of domestic and international professional experience. The MD & CEO, Ms. Nusrat Munshi has 30 years of experience in the pharmaceutical industry.

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.