The Pakistan Credit Rating Agency Limited
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Kanwal Ejaz

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PACRA Maintains Entity Ratings of Pharmagen Limited

Rating Type Entity
(25-Oct-23 )
(25-Oct-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Pharmagen Limited’s (“PL or the Company”) established market position in a specific segment of the pharmaceutical industry; API (Active Pharmaceuticals Ingredients). Pharmagen Limited holds a prominent domestic position and stands as a market leader among a relatively smaller segment of API manufacturers. APIs are produced mainly in organic and inorganic synthetic drugs from refined chemicals. This is mostly and predominantly fed through imports. Being the essential element of the healthcare sector, it derives strength from the nature of the business. The sector's profitability remained under pressure due to adverse macroeconomic factors such as global & domestic rising inflation, higher policy rates & associated elevated borrowing costs, and massive PKR depreciation. Therefore, resulting in a major cost escalation of imported raw materials as 85% of active pharmaceutical ingredients used in the manufacturing of the drugs are imported. PL’s top 5 products include Amoxycillin, Cephradine, Cefixime, Paracetamol and Ciprofloxacin, these contribute ~92% of total revenue. The Company has grown and augmented its position and is seen fortifying its production capabilities and product range. Recently the company has undertaken capacity expansion projects in Paracetamol and Cefixime, aimed at bolstering their revenue-generating potential. The company's customer base comprises renowned multinational and domestic pharmaceutical players. The strategic partnership with SAMI has delivered both operational and financial synergies. According to the management accounts, the FY23 revenue demonstrated a remarkable growth of ~55%, supported by enhanced pricing and slightly improved volumes while the margins also showed improvement at all levels. The Company has strong sponsorship with incredible skills and experience in the sector, which is providing a smooth path to the company in a directive way. The growth prospects are optimistic, as over the years management is focusing on process improvement, cost optimization, and enriching product slates. The financial profile of the Company is considered adequate, with comfortable coverages cashflows, and working capital cycle. Capital structure is modestly leveraged, and borrowings are majorly comprised of short-term to import raw materials and to meet working capital requirements. The management intends to have a reduced appetite for borrowings. The profitability and financial matters will improve gradually.
The ratings are dependent on the successful rollout of the envisaged strategy. The respective market position needs to be maintained and profitability must be aligned with the improving size. Any dilution in business on the financial profile is unwarranted.

About the Entity
Pharmagen Limited is a public limited-unquoted Active Pharmaceutical Ingredients (API's) 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. Pharmagen is majority owned by Pervez Hussain’s family (44%), while other strategic partners include Rasheed Khan’s family (7%), Rahim Khan Trust / Kashmir Education Foundation (15%), Mr. Shamim Ahmed and his family (30%), and others (4%).

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.