Parvez M Chowdhury

Analyst: Pharmaceuticals and Consumer Goods

parvez@bracepl.com

Square Pharmaceuticals
DSE: SQURPHARMA Bloomberg: SQUARE:BD
52-week Price Range (BDT) Current Price 12-month Target Price Cash Dividend BDT Total Return Number of Shares MM Free Float Average daily volume MM BDT BDT mn Net Sales Ops Income Net Income Margins Gross Margin Operating Margin Net Margin Growth Revenue Growth Operating Profit Growth Net Profit Growth Per Share BDT EPS Dividend Book Value/Share Cashflow BDT mn NC Working Capital Capex Dividend Valuation P/E P/B ROE Miscellaneous BDT mn Total Debt Cash Debt/Equity 2,841 - 4,362 3,092 3,850 42 26% 20 46% 184.1

Rating: OUTPERFORM February 24, 2010

Leading the Bangladesh Pharmaceutical Industry
Investment positives

Square Pharmaceutical Limited (SPL) is the largest pharmaceutical company in Bangladesh, with the largest domestic market share of 19.3%, in what is a highly competitive pharmaceuticals market. Return on equity has been improving, gradually moving up to 19% for the last couple of years. Margins have been improving steadily. SPL currently boasts one of the highest gross margins (51%) in the industry. Massive expansion significantly. plan, which will increase current capacity

2010A 2011E 2012E 12,971 15,663 19,141 3,326 2,497 3,858 3,358 4,764 4,251

2010A 2011E 2012E 51% 22% 17% 51% 21% 18% 51% 21% 19%

2010A 2011E 2012E 10% 14% 21% 21% 16% 34% 22% 23% 27%

SPL has been gearing up to transform itself into a big exporting company focusing on attaining certifications from regulators of developed markets. SPL has been one of the most resilient stocks in the face of severe market correction among all the stocks in BRAC EPL coverage universe.

2010A 2011E 2012E 127 35 660 171 42 831 217 53 1047

2010A 2011E 2012E 4,024 1,493 483 4,867 1,471 528 5,621 1,923 827

2010A 2011E 2012E 24.3x 4.7x 19% 18.1x 3.7x 21% 14.3x 3.0x 21%

We maintain an OUTPERFORM rating for Square Pharmaceuticals. We also set a 12-month fair value of BDT 3,850. Our recommendation considers the sound business model of the company, future outlook, good corporate governance, and the stocks resilience despite extreme volatility in the market. Our recommendation is based on an estimated 2012 EPS of BDT 217 and a conservative estimated P/E multiple of 18x. With an estimated dividend yield of 1% in 2011, this target price implies an estimated total return of 26%.
Square Pharmaceuticals - Last 12 Months
Billions
85 80 75

2010A 2011E 2012E 2,524 270 23% 1,815 608 14% 1,427 1,797 9%

70
65 60 55 50

45
40

Mcap (Bn BDT)

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

Company Profile The flagship company of the Square group of industries, Square Pharmaceuticals Limited (SPL) is the largest pharmaceuticals company in Bangladesh. Founded in 1958 and headquartered in Dhaka, Bangladesh, SPL develops, manufactures and markets drugs for humans and the animal world. The company owns and operates modern pharmaceutical factories mainly in Bangladesh and also has a separate division to operate a modern chemical factory which produces and sells basic chemical products. It also has divisions to produce and sell agrovet and pesticide products. It exports its products to Europe, Asia, Africa and South America. SPL offers a range of pharmaceutical products, which include alimentary preparations, anesthetics, antiallergy preparations, antidiabetic preparations, antihaemorrhagic, antiparasite preparations, aromatase inhibitor, bone calcium regulator, cardiovascular preparations, CNS preparations, drugs for urinary incontinence, eye and ear preparations, haematinics, and lipid modifying preparations. The company also provides local anesthetics, other antibacterials, beta-lactam antibiotics, penicillins and cephalosporins, NSAIDs and antigout preparations, quinolone antibiotics, respiratory tract preparations, systemic antifungal, antiviral and antiprotozoal agents, systemic hormone, systemic sex hormone, thyroid therapy, topical preparations, vitamins and minerals, and water purification products. In addition, its animal health products consist of livestock, poultry, and aqua products. Further, the company offers agro chemical products comprising insecticides, nematicides, fungicides, herbicides and public health insecticides, as well as active pharmaceutical ingredients. Industry and Competition The pharmaceutical sector, which is widely regarded as a hi -tech industry, is the most developed among the manufacturing industries in Bangladesh. Roughly 250 companies are operating in the market. According to IMS, a US-based market research firm, the retail market size is estimated to be around BDT 55 billion, which grew by 16.8% in 2009. The market size in 2008 was BDT 47 billion with a growth of 6.9%. The actual size of the market may vary slightly since IMS does not include the rural market in their survey. The retail market is about 90% of the total market. In that respect, the total market size is more than BDT 60 billion. The market is expected to reach BDT 100 billion in 2011. One of the fastest growing sectors, Bangladeshs pharmaceutical industry is the third largest tax paying industry in the country. Bangladeshi pharmaceutical firms focus primarily on branded generic final formulations using imported APIs. Branded generics are a category of drugs including prescription products that are either novel dosage forms of off-patent products produced by a manufacturer that is not the originator of the molecule, or a molecule copy of an off-patent product with a trade name. About 80% of the drugs sold in Bangladesh are generics and 20% are patented drugs. The country manufactures about 450 generic drugs for 5,300 registered brands which have 8,300 different forms of dosages and strengths. These include a wide range of products from anti-ulcerants, flouroquinolones, anti-rheumatic non-steroid drugs, non-narcotic analgesics, antihistamines, and oral anti-diabetic drugs. Some larger firms are also starting to produce anti-cancer and anti-retroviral drugs.
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Part of the Square group of industries, Square Pharmaceuticals, is the largest pharmaceutical company in Bangladesh

The market is expected to reach BDT 100 billion in 2011

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

Local companies and MNCs based in Bangladesh produce 95%-97% of the drugs and the rest are imported. Although about 250 pharmaceutical companies are registered in Bangladesh, less than 100 actively produce drugs. The domestic market is highly concentrated and competitive. However, the local manufacturers dominate the industry as they enjoy approximately 87% of market share. Another notable feature of this sector is the concentration of sales among a very small number of top companies. The top 10 players control around two-thirds of the market while the top 15 companies cover 77% of the market. Square Pharmaceuticals is the stand out market leader with a market share of 19.3% and domestic revenues of BDT 11.2 billion in the four quarters from April 2009 to March 2010. Squares nearest competitors are Incepta
Source: BAPI and BRAC EPL Research, February 2011

Figure 1: Market share

Others 20%
MNCs 13%

Top Ten 67%

Table 1: Domestic retail market share of companies

Revenue April 09 - March 10 (MM BDT) 11,158 4,919 4,415 2,817 2,788 2,717 2,623 2,466 2,355 2,283 1,700 1,266 1,005 936 675 13,691 57,815 Market Share 19.3% 8.5% 7.6% 4.9% 4.8% 4.7% 4.5% 4.3% 4.1% 3.9% 2.9% 2.2% 1.7% 1.6% 1.2% 23.7% 100.0% Revenue 2009 (MM BDT) 10,701 4,524 4,239 2,614 2,520 2,640 2,495 2,460 2,240 2,132 1,634 1,229 878 908 558 13,158 54,929 Market Share 19.5% 8.2% 7.7% 4.8% 4.6% 4.8% 4.5% 4.5% 4.1% 3.9% 3.0% 2.2% 1.6% 1.7% 1.0% 24.0% 100.0%

Top Companies Square Pharmaceuticals Incepta Pharmaceuticals Beximco Pharmaceuticals Opsonin Pharmaceuticals Eskayef Pharmaceuticals Acme Laboratories Renata Limited ACI Limited Aristopharma Drug International Sanofi-Aventis GlaxoSmithKline Novo Nordisk Sandoz Novartis Others Total

Source: IMS, BAPI and BRAC EPL Research, February 2011

Square Pharmaceuticals has 19.3% market share in the local market

Pharmaceuticals and Beximco Pharmaceuticals with market shares of 8.5% and 7.6% respectively. Incepta and Beximco had BDT 4.9 billion and BDT 4.4 billion in domestic sales for the last four quarters. Although a number of MNCs are operational in Bangladesh, no MNC is among the top ten in terms of domestic sales. The most important therapeutic group in the Bangladeshi market is Systemic Antibiotics. These account for almost 30% of the market. The second therapeutic group, Anti-acids, is much less relevant in terms of market share, as well as from a public health perspective. Vitamins, Analgesics, Mineral supplements, Cough and Cold preparations and muscle relaxants also figure prominently. It is to be noted that typical developed-market therapeutic groups like those addressing diabetes, cardiovascular diseases, allergies or psychological disorders also are among the most important in Bangladesh, whereas HIV/AIDS and Antimalarial drugs are not. Because Bangladesh API capacity is insignificant, pharmaceutical companies import approximately 80% of their APIs. Coupled with the necessity to import machines, it is one of the main disadvantages in terms of cost when compared to India. The leading manufacturers are therefore
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Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

going into API manufacturing, focusing mainly on Antibiotics, but also other drugs, such as anti-cancer drugs. For many APIs, the domestic market is too small to justify an API manufacturing plant. This stresses the fact that whereas several Bangladeshi manufacturers have the know-how to manufacture APIs, the initial investment and the production scale required are high. This means that in order to establish API manufacturing e.g. for Antiretroviral APIs in Bangladesh, the manufacturers would need to be sure of their access to several export markets. Performance so far this year Squares performance in 1H11 has been very consistent. The performances in both the quarters have been nearly identical. Net sales for 1H11 grew 24% YoY, while those for 2Q11 grew 6% QoQ. Operating profit for 1H11 grew 15% YoY while it again grew 6% QoQ in 2Q11. Net profit after tax actually increased by 30% YoY, thanks to 292% growth in profit from associate undertakings. Net profit after tax remained virtually unchanged QoQ. Without the extraordinary profit from associate companies, profit after tax increased by 21% YoY while it dropped 1% QoQ.

Performance in the first half has been very consistent

Table 2: Comparative performance in 1H11 BDT Mn Net Sales COGS Gross Profit Operating Expenses Profit from Operations Other Income Allocation for WPPF EBIT Financial Expenses PBT Income Tax PAT P/L from Associate Undertaking Minority Interest NPAT EPS 1H11 8,042 4,448 3,595 1,411 2,183 161 109 2,235 114 2,121 495 1,627 185 1 1,810 92.3 1H10 YoY 6,476 24% 3,427 30% 3,049 18% 1,153 22% 1,896 15% 107 50% 90 21% 1,913 17% 160 -29% 1,753 21% 409 21% 1,344 21% 47 292% 1 59% 1,391 30% 70.9 2Q11 2Q10 YoY 4,136 3,302 25% 2,270 1,741 30% 1,866 1,561 20% 742 573 29% 1,124 988 14% 68 55 23% 56 48 17% 1,136 995 14% 74 86 -14% 1,062 909 17% 253 212 19% 809 697 16% 95 25 287% 0 0 78% 904 721 25% 46.1 36.7 1Q11 1Q10 YoY 3,906 3,174 23% 2,177 1,686 29% 1,729 1,488 16% 670 580 15% 1,059 908 17% 93 52 78% 53 42 25% 1,100 918 20% 40 74 -45% 1,059 844 25% 241 196 23% 818 648 26% 89 23 297% 0 0 42% 907 670 35% 46.2 34.2 2Q11 4,136 2,270 1,866 742 1,124 68 56 1,136 74 1,062 253 809 95 0 904 46.1 1Q11 3,906 2,177 1,729 670 1,059 93 53 1,100 40 1,059 241 818 89 0 907 46.2 QoQ 6% 4% 8% 11% 6% -27% 6% 3% 84% 0% 5% -1% 7% 9% 0%

Source: Company Reports and BRAC EPL Research, February 2011

Sales and Margin Because of its dominating presence throughout the country, SPL has enjoyed steady growth in sales volume. Cost of sales as percentage of sales has also been declining gradually over the year, improving gross margin. However, operating expense as a percentage of sales have been
Table 3: Sales and margins Gross Sales (BDT Mn) Cost of Sales/Sales Operating Costs/Sales Net Margin 2006 2007 2008 2009 2010 2011 2012 2013 8,252 9,958 12,024 13,585 15,034 18,155 22,187 27,898 55% 54% 54% 52% 49% 49% 49% 49% 12% 14% 15% 14% 15% 16% 16% 16% 16% 15% 13% 15% 17% 18% 19% 19% 4

Source: Company Reports and BRAC EPL Research, February 2011

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

creeping up slightly in the last few years because of the intense competition in the industry. We expect this trend to stabilize in the near future. Because of the ever growing contribution from its associate companies, net margin is increasing, which we expect to stabilize after a while. Majority Investments It may be noted that SPLs management has not only maintained profitability in its core pharmaceuticals business, but has also sprouted a number of other businesses in-house. After profitable commercial operations of its businesses commenced, SPL spun off subsidiary businesses, such as Square Textiles, to monetize the investments. The company has a number of such businesses in the pipeline.

SPL previously spun off profitable subsidiaries to monetize investment

Table 4: Subsidiaries and Associates of Square Pharmaceuticals Name Square Pharmaceuticals Square Cephalosporins Square Biotechs Square Multi Fabrics Square Textiles Square Hospitals Ltd. Square Knit Fabrics Ltd. Square Fashions Ltd. NHFIL CDBL United Hospitals Pioneer Insurance % Owned by SPL 100.00% 99.48% 99.25% 99.50% 46.45% 49.56% 48.84% 48.46% 5.22% 2.89% 0.86% 10.00% Market Value (BDT Mn) 53,754 7,365 66 249 6,085 3,882 1,628 2,095 230 10 12 219

Source: Company Reports and BRAC EPL Research, February 2011

There are currently three companies in which SPL has made a majority investment.

Square Cephalosporins : SPL holds 99.48% of Square Cephalosporins Ltd. (SCL). SPL also has BDT 400 million as share money deposit in SCL on top of the BDT 95,000,000 equity holding. The subsidiary has become profitable very quickly after it went into operation in 2007. SCL owns a modern pharmaceuticals factory and produces and sells pharmaceuticals, drugs and medicines. Square Biotechs: SPL holds 99.25% of Square Biotechs Ltd. (SBL). SBL was established to carry on the business of inter alia manufacturing, sales and distribution of all kinds of biotechnological medicines or drugs. The company has not yet become profitable. Square Multi Fabrics: SPL holds 99.50% of Square Multi Fabrics Ltd. (SMFL). Besides the equity holding of BDT 9,900,000 SPL also has BDT 150,000,000 as share money deposit in the company. SMFL was established to carry on the business of manufacturing and marketing all types of knit fabrics, yarn, garments for gents, ladies and children. This company also has not become profitable yet.

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

Minority Investments

Square Textiles Square Knit Fabrics Square Fashions Square Hospitals United Hospitals National Housing and Finance Pioneer Insurance Central Depository Bangladesh Limited (CDBL) Square Informatix

Investment in Marketable Securities The currently holds marketable securities amounting to BDT 221 million with an unrealized gain of BDT 167 million. Expansion Program In order to meet increasing demand in the domestic as well as foreign markets, SPL has undertaken an ambitious expansion program to be completed in two phases. The first phase, which is already under way, is expected to be completed by 2012 at a total cost of BDT 3.6 billion. We anticipate a 25% cost overrun for a final cost of BDT 4.5 billion. The first phase is expected to nearly double the current capacity. The second phase will start in 2014, completing in 2017 for a total cost of BDT 2.0 billion (including an estimated cost overrun of 25%). We expect the expansion programs contributing to revenue growth after 2012. We made an assumption that the new plants will operate with an 85% efficiency and after the year of completion, 25% of the capacity will come on line in each of the following four years. Second phase will also do the same.
Table 5: Local sales vs export Local Sales Export Sales Total Sales Local Sales Growth Export Growth Total Sales Growth 2008 9,353 212 9,566 10% 10% 10% 2009 11,030 336 11,367 18% 58% 19% 2010 12,915 365 13,279 14% 60% 17% 2011 15,239 547 15,786 18% 50% 19% 2012 18,287 820 19,107 20% 50% 21% 2013 22,859 1,189 24,048 25% 45% 26%

Ambitious expansion program will increase capacity significantly. But revenue contribution may come after 2012.

Source: Company Reports and BRAC EPL Research, February 2011

International Market Square is one of the leading exporters of pharmaceutical products from Bangladesh. However, the contribution of export to the total sales is still
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Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

very small. The company exported BDT 364.5 million worth of pharmaceutical products in FY10 compared to BDT 336.3 million in FY09. The exports are expected to rise in the coming years. Current export destinations include Myanmar, Nepal, Kenya, Libya, Mauritius, Papua New Guinea, Somalia, Sri Lanka, Vietnam, Yemen, Bhutan, Cambodia, Afghanistan, Tanzania, North Korea, Belize, Hong Kong, Mauritania, Philippines, Eritrea, Ghana, Malawi, Malaysia, Surinam, Tajikistan and the UK. In March 2010, the MHRA of UK renewed SPLs MHRA GMP (Good Manufacturing Practice) certification for three more years. Liquidity
SPL has a free float of 46%. The stock is quite liquid and traded regularly. Average daily trade for the last 12 months was slightly over 55,000 shares with average daily turnover of BDT 184 million.

UK MHRA certification renewed for three years recently

Stock Price Resilience

SPL has been one of the most resilient stocks among all the stocks in BRAC EPL coverage universe in the face of severe market correction. The stock price retraced 21% since the start of the market correction in December 6, 2010. The benchmark index DGEN has dropped 35% during the same period.

Outlook The company has done very well to maintain its margins. However, we anticipate an ever-competitive market where pharmaceutical companies lower prices and give up margins to retain market share. This could affect bottom lines of all pharmaceutical companies in Bangladesh. However, given Squares market share, it seems to be in a better position than most other companies. In Bangladesh, the pharmaceutical companies have no power to set prices for essential drugs, a list of lifesaving drugs decided by the government. Only the government has the power to decide prices of these drugs and price revisions by the government are few and far between. Therefore, pharmaceutical companies make marginal profits from these drugs. However, the companies are free to set prices on products outside of this list. So, the companies make the bulk of their profits from these non essential drugs. Even then, they cannot set prices too high as the purchasing power of the population is low. Hence, they are forced to be content with prices lower than they would expect. We believe if SPL focuses more on the international market, it could overcome some of the problems above. The same drugs that SPL sells for Tk. 10, for example, could be sold at prices several times higher in Australia, the UK or even the USA because of the enhanced purchasing power of consumers in those markets. As a result, we think its sales volume could grow significantly over the years. On the other hand, because of the strict quality controls and regulations in the developed market such as Europe and the USA, SPL will need to continuously maintain and renovate its manufacturing plants. This means it is expected to have a large outflow in capital expenditure each year. SPL
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Competition may reduce margins for most players in the long run

Export market could significant boost sales volume

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

already has a certification from the UK MHRA, which is essential to enter the UK and European markets. The company will gradually seek more certification from other regulators in developed markets. The two expansion programs, which we discussed earlier are expected to double the production capacity in 2014. Capital expenditure for the projects is expected to be financed internally by the companys solid cash generation. The company accumulates a large amount of cash at the end of our horizon. Among the three subsidiaries, Square Cephalosporins is the only one which is fully operational and profitable. Square Biotechs and Square Multi Fabrics are yet to be in full blown production. Although the company guidance was for production to start before 2010, it has been delayed. We expect these two to start production properly in 2011 and add to consolidated revenue. SPL management seems to be hoping that it will eventually be able to list its subsidiaries. Square Square Textiles, an associate of Square Pharma and a former subsidiary, is now a listed company. Investment in Square Textiles was BDT 183 million on a cost basis and current market value of this investment is more than BDT 12 billion. SPL expects that in time it will be able to list its current subsidiaries in the capital market, allowing it to monetize its investment. The companys operating cash flow is higher than its total capital expenditure, which includes expansion and maintenance. Therefore we assume major portion of investing activity to be financed internally. This results in a very low debt to equity ratio.

Existing subsidiaries may present excellent capital gain opportunity

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

Valuation Since Square Pharmaceuticals is involved in a number of subsidiaries and associate companies, a Sum-of-the-Parts (SOTP) valuation appears to be more relevant. We derive value per share for each of these companies using various valuation methodologies depending on the type of business and its relationship with the parent company. We use DCF valuation for Square Pharmaceuticals standalone business as well as Square Cephalosporins. We also take the market value of associate companies that are publicly listed. Normalized values are used for privately held companies within the Square group. Two other privately held companies are taken at cost. From our SOTP valuation, we arrive at a fair price of BDT 3,738. Since a few of the companies are yet to become fully operational or profitable, we believe this value is likely to rise once these companies start to make profits. In any case, the value has considerable upside on the current market price of BDT 3,092. We have also used four other leading pharmaceutical companies trading in the DSE for comparison purposes. The average P/E of these companies is 26.4x based on their latest published audited report. At a trailing P/E multiple of 24.3x, SPL is trading at a slight discount to these companies. Using a P/E multiple of 18.0x on estimated 2012 EPS of BDT 217, we arrive at a 12-month fair value of BDT 3,901. Based on both of our valuations, we arrive at a fair value of BDT 3,850. With an estimated dividend yield of 1%, our fair price would provide a 12month total return of 26%.
Table 6: Sum of the Parts Valuation
Name Square Pharmaceuticals Square Cephalosporins Square Biotechs Square Multi Fabrics Square Textiles Square Hospitals Ltd. Square Knit Fabrics Ltd. Square Fashions Ltd. NHFIL CDBL United Hospitals Pioneer Insurance Net Cash Non-Operating Assets Total Value No. of Shares Value/Share Source: Company Data, BRAC EPL Research, February 2011 % Owned 100.00% 99.48% 99.25% 99.50% 46.45% 49.56% 48.84% 48.46% 5.22% 2.89% 0.86% 10.00% Valuation Methodology DCF DCF 1x 2010 P/B 1x 2010 P/B Market Value Normalized Valuation Normalized Valuation Normalized Valuation Market Value At cost At cost Market Value Market Value 53,754 7,365 66 249 5,874 3,882 1,628 2,095 223 10 12 207 (2,255) 221 73,332 20 3,738 Value/Share 2,740 375 3 13 299 198 83 107 11 1 1 11 (115) 11

3,738

Table 7: Comparative Valuation*

Other Pharmaceuticals Beximco Pharmaceuticals Renata Limited ACI Limited GlaxoSmithKline Average Square Pharmaceuticals 3,092 127.29 Price 110 11,037 265 795 EPS 2.98 365.21 30.64 26.88 P/E 37.0x 30.2x 8.7x 29.6x 26.4x Square Pharmaceuticals 2012 Estimates Multiples Value/Share EPS 217 18.0x 3,901 3,850 3,092 1% 26%

Fair Value Current Price Dividend Yield 24.3x Total Return

* All EPS and BVPS figures are from audited reports of latest fiscal year of the respective

Source: Company Data, DSE, BRAC EPL Research, February 2011

Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

Table 8: Income Statement
MM BDT Net Sales COGS Gross Profit Operating Expenses Profit from Operations Other Income Allocation for WPPF EBIT Financial Expenses PBT Income Tax PAT P/L from Associate Undertaking Minority Interest NPAT 2008 10,554 (6,546) 4,008 (1,759) 2,249 346 (104) 2,490 (443) 2,047 (506) 1,541 (12) (3) 1,526 2009 11,826 (7,013) 4,813 (1,884) 2,929 409 (138) 3,200 (455) 2,746 (630) 2,116 (55) (2) 2,058 2010 12,971 (7,352) 5,618 (2,293) 3,326 258 (158) 3,426 (320) 3,106 (737) 2,368 130 (2) 2,497 2011E 15,663 (8,876) 6,787 (2,930) 3,858 734 (199) 4,392 (277) 4,116 (1,019) 3,097 264 (3) 3,358 2012E 19,141 (10,809) 8,332 (3,568) 4,764 899 (246) 5,417 (215) 5,202 (1,288) 3,915 341 (4) 4,251 2013E 24,067 (13,592) 10,476 (4,485) 5,991 1,132 (310) 6,813 (171) 6,642 (1,644) 4,998 420 (5) 5,412

Source: Company Data, BRAC EPL Research, February 2011

Table 9: Cash Flow Statement

MM BDT Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities Net Cash Flow Opening Cash Balance Closing Cash Balance 2008 1,593 (2,132) 608 69 157 226 2009 2,758 (1,846) (824) 88 226 314 2010 2,783 (1,493) (1,335) (45) 314 270 2011E 3,046 (1,471) (1,237) 338 270 608 2012E 4,328 (1,923) (1,215) 1,189 608 1,797 2013E 5,409 (2,168) (1,328) 1,913 1,797 3,709

Source: Company Data, BRAC EPL Research, February 2011

Table 10: Balance Sheet

MM BDT Inventories Trade Debtors Advances, Deposits & Prepayments Investment in Marketable Securities Short Term Loan Cash and cash equivalents Current Assets Property, Plant & Equipment Capital WIP Investment- Long Term (At cost) Investment-Associate Undertakings Pre-operating/Preliminary Expenses Non-Current Assets Total Assets Short Term Bank Loans Long Term Loans- Current Portion Trade Creditors Liabilities for Expenses Liabilities for Other Finance Current Liabilities Long Term Loans- Secured Deferred Tax Liability Non-Current Liabilities Equity Minority Interest Total Liabilities and Equity 2008 2,630 891 330 33 1,397 226 5,506 5,217 1,148 145 3,039 3 9,552 15,058 3,174 446 233 236 443 4,533 778 225 1,003 9,507 16 15,058 2009 2,406 478 304 20 609 314 4,131 5,462 1,201 145 3,959 7 10,774 14,905 1,712 431 128 94 615 2,979 786 211 998 10,926 2 14,905 2010 2,575 512 371 221 1,056 270 5,005 6,681 634 185 3,900 0 11,401 16,406 880 502 103 61 547 2,093 1,143 226 1,368 12,940 4 16,406 2011E 3,068 958 500 221 1,296 608 6,651 7,348 1,175 185 4,164 0 12,872 19,523 783 310 395 77 705 2,269 723 226 949 16,298 7 19,523 2012E 3,733 1,188 610 221 1,296 1,797 8,847 8,798 1,307 185 4,505 0 14,796 23,642 705 217 478 94 856 2,350 506 226 732 20,549 12 23,642 2013E 4,642 1,492 757 221 1,296 3,709 12,118 10,396 1,458 185 4,924 0 16,964 29,082 634 152 541 119 1,077 2,523 354 226 580 25,961 17 29,082

Source: Company Data, BRAC EPL Research, February 2011

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Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD)

Table 11: Indicators and Ratios

2008A Dividend (BDT mn) Payout ratio Number of shares (mn) Diluted Earning Per Share (BDT) Dividend per share (BDT) Diluted Book Value Per Share (BDT) Total Debt (BDT mn) Debt/Total Assets Debt/Total Equity Sales Growth Earning Growth Dividend Growth Dividend Yield Duty and VAT/Gross Turnover Cost of Sales/Sales Gross Profit Margin Operating Costs/Sales Operating Margin Net Margin Return on Equity Return on Assets Effective Tax Rate NC Working Capital (BDT mn) Increase in NC Working Capital (BDT mn) P/E P/B 358 23% 15 78 24 485 4398 0.29 0.53 21% 5% 20% 1% 12% 54% 46% 15% 19% 13% 16% 10% 25% 4,367 926 39.8x 6.4x 2009A 483 23% 15 105 32 557 2929 0.20 0.31 13% 35% 35% 1% 13% 52% 48% 14% 22% 15% 19% 14% 23% 2,981 -1,387 29.5x 5.6x 2010A 528 21% 15 127 35 660 2524 0.15 0.23 11% 21% 9% 1% 14% 49% 51% 15% 22% 17% 19% 15% 24% 4,024 1,043 24.3x 4.7x 2011E 827 25% 20 171 42 831 1815 0.09 0.14 21% 34% 57% 1% 14% 49% 51% 16% 21% 18% 21% 17% 25% 4,867 843 18.1x 3.7x 2012E 1,041 24% 20 217 53 1047 1427 0.06 0.09 22% 27% 26% 2% 14% 49% 51% 16% 21% 19% 21% 18% 25% 5,621 755 14.3x 3.0x 2013E 1,332 25% 20 276 68 1323 1140 0.04 0.06 26% 27% 28% 2% 14% 49% 51% 16% 21% 19% 21% 19% 25% 6,671 1,050 11.2x 2.3x

Source: Company Data, BRAC EPL Research, February 2011

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Square Pharmaceuticals (DSE: SQURPHARMA; Bloomberg: SQUARE:BD) IMPORTANT DISCLOSURES

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BRAC EPL Stock Brokerage Capital Markets Group

Aminul Haque Md. Monirul Islam Parvez Morshed Chowdhury Ali Imam Asif Khan Md. Ashfaque Alam Khandakar Safwan Saad Aasim Tajwaar Matin Head of Capital Markets Research Analyst Research Analyst Investment Analyst Investment Analyst Research Associate Research Associate Research Associate amin@bracepl.com monirul@bracepl.com parvez@bracepl.com imam@bracepl.com asif@bracepl.com ashfaque@bracepl.com safwan@bracepl.com 01730317802 01730357150 01730357154 01730357153 01730357158 01730357786 01730357779

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