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Parvez M Chowdhury

(880) 174 167 4023; parvez@bracepl.com

Top Pharmaceutical Companies Sector Rating: Outperform


March 1, 2010
Square Pharma 2009A 2010E 2011E
Revenue (MM BDT) 11,826.2 13,025.7 15,098.9
The pharmaceutical industry is one of the most developed among
Operating Income (MM BDT) 2,929.0 3,148.8 3,537.1 manufacturing industries in Bangladesh. Around 250 companies are
Operating Margin 25% 24% 23% operating in the market. The market size is estimated to be BDT 54.93
Net Income (MM BDT) 2,115.6 2,170.9 2,456.9
billion, which grew by 16.83% in 2009. The market size in 2008 was BDT
Net Margin 18% 17% 16%
5-Year Revenue Growth (CAGR) 13% 47.02 billion with a growth of 6.68%.
Capex (MM BDT) 2,049.2 1,385.8 1,398.1
Debt/Equity 23% 20% 18% One of the fastest growing sectors with an annual average growth rate of
No. of Shares (MM) 12.1 15.1 15.1
EPS (BDT) 140.19 143.86 162.81
14-16%, Bangladesh’s pharmaceutical industry contributes to almost 1%
Dividend (BDT) 40.00 50.00 60.00 of GDP. Local companies and MNCs together meet 95% of the country’s
Current Price (BDT) 3,554 drug demand but the local manufacturers dominate the industry; they
Target Price (BDT)
Return (incl. Div yield)
4,000
14%
enjoy approximately 87% of market share, while multinationals hold a
13% share. Another notable feature of this sector is the concentration of
Beximco Pharma 2008A 2009E 2010E
sales among a very small number of top companies. The top 15 players
Revenue (MM BDT) 4,010.2 5,012.7 6,015.3 control around 73% of the market share.
Operating Income (MM BDT) 998.8 1,311.9 1,635.3
Operating Margin 25% 26% 27% Given the country's lack of spending power, the pharmaceutical market
Net Income (MM BDT) 545.3 731.7 964.1
Net Margin 14% 15% 16%
remains tiny in comparison with the population size. Pharmaceutical
5-Year Revenue Growth (CAGR) 13% spending is amongst the lowest in the world in per capita terms.
Capex (MM BDT) 1,180.4 333.8 338.5 Healthcare expenditures consist of only 3.4% of GDP. However, the
Debt/Equity 34% 32% 29%
increased awareness of healthcare and the government’s increased
No. of Shares (MM) 126.0 151.1 183.5
EPS (BDT) 3.26 4.37 5.76 expenditure in this sector is causing the demand to increase in this
Dividend (BDT) 1.00 1.10 1.20 sector. In addition to the demand of therapeutic drugs, the demand for
Current Price (BDT) 166 “wellness” drugs such as vitamins and minerals are increasing gradually
Target Price (BDT) 230
Return (incl. Div yield) 39% and the future growth of the sector lies in it.

Renata Limited 2008A 2009E 2010E


In a recent market research by IMS, a US-based market research
Revenue (MM BDT) 3,203.2 4,004.0 5,005.0 organization, Square Pharmaceuticals, Beximco Pharmaceuticals, Renata
Operating Income (MM BDT) 721.7 920.9 1,151.2 and ACI Limited secured top positions in the turnover leaders list. The
Operating Margin 23% 23% 23%
estimates from IMS are not completely accurate and there is a margin of
Net Income (MM BDT) 438.7 605.1 769.5
Net Margin 14% 15% 15% error of 10% in either direction. However, this is the only estimate with
5-Year Revenue Growth (CAGR) 21% any accuracy for this sector.
Capex (MM BDT) 286.5 103.2 110.0
Debt/Equity 1% 0% 0%
Square Pharma retained the top position with a local sales of BDT
No. of Shares (MM) 1.2 1.4 1.7
EPS (BDT) 303.37 418.47 532.17 10.70bn in 2009. Square’s market share was a solid 19.48%. Beximco
Dividend (BDT) 50.00 62.77 69.41 Pharma improved their sales from 2008 and 2007 with sales figure of
Current Price (BDT) 11,310
BDT 4.2bn in 2009 (sales growth 27.15%). Beximco was at the No. 3 spot
Target Price (BDT) 13,000
Return (incl. Div yield) 15% with a 7.72% market share. Renata had a sales growth of 25.63% in 2009
taking the seventh position. With a turnover of BDT 2.50bn, the company
ACI Limited 2008A 2009E 2010E holds a market share of 4.54%. ACI Limited took the eighth place with
Revenue (MM BDT) 10,341.4 11,050.6 13,632.4 4.48% of market share. ACI’s turnover stood at BDT 2.46bn.
Operating Income (MM BDT) 947.5 1,001.0 1,239.2
Operating Margin 9% 9% 9% Table 1: Top Pharma Companies and Peers
Net Income (MM BDT) 932.9 784.7 465.4 Avg Daily
Net Margin 9% 7% 3% Current No. of Shares Mcap (MM Trade (Last
5-Year Revenue Growth (CAGR) 46% Company Price (BDT) (MM) BDT) Free Float 30 Days) P/E P/B
Capex (MM BDT) 1,212.1 1,500.0 679.5 Square Pharmaceuticals 3,554.00 15.1 53,630.9 46% 52,800 24.7x 4.4x
Debt/Equity 176% 155% 156% Beximco Pharmaceuticals 166.20 167.3 27,808.3 79% 1,032,100 48.5x 2.6x
No. of Shares (MM) 16.2 19.4 19.4 Renata Limited 11,310.00 1.4 16,354.1 49% 274 27.0x 7.1x
EPS (BDT) 48.08 40.44 23.98
ACI Limited 508.50 19.4 9,866.9 63% 216,364 12.6x 2.9x
Dividend (BDT) 10.00 10.00 10.00
GlaxoSmithKline 824.80 12.0 9,935.9 18% 28,650 69.6x 10.2x
Current Price (BDT) 509
Target Price (BDT) 675 Reckitt Benckiser 1,661.00 4.7 7,848.2 17% 1,409 40.6x 15.4x
Return (incl. Div yield) 35% Average 37.2x 7.1x
Source BRAC EPL Research Source BRAC EPL estimates for 2009 earnings
Top Pharmaceutical Companies
February 2010

Square Pharmaceuticals (Target price: BDT 4,000)


Square Pharmaceuticals is the largest pharmaceuticals manufacturing company in the country.
The company has consistently created value for its shareholders, with average Return on
Equity (ROE) of over 20% in the last 7 years.
While maintaining the profitability in its core pharma business, the company has created a
number of other businesses in‐house in the past, and after profitable commercial operation of
the businesses commenced, spun off such subsidiary businesses to monetize the investment.
Square Pharmaceuticals has undertaken an expansion program to be completed in two phases.
The first Phase will be completed in 2012 at a total cost of BDT 3.6b (we anticipate a 25% cost
overrun for a final cost of 4.5b). This first phase is expected to almost double the current
production capacity. The second phase starts in 2014, completing in 2017 for a total cost of
2.0b (including an estimated cost overrun of 25%). We expect the expansion programs
contributing to revenue growth after 2012.
Capital expenditure will be financed by internally‐generated cash as the company generates a
handsome amount of cash each year Current debt‐to equity ratio is quite low at 23%; in the
absence of any other major expansion plan, we do not anticipate assumption of any more debt.
Some of the business units (e.g., Square Knit Farbics Ltd. and Square Cephalosporins Ltd.) are
just starting to become profitable and more are on the right path (e.g., Square Hospitals Ltd.).
Square will definitely benefit from this.
We believe the company is still undervalued. We need to look a for the value of the company
beyond 2013 as the major value addition to the company is going to take place after 2012. We
believe the market has not yet identified the real value of the company. Based on 2013
estimated EPS of BDT 231, a price multiple of 22x (currently at 25.5x) and a discount rate of
13%, we arrive at a NPV of BDT 3,986.
Target price BDT 4,000. Dividend yield 1.2%. Total return of 14%.
Valuation
Discounted FCF 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating cash 2,707 2,880 3,284 3,479 4,407 5,300 5,545 6,500 7,626 9,474 9,746
Capital expenditure -1,386 -1,398 -1,426 -1,451 -849 -869 -856 -846 -400 -400 -400
Increase/(reduction) in debt 0 0 0 0 0 0 0 0 0 0 0
Free cashflow 1,321 1,482 1,858 2,028 3,558 4,431 4,689 5,654 7,226 9,074 9,346
Terminal value 153,264

NPV 55,914
Marketable Securities 3,628
NPV/Share 3,946

Discount rate 13%


Perpetual growth 7%

Square Pharma
2013 EPS 231
P/E 20.0x 22.0x 24.0x
Price 4,627 5,090 5,552
P/B 2.0x 3.0x 4.0x
Price 463 694 925
Top Pharmaceutical Companies
February 2010

Square Pharma: Income Statement


MM BDT 2007 2008 2009 2010E 2011E 2012E
Net Turnover 8,747.7 10,553.8 11,826.2 13,025.7 15,098.9 17,287.3
Cost of Good sold 4,916.2 6,028.2 6,383.9 7,146.8 8,443.7 9,674.2
Gross profit 3,831.5 4,525.6 5,442.3 5,878.9 6,655.2 7,613.1
Selling & Distribution Expense 977.9 1,219.2 1,351.6 1,554.8 1,794.0 2,208.6
Administrative Expense 222.5 318.7 334.3 356.0 419.8 480.9
Depreciation 714.7 739.0 827.4 819.3 904.3 978.4
Operating Profit 1,916.5 2,248.7 2,929.0 3,148.8 3,537.1 3,945.2
Other Income 164.7 345.5 409.1 311.5 338.5 370.5
EBIT 2,081.1 2,594.2 3,338.1 3,460.3 3,875.5 4,315.7
Interest Expense 303.9 443.2 454.7 308.4 308.4 308.4
Profit before WPPF 1,777.3 2,151.0 2,883.4 3,151.9 3,567.1 4,007.3
Provision for WPPF 91.9 104.2 137.8 157.6 178.4 200.4
EBT 1,685.4 2,046.9 2,745.6 2,994.3 3,388.8 3,807.0
Tax 436.9 506.3 630.0 823.4 931.9 1,046.9
PAT 1,248.4 1,540.6 2,115.6 2,170.9 2,456.9 2,760.0

Square Pharma: Balance Sheet


MM BDT 2007 2008 2009 2010E 2011E 2012E
Cash & Cash Equivalent 157.3 226.0 314.4 767.0 1,265.9 2,019.6
Short Term Loan to Associates 1,137.5 1,397.1 609.3 609.3 609.3 609.3
Marketable Securities 32.6 32.6 20.3 20.3 20.3 20.3
Adv, Deposit & Pre-Payment 258.4 330.0 303.7 340.0 401.7 460.3
Accounts Receivable 773.7 891.0 477.6 526.0 609.7 698.1
Inventories 2,105.9 2,629.6 2,405.5 2,693.0 3,181.7 3,645.4
Total Current Assets 4,465.4 5,506.1 4,130.8 4,955.5 6,088.5 7,452.9

Total Long Term Investment 2,748.0 3,187.2 4,110.9 4,110.9 4,110.9 4,110.9

Fixed Assets:
PPE-Net of Depreciation 4,844.4 5,217.0 5,462.1 6,028.7 6,522.5 6,970.5
Capital Work In Progress 481.2 1,147.9 1,200.8 1,200.8 1,200.8 1,200.8
Total Fixed Assets 5,325.7 6,364.8 6,662.9 7,229.5 7,723.3 8,171.3

Total Assets 12,539.0 15,058.2 14,904.6 16,295.9 17,922.7 19,735.1

Liabilities & Shareholders' Equity:


Current Liabilities:
Accounts Payable 331.8 233.4 127.6 142.8 168.7 193.3
Liabilities for Expense 92.6 236.2 93.6 104.8 123.8 141.9
Liabilities for Other Finance 443.0 443.2 614.7 677.0 784.8 898.5
Short Term Bank Loan 2,289.9 3,173.5 1,712.2 1,712.2 1,712.2 1,712.2
Current Portion of LTD 309.6 446.1 430.7 430.7 430.7 430.7
Total Current Liabilities: 3,466.7 4,532.6 2,978.7 3,067.5 3,220.2 3,376.6

Non Current Liabilities:


Long Term Loan -Secured 632.9 778.4 786.3 786.3 786.3 786.3
Deffered Tax Liability 147.6 224.7 211.2 211.2 211.2 211.2
Minority Interest 12.4 15.6 2.3 2.3 2.3 2.3
Total Non Current Liabilities 792.9 1,018.7 999.9 999.9 999.9 999.9

Total Liabilities 4,259.6 5,551.3 3,978.6 4,067.4 4,220.0 4,376.4

Shareholder's Equity:
Share Capital 596.2 894.2 1,207.2 1,509.0 1,509.0 1,509.0
Share Premium 2,035.5 2,035.5 2,035.5 2,035.5 2,035.5 2,035.5
General Reserve 105.9 105.9 105.9 105.9 105.9 105.9
Tax Holiday Reserve/Other 1,425.7 1,425.7 1,248.0 1,248.0 1,248.0 1,248.0
Retained Earnings 4,116.2 5,045.6 6,329.4 7,330.1 8,804.2 10,460.3
Total Shareholder's Equity 8,279.4 9,506.9 10,926.0 12,228.5 13,702.6 15,358.7
Total Liabilities & Equity 12,539.0 15,058.2 14,904.6 16,295.9 17,922.7 19,735.1
Top Pharmaceutical Companies
February 2010

Beximco Pharmaceuticals
Beximco Pharmaceuticals is one of the largest pharmaceutical companies in Bangladesh. The
company has featured consistently in the top five manufacturers for the last decade.
Beximco is widely regarded as one of the technological leaders among the local
pharmaceutical companies in the country.
The company utilizes state of the art technology. All new plants are equipped with cutting
edge machineries. New facilities are coming online in 5 new plants. Two of them are already
operational.
The company maintains many good partnerships with established players such as Bayer AG of
Germany and Upjohn Inc. of USA.
The company has outperformed the industry in terms of sales during 2009. The
pharmaceutical industry has grown around 15% on average annually and Beximco Pharma
has matched that growth before 2009. We believe they will continue to emulate the
performance of 2009 for the foreseeable future.
Generally the company doubles their turnover in every three years. The company expects to
generate BDT 700 million per month in 2011.
Despite troubled political environment during 2007 and 2008, the company has successfully
weathered the conditions and bounced back strongly under more favorable condition in 2009.
New production lines become operational this year which will effectively double the capacity.
The company has undertaken a hugely ambitious plan for foreign market. The management
has targeted to have equal revenue from domestic sales and exports. That means they would
have to achieve exponential growth in exports. Although this seems quite ambitious, there are
signs that the management is on the right track to delivering what they promised.
Target price BDT 230. Dividend yield 0.66%. Total return of 35%.
Valuation
Discounted FCF 2008 2009 2010 2011 2012 2013 2014 2015

Operating Cash 915,856 1,133,017 1,523,378 1,914,524 2,344,024 2,693,460 3,017,023


Capital Expendture -333,790 -338,463 -257,401 -172,802 -172,802 -172,802 -172,802
Change in Debt - - - - - - -
582,066 794,554 1,265,977 1,741,722 2,171,222 2,520,658 2,844,221
Net Terminal Value 76,792,805
Terminal Value 80,349,238
Terminal Debt 3,556,433

Net Free Cash Flow 582,066 794,554 1,265,977 1,741,722 2,171,222 2,520,658 79,637,026

Discount Rate 13.0% NPV 39,322,708


Terminal Growth Rate 9% NPV/Share 235.02

BEXIMCO Pharma Valuation EPS BVPS


2010 estimates 7.52 73.39
Multiple 20.0x 2.5x
Target price 150.37 183.48
Top Pharmaceutical Companies
February 2010

Beximco Pharma: Income Statement


MM BDT 2006 2007 2008 2009E 2010E 2011E
Net Sales 3,702,317 3,597,025 4,010,167 5,012,709 6,015,251 7,218,301
Cost of goods Sold 1,809,860 1,813,233 1,855,687 2,406,100 2,887,320 3,248,235
Gross Profit 1,892,457 1,783,792 2,154,480 2,606,609 3,127,930 3,970,065
Administrative Expenses 150,286 145,545 153,464 175,445 180,458 216,549
Selling & Distribution Expenses 834,276 829,192 855,037 952,415 1,142,898 1,371,477
Depreciation Expense 161,371 154,277 147,184 166,895 169,232 171,601
Profit from Operation 746,523 654,778 998,795 1,311,854 1,635,344 2,210,438
Other Income 56,201 19,626 687 12,532 15,038 18,046
Contribution to WPPF 26,162 19,984 35,706 37,595 45,114 54,137
Earning before Interest and Taxes (EBIT) 776,562 654,420 963,775 1,286,791 1,605,267 2,174,347
Interest Expense 253,319 254,742 249,654 284,515 284,515 284,515
Earning Before Taxes (EBT) 523,244 399,678 714,121 1,002,276 1,320,753 1,889,832
Income Tax (Current & Deffered) 52,585 46,610 168,780 270,615 356,603 510,255
Profit After Tax (PAT) 470,659 353,068 545,341 731,661 964,150 1,379,578

Beximco Pharma: Balance Sheet


MM BDT 2006 2007 2008 2009E 2010E 2011E
Assets:
Current Assets:
Cash & Cash Equivalent 581,099 85,699 73,648 489,450 1,639,117 2,657,386
Accounts Receivable 430,240 499,681 503,916 503,916 503,916 503,916
Spares and Supplies 182,328 234,530 234,530 234,530 234,530
Loan, Advance & Deposit 591,614 685,915 544,509 544,509 544,509 544,509
Inventories 1,754,440 1,470,152 1,505,288 1,590,305 1,680,123 1,775,014
Total Current Assets 3,357,393 2,923,775 2,861,892 3,362,710 4,602,196 5,715,355
Fixed Assets:
Property, Plant & Equipment 8,513,136 8,992,942 11,921,073 12,087,968 12,257,199 12,343,000
Investment in Shares 41,983 36,701 36,701 36,701 36,701 36,701
Total Fixed Assets 8,555,119 9,029,643 11,957,774 12,124,669 12,293,900 12,379,701
Total Assets: 11,912,512 11,953,419 14,819,665 15,487,379 16,896,096 18,095,056

Liabilities & Equities:


Current Liabilities:
Short Term Borrowing from Bank 1,302,817 907,582 1,461,666 1,461,666 1,461,666 1,461,666
CMLTD 712,123 343,604 648,166 648,166 648,166 648,166
Creditors & Other Payables 365,256 271,814 263,177 341,237 409,485 460,670
Accrued Expenses 117,937 60,053 81,776 106,032 127,238 143,143
Dividend payable 13,012 3,285 3,170 3,170 3,170 3,170
Income Tax Payable 16,276 41,634 144,077 144,077 144,077 144,077
Total Current Liabilities 2,527,421 1,627,973 2,602,032 2,704,348 2,793,802 2,860,893

Non Current Liabilities:


Long Term Borrowing-Secured 1,159,410 1,776,450 1,446,601 1,446,601 1,446,601 1,446,601
Deffered Liability-provision for gratuity 213,358 246,705 274,419 274,419 274,419 274,419
Deffered Tax Liability 62,403 51,352 46,411 46,411 46,411 46,411
Total Non-Current Liabilities 1,435,171 2,074,506 1,767,431 1,767,431 1,767,431 1,767,431

Shareholder's Equity:
Share Cpaital 1,040,973 1,145,070 1,259,577 1,259,577 1,834,877 1,834,877
Share Premium 1,489,750 1,489,750 1,489,750 1,489,750 1,489,750 1,489,750
Issue price over face Value of GDR 1,689,637 1,689,637 1,689,637 1,689,637 1,689,637 1,689,637
Capital reserve 294,951 294,951 294,951 294,951 294,951 294,951
Tax-Holiday Reserve 394,835 442,355 1,711,175 1,711,175 1,711,175 1,711,175
Retained Earnings (including Tax holiday reserve from 2006E) 3,039,775 3,189,176 4,005,112 4,570,509 5,314,474 6,446,343
Total Equities 7,949,920 8,250,940 10,450,202 11,015,599 12,334,863 13,466,732

Total Liabilities & Equities 11,912,512 11,953,419 14,819,665 15,487,379 16,896,096 18,095,056
Top Pharmaceutical Companies
February 2010

Renata
Renata is one of fastest growing pharmaceutical companies in Bangladesh. It is the seventh
largest company in terms of local pharmaceutical sales.
Successor of the business of Pfizer Bangladesh – still enjoys distribution relationship with
Pfizer.
Renata is the market leader in agrochemical business.
Strong growth history; in the last five years, revenue grew by a 23% CAGR whereas net profit
grew by 31%. Even if gross profit margin remained the same, the company has consistently
reduced its operating costs, thus improving the bottom line.
The company achieved a return on equity of over 25% on average in the past five years. 2009
seems to be on the same track.
Renata boasts of the highest gross profit margin (almost 50%) among the local manufacturers.
In 3Q09, Renata declared EPS of BDT 325.94 posting a 43.55% bottom line growth QoQ;
reduction of operating expenses improved bottom line.
Renata has a Modest dividend payment; dividend yield in 2008 was about 1%.
A high retention rate is justified as the company consistently makes huge capital expenditures,
financed by internal cash. This state is supposed to continue in the near future.
Manageable leverage; D/E is about 50%. The entire debt is short-term.
Renata has good management, disciplined growth and low leverage, and appears to be an
attractive company.
Target price BDT 13,000. Dividend yield 0.55%. Total return 15%.
Valuation

Discounted FCF 2008 2009 2010 2011 2012 2013 2014 2015

Operating Cash 490,572.1 540,839.4 709,032.9 846,511.8 1,068,244.2 1,220,157.9 1,411,073.1

Capital Expendture -103,195.1 -110,006.0 -117,266.4 -125,006.0 -133,256.4 -142,051.3 -151,426.7

Change in Debt -10,546.3 0.0 0.0 0.0 0.0 0.0 0.0

376,830.7 430,833.4 591,766.5 721,505.8 934,987.8 1,078,106.5 1,259,646.4

Net Terminal Value 15,560,337.9

Terminal Value 15,560,337.9

Terminal Debt 0.0

Net Free Cash Flow 376,830.7 430,833.4 591,766.5 721,505.8 934,987.8 1,078,106.5 16,819,984.3

Discount Rate 13.5% NPV 9,438,570.8


Terminal Growth Rate 5.00% NPV/Share 6,527.44

Renata Valuation EPS BVPS


2011 estimates 646.53 2593.95
Multiple 20.0x 5.0x
Target price 12930.51 12969.77
Top Pharmaceutical Companies
February 2010

Renata: Income Statement


MM BDT 2006 2007 2008 2009E 2010E 2011E
Turnover 2,165.6 2,729.9 3,203.2 4,004.0 5,005.0 6,006.1
Cost of sales -1,102.7 -1,456.1 -1,621.5 -2,002.0 -2,502.5 -3,003.0
Gross profit 1,062.9 1,273.8 1,581.7 2,002.0 2,502.5 3,003.0
Administrative, selling and distribution expenses -592.9 -715.1 -860.1 -1,081.1 -1,351.4 -1,621.6
Operating profit 470.0 558.7 721.7 920.9 1,151.2 1,381.4
Other income 21.5 18.2 19.3 20.7 22.2 23.8
Gain on disposal of property, plant and equipment 1.9 0.5 0.1 0.0 0.0 0.0
Other expenses -2.7 -3.3 -5.9 -5.0 -6.3 -7.5
490.7 574.1 735.2 936.6 1,167.1 1,397.7
Interest on overdraft -44.0 -61.0 -89.0 -90.5 -90.5 -90.5
446.7 513.2 646.2 846.1 1,076.5 1,307.1
Contribution to WPPF -21.3 -24.4 -30.8 -39.3 -50.5 -60.6
Profit before tax 425.5 488.7 615.4 806.8 1,026.0 1,246.5
Current tax -98.2 -121.8 -166.4
Deferred tax -6.9 -8.9 -10.3
Total tax -105.1 -130.7 -176.8 -201.7 -256.5 -311.6
Net profit after tax for the year 320.4 358.0 438.7 605.1 769.5 934.9
Renata: Balance Sheet
MM BDT 2006 2007 2008 2009E 2010E 2011E
Current assets
Inventories 677.3 707.0 1,008.3 1,201.2 1,501.5 1,801.8
Trade and other receivables 187.4 200.5 322.5 320.3 400.4 480.5
Advance, deposits and prepayments 62.5 71.5 84.0 100.1 125.1 150.2
Cash and cash equivalent 116.2 95.8 142.8 428.9 744.3 1,195.8
Total current assets 1,043.4 1,074.8 1,557.6 2,050.5 2,771.3 3,628.3

Non-current assets
Property, plant and equipment 824.4 927.8 1,135.9 1,145.3 1,155.3 1,165.9
Capital work-in-progress 44.2 308.1 601.8 601.8 601.8 601.8
Investment 6.5 15.7 22.7 22.7 22.7 22.7
Total non-current assets 875.0 1,251.5 1,760.4 1,769.8 1,779.8 1,790.5

Total Assets 1,918.5 2,326.3 3,318.0 3,820.3 4,551.1 5,418.7

Current liabilities
Bank overdraft 371.8 361.5 823.2 823.2 823.2 823.2
Short term bank loans 0.0 0.0 0.0 0.0 0.0 0.0
Dividend distribution tax 0.0 0.0 0.0 0.0 0.0 0.0
Creditors for goods 53.6 42.2 127.3 157.2 196.4 235.7
Accrued expenses 76.7 106.4 140.1 87.0 96.0 101.2
Other payables 70.8 139.4 92.2 113.9 142.3 170.8
Unclaimed dividend 1.8 2.5 3.2 3.2 3.2 3.2
Provision for taxation 94.2 94.0 147.0 147.0 147.0 147.0
Total current liabilities 668.9 745.8 1,332.9 1,331.4 1,408.2 1,481.1

Non-current liabilities
Loans and borrowings 33.8 22.4 10.5 0.0 0.0 0.0
Deferred liability-staff gratuity 72.7 88.9 105.2 105.2 105.2 105.2
Deferred tax liability 62.7 71.4 81.5 81.5 81.5 81.5
Total non-current liabilities 169.2 182.8 197.3 186.8 186.8 186.8

Total liabilities 838.1 928.6 1,530.3 1,518.2 1,594.9 1,667.9

Equity attributable to equity holders of the group company


Share capital 80.3 96.4 115.7 144.6 166.3 182.9
Revaluation surplus 156.0 155.6 155.1 155.1 155.1 155.1
Capital reserve 0.5 0.5 0.5 0.5 0.5 0.5
Tax holiday reserve 62.0 63.6 70.2 70.2 70.2 70.2
Proposed stock dividend 16.1 0.0 0.0 0.0 0.0 0.0
Proposed cash dividend 40.2 0.0 0.0 0.0 0.0 0.0
Retained earnings 725.2 1,081.6 1,446.3 1,931.7 2,564.1 3,342.1
Total equity attributable to equity holders of the group
company 1,080.4 1,397.8 1,787.7 2,302.1 2,956.2 3,750.8
Minority interest 0.0 0.0 0.0 0.0 0.0 0.0
Total equity 1,080.4 1,397.8 1,787.8 2,302.1 2,956.2 3,750.8

Total equity and liabilities 1,918.5 2,326.3 3,318.0 3,820.3 4,551.1 5,418.7
Top Pharmaceutical Companies
February 2010

ACI Limited
Advanced Chemical Industries (ACI) Limited is one of the most recognized pharmaceutical
companies in Bangladesh.
ACI currently lies at eighth spot in the local market.
The company has expanded its business beyond pharmaceuticals encompassing agro-
chemical, animal health, agro-machinery, consumer brands and retail chains. Since the
company has been expanding its business horizon rather aggressively for the last few years,
ACI has found itself in a cash crunch, which ultimately led the company to resort to a fair bit of
leverage.
However, ACI has recently issued a zero-coupon bond to improve their cash position.
Despite cash constraint, ACI is one of the more consistent dividend paying companies in the
local market.
Although the core pharma segment and agribusiness segment are making respectable profits,
consumer brands and other segments are not yet fully profitable. If and when these segments
become profitable, the bottom line will see significant improvement.
Despite its cash crunch, ACI remains one of the more attractive companies among the
pharmaceutical companies.
Target price BDT 675. Dividend yield 1.96%. Total return 35%.
Valuation
Discounted FCF 2008 2009 2010 2011 2012 2013 2014 2015

Operating Cash 578,368,698 1,114,949,068 1,231,726,511 1,410,844,831 1,690,114,889 1,788,059,630 1,967,010,983


Capital Expendture -1,500,000,000 -679,457,053 -467,678,231 -400,178,280 -424,931,576 -451,216,003 -479,126,271
Change in Debt 315,090,975 469,599,385 -700,000,000 -1,070,816,761 -1,200,000,000 -200,000,000 -200,000,000
-606,540,327 905,091,401 64,048,280 -60,150,210 65,183,313 1,136,843,627 1,287,884,712
Net Terminal Value 21,037,902,697
Terminal Value 23,396,572,260
Terminal Debt 2,358,669,563

Net freecashflow -606,540,327 905,091,401 64,048,280 -60,150,210 65,183,313 1,136,843,627 22,325,787,409

Discount Rate 15.0% NPV 11,050,450,933


Terminal Growth Rate 9.00% NPV/Share 569.49

ACI valuation EPS BVPS


2011 estimates 39.41 222.03
Multiple 18.0x 3.0x
Target price 709.40 666.08
Top Pharmaceutical Companies
February 2010

ACI: Income Statement


MM BDT 2006 2007 2008 2009E 2010E 2011E
Revenue 4,237.9 5,756.8 10,341.4 11,050.6 13,632.4 16,139.4
Cost of sales 2,770.6 3,749.1 7,289.4 7,839.5 9,734.9 11,433.8
Gross profit 1,467.2 2,007.7 3,052.0 3,211.2 3,897.5 4,705.6
Admisnistrative expenses 119.0 171.1 321.8 331.5 409.0 484.2
Distribution expenses 193.3 252.4 277.1 331.5 409.0 484.2
Selling expenses 702.2 974.5 1,505.7 1,547.1 1,840.4 2,098.1
Operating profit 452.6 609.7 947.5 1,001.0 1,239.2 1,639.1
Other income 56.1 83.2 68.1 63.5 67.7 70.6
Result From opeating activities 508.7 692.9 1,015.6 1,064.5 1,306.9 1,709.7
Profit from sale of shares 86.2 639.3 512.8
Share of Profit equity accounted investees 37.0 3.8 0.9
EBIT 471.7 775.3 1,654.0 1,577.3 1,306.9 1,709.7
Financing cost 163.7 220.5 523.8 642.8 631.2 584.7
308.0 554.7 1,130.2 934.5 675.7 1,125.0
Provision for contribution to WPPF 17.7 28.6 35.5 46.7 33.8 56.3

Profit before tax 290.4 526.1 1,094.6 887.8 641.9 1,068.8


Income tax expenses:
Current tax expense 165.6 177.6 194.6 103.1 176.5 293.9
Deferred tax income 14.9 15.7 32.8
Profit after tax 139.7 364.2 932.9 784.7 465.4 774.8

ACI: Balance Sheet


MM BDT 2006 2007 2008 2009E 2010E 2011E
Inventory 1,239.2 1,583.0 3,144.3 2,850.7 3,245.0 3,277.4
Trade debtors 443.0 907.1 1,874.7 2,200.0 2,272.1 2,294.8
Other debtors 81.5 144.5 83.8 110.5 136.3 161.4
Advances, deposits and prepayments 180.8 248.2 357.9 857.9 357.9 357.9
Advance income tax 120.0 234.7 218.8 218.8 218.8 218.8
Inter-company receivable 28.9 27.6 13.0 13.0 13.0 13.0
Cash and bank balances 47.5 82.6 233.8 -566.8 144.3 67.7
Total current assets 2,140.8 3,227.7 5,926.1 5,684.0 6,387.2 6,390.9

PPE at cost/revaluation 1,936.0 2,610.4 3,822.4 5,322.4 6,001.9 6,469.5


Accumulated depreciation 542.6 660.4 846.9 1,121.2 1,461.0 1,835.1
PPE Net 1,393.4 1,949.9 2,975.5 4,201.2 4,540.9 4,634.4

Capital work-in-progress 39.4 567.5 265.0 265.0 265.0 265.0


Intangible assets 104.7 104.7 108.3 108.3 108.3 108.3
Investment 38.1 62.0 134.5 134.5 134.5 134.5
Total non-current assets 1,575.5 2,684.1 3,483.2 4,708.9 5,048.6 5,142.1

Total assets 3,716.3 5,911.9 9,409.3 10,392.9 11,435.8 11,533.0

Bank overdraft 166.1 314.2 1,209.6 1,200.0 1,000.0 500.0


Short term bank loan 1,178.7 1,915.0 2,870.8 3,200.0 2,870.8 2,870.8
Long term bank loan- Current portion 46.2 154.8 232.9 232.9 232.9 232.9
Trade creditors 100.6 152.0 473.1 508.8 631.8 631.8
Other creditors 404.8 607.4 840.3 882.5 1,061.4 1,224.4
Inter company liability 0.0 0.0 0.0 0.0 0.0 0.0
Current portion of lease obligation 14.8 10.2 5.7 1.2 0.0 0.0
Provision for taxation 222.5 328.2 339.1 339.1 339.1 339.1
Total current liabilities 2,133.8 3,481.9 5,971.6 6,364.5 6,136.1 5,799.1

Zero coupon bond 1,000.0 800.0


Long term bank loan 44.5 281.2 313.3 313.3 313.3 313.3
Other liabilities 325.6 348.6 312.4 312.4 312.4 312.4
Long term liabilities 370.1 629.8 625.7 625.7 1,625.7 1,425.7

Total liabilities 2,503.9 4,111.7 6,597.3 6,990.3 7,761.8 7,224.8

Share capital 161.7 161.7 161.7 194.0 194.0 247.5


Share premium 250.0 250.0 250.0 250.0 250.0 250.0
Capital reserve 1.8 1.7 1.7 1.7 1.7 1.7
Special Reserve 0.1
Revaluation surplus 273.1 600.3 597.3 597.3 597.3 597.3
Tax Holiday Reserve 34.5
Retained earnings 411.9 693.7 1,493.3 2,051.6 2,322.9 2,903.7
Total equity 1,133.1 1,707.4 2,504.0 3,094.6 3,365.9 4,000.2

Minority interest 79.3 92.8 308.0 308.0 308.0 308.0

Total equity and liabilities 3,716.3 5,911.9 9,409.3 10,392.9 11,435.8 11,533.0
Top Pharmaceutical Companies
February 2010

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