Ferozsons

PAF – KARACHI INSTITUTE OF ECONOMICS AND
TECHNOLOGY
FINAL YEAR PROJECT
FINANCIAL ANALYSIS OF FEROZSONS LABORATORIES LIMITED WITH

PHARMACEUTICAL SECTOR OF PAKISTAN
SUPERVISOR
MR. JALAL AHMED KHAN
SPRING 2019
SUBMITTED BY
MUZAMMIL AHMED
(REG NO: 60022)
REPORT SUBMITTED TO
PAF-KARACHI INSTITUTE OF ECONOMICS & TECHNOLOGY
In the fulfillment of the degree requirement of
Bachelor of Accounting & Finance
DEPARTMENT OF MANAGEMENT SCIENCES
THESIS APPROVAL
THESIS TITLE: FINANCIAL ANALYSIS OF FERONZSONS LABS
LIMITED WITH PHARMACEUTICAL SECTOR OF

PAKISTAN
SUBMITTED BY: MUZAMMIL AHMED
THESIS SUPERVISOR: Mr. JALAL AHMED KHAN
ACADEMIC YEAR: 2019
The board of studies at PAF-KIET has approved this Thesis, submitted in partial fulfillment of the
requirement for the Degree of Bachelors in Sciences of Accounting and Finance.
Approval
____________________ ____________________
Jalal Ahmed Khan Adnan Anwar
(Supervisor and Program Manager) (Director Management Science)
FEROZSONS LABORATORIES LIMITED II

LETTER OF TRANSMITTAL
Mr. JALAL AHMED KHAN
Instructor, Accounting and Finance
PAF KIET
Respected Sir,
I have chosen to do a comparative study on Ferozsons Labs Limited with the pharmaceutical sector. I
have chosen this topic to study and analyze the financial reports and performance which has been
assessed through studying various sector trends and information available at Pakistan Stock Exchange.
During this research, I have analyzed five public listed companies at Pakistan Stock Exchange from
pharmaceutical sector and attempted to study their business cycle as well as their business trend. All
the companies chosen have reported high turnover and considered leaders within the sector.
I would like to express my gratitude as this research endeavor has been an edifying experience for me.
I appreciate the support you have given throughout my efforts. I have tried my best to provide all the
relevant information, and would be pleased to answer any of your queries.
Regards,
MUZAMMIL AHMED (60022)
FEROZSONS LABORATORIES LIMITED III

LETTER OF AUTHORIZATION
Dear Reader,
Mr. Jalal Ahmed Khan (Supervisor for Final Year Project), as the requirement of the Final Year Project
authorized this report submission on “Financial Analysis of FEROZSONS LABS LIMITED with
PHARMACEUTICAL SECTOR of Pakistan”
For preparing a detailed report on this topic, I thank all those who have provided me with their
valuable assistance so that I have taken the responsibility to complete the report in the assigned time.
Regards,
FEROZSONS LABORATORIES LIMITED IV

ACKNOWLEDGEMENT
This report is of Financial Analysis of FEROZSONS LABS LIMITED with PHARMACEUTICAL

SECTOR of Pakistan‖, and has been prepared as part of the Bachelors’ Degree requirement. The
material compiled and presented in this report is a result of immense hard work and is subject to
information and data provided by FEROZSONS LABS and other members of the
PHARMACEUTICAL SECTOR.
Praise be to the almighty who was the only source of strength throughout this endeavor. Also, our
instructor Sir Jalal Ahmed Khan supervision, constant support and professional guidance made this
effort worthwhile and an enlightening experience.
Regards,
FEROZSONS LABORATORIES LIMITED V

METHODOLOGY
The method for research and analyses is as follows:
Ferozsons Labs Limited has been compared with the pharmaceutical sector of Pakistan.
Financial data of five listed companies has been considered for this project and these
companies have been taken as representative of the overall sector.
Six-year horizontal analysis has been carried out for the company and industry.
Six-year vertical analysis has been carried out for the company and industry.
Six-year ratio analysis has been carried out for the company and industry.
Comparative ratio analysis has also been carried out between Ferozsons Labs and
pharmaceutical sector.
Porter Analysis and SWOT Analysis have been undertaken to study the underlying factors
affecting the financial position of the sector.
Risk factor has been analyzed to arrive at the cost of equity of Ferozsons Labs Limited.
Beta computation for Ferozsons Labs Limited has also been done
Conclusively, suggestions and recommendations have been made for potential investors
FEROZSONS LABORATORIES LIMITED VI

PROJECT DIMENSIONS
Company Name: FEROZSONS LABORATORIES LIMITED
Sector: PHARMACEUTICAL
Status: OPERATIONAL
Type: PUBLIC LISTED COMPANY
Product: TABLETS, CAPSULES, SYRUPS, SUSPENSIONS & OINTMENTS
CORPORATE HEAD QUARTER
5 KM SUNDAR RAIWIND ROAD, RAIWIND,

LAHORE PAKISTAN
COMPETITORS
Total Number of Listed Companies -------- 12
Number of Competitors selected -------- 05
LIST OF COMPANIES USED IN INDUSTRY ANALYSIS:
 GlaxoSmithKline Pakistan Limited

 Sanofi Aventis Pakistan Limited
 Searle Pakistan Limited
 Abbot Laboratories Pakistan Limited
 Highnoon Laboratories Limited
FEROZSONS LABORATORIES LIMITED VII

Contents
EXECUTIVE SUMMARY .................................................................................................................. 1
INVESTORS’ GUIDE .......................................................................................................................... 2
CAPITAL ASSET PRICING MODEL FOR BETA CALCULATION .......................................... 3
PHARMACEUTICAL INDUSTRY .................................................................................................... 4
A GLOBAL PERSEPECTIVE ............................................................................................................ 4
HISTORY ............................................................................................................................................... 5
OVERVIEW ........................................................................................................................................... 7
Modern Trends ................................................................................................................................ 7
Risks .................................................................................................................................................. 7
Mergers and Acquisition ............................................................................................................... 8
Prospects ........................................................................................................................................... 8
The Marketing Process .................................................................................................................. 9
Research & Development ........................................................................................................... 10
Pharmaceutical Sector & Global Economy ............................................................................ 13
Financial Situation of the Sector .............................................................................................. 15
General Overview of the Industry ............................................................................................ 26
Industry PESTEL .......................................................................................................................... 28
Porter’s Five Forces .......................................................................................................................... 30
PAKISTAN’S PHARMACEUTICAL SECTOR ............................................................................. 32
The Industry ...................................................................................................................................... 33
The Composition............................................................................................................................... 34
Listed Companies.............................................................................................................................. 35
Inherent Risk in Pakistan’s Pharmaceutical Industry........................................................................ 36
FINANCIAL OVERVIEW OF PAKISTAN’S PHARMACEUTICAL SECTOR ....................... 37
COMPETITORS’ FINANCIAL PERFORMANCE ....................................................................... 38
RETURN ON ASSET ......................................................................................................................... 39
RETURN ON CAPITAL EMPLOYED ............................................................................................ 40
RETURN ON EQUITY ...................................................................................................................... 41
GROSS PROFIT MARGIN ............................................................................................................... 42
OPERATING PROFIT MARGIN .................................................................................................... 43
NET PROFIT MARGIN .................................................................................................................... 44
CURRENT RATIO ............................................................................................................................. 45
ASSET TURNOVER .......................................................................................................................... 46
INVENTORY TURNOVER .............................................................................................................. 47
FEROZSONS LABORATORIES LIMITED VIII
LONG TERM DEBT TO EQUITY .................................................................................................. 48
NET WORKING CAPITAL .............................................................................................................. 49
P/E RATIO .......................................................................................................................................... 50
COMPETITORS’ RATIOS ............................................................................................................... 51
RATIO ANALYSIS OF THE INDUSTRY ...................................................................................... 56
INDUSTRY RETURN ON ASSET ................................................................................................... 57
INDUSTRY RETURN ON CAPITAL EMPLOYED ...................................................................... 58
INDUSTRY RETURN ON EQUITY ................................................................................................ 59
INDUSTRY GROSS PROFIT MARGIN ......................................................................................... 60
INDUSTRY OPERATING PROFIT MARGINS ............................................................................ 61
INDUSTRY NET PROFIT MARGIN .............................................................................................. 62
INDUSTRY CURRENT RATIO ....................................................................................................... 63
INDUSTRY ASSET TURNOVER .................................................................................................... 64
INDUSTRY INVENTORY TURNOVER ........................................................................................ 65
INDUSTRY NET WORKING CAPITAL ........................................................................................ 66
INDUSTRY LONG TERM DEBT TO EQUITY RATIO............................................................... 67
INDUSTRY P/E RATIO .................................................................................................................... 68
COMBINED INDUSTRY INCOME STATEMENT ...................................................................... 69
HORIZONTAL ANALYSIS .............................................................................................................. 70
COMBINED INDUSTRY HORIZONTAL ANALYSIS (Graph) .................................................. 71
VERTICAL ANALYSIS .................................................................................................................... 72
COMBINED INDUSTRY VERTICAL ANALYSIS (Graph) ........................................................ 73
COMBINED INDUSTRY BALANCE SHEET ............................................................................... 73
COMBINED INDUSTRY HORIZONTAL ANALYSIS (Graph) .................................................. 75
COMBINED INDUSTRY CASH FLOW STATEMENT ............................................................... 77
FEROZSONS LABORATORIES LIMITED .................................................................................. 78
PROFILE ............................................................................................................................................. 79
INTRODUCTION............................................................................................................................... 80
HISTORY ............................................................................................................................................ 81
A Timeline............................................................................................................................................ 82
FINANCIAL PERFORMANCE OF FEROZSONS LABS ............................................................ 89
FEROZSONS LABORATORIES LIMITED INCOME STATEMENT....................................... 90
FEROZSONS LABORATORIES LIMITED BALANCE SHEET ................................................ 93
VERTICAL ANALYSIS .................................................................................................................... 95
HORIZONTAL ANALYSIS .............................................................................................................. 97
FEROZSONS LABORATORIES LIMITED IX
RATIO ANALYSIS OF FEROZSONS LABS LIMITED .............................................................. 99
RETURN ON ASSET ....................................................................................................................... 100
RETURN ON CAPITAL EMPLOYED .......................................................................................... 101
RETURN ON EQUITY .................................................................................................................... 102
GROSS PROFIT MARGIN ............................................................................................................. 103
OPERATING PROFIT MARGINS ................................................................................................ 104
NET PROFIT MARGIN .................................................................................................................. 105
PROFIT BEFORE TAXATION ..................................................................................................... 106
CURRENT RATIO ........................................................................................................................... 107
FIXED ASSET TURNOVER........................................................................................................... 108
INVENTORY TURNOVER ............................................................................................................ 109
PAYABLES TURNOVER RATIO ................................................................................................. 110
ACCOUNT PAYABLES DAYS ...................................................................................................... 111
RECEIVABLES TURNOVER RATIO .......................................................................................... 112
ACCOUNTS RECEIVABLES DAYS ............................................................................................. 113
LONG TERM DEBT TO EQUITY RATIO .................................................................................. 114
P/E RATIO ........................................................................................................................................ 115
OPERATING CASH FLOW TO SALES ....................................................................................... 116
INTEREST COVER ......................................................................................................................... 117
COMPARISON OF INDUSTRY WITH FEROZSONS LABORATORIES LIMITED ........... 118
RETURN ON ASSET ....................................................................................................................... 119
RETURN ON CAPITAL EMPLOYED .......................................................................................... 120
RETURN ON EQUITY .................................................................................................................... 121
GROSS PROFIT MARGIN ............................................................................................................. 122
OPERATING PROFIT MARGIN .................................................................................................. 123
NET PROFIT MARGIN .................................................................................................................. 124
CURRENT RATIO ........................................................................................................................... 125
ASSET TURNOVER ........................................................................................................................ 126
INVENTORY TURNOVER ............................................................................................................ 127
LONG TERM DEBT TO EQUITY ................................................................................................ 128
P/E RATIO ........................................................................................................................................ 129
COMPARISON OF FINANCIAL STATEMENTS OF INDUSTRY WITH FEROZSONS ............ 130
SALES ................................................................................................................................................ 131
COST OF SALES ............................................................................................................................. 132
GROSS PROFIT ............................................................................................................................... 133
FEROZSONS LABORATORIES LIMITED X
OPERATING EXPENSES ............................................................................................................... 134
PROFIT FROM OPERATIONS ..................................................................................................... 135
FINANCE COST .............................................................................................................................. 136
PROFIT BEFORE TAX................................................................................................................... 137
TAXATION ....................................................................................................................................... 138
PROFIT AFTER TAX ..................................................................................................................... 139
NON-CURRENT ASSET ................................................................................................................. 140
CURRENT ASSETS ......................................................................................................................... 140
TOTAL ASSET ................................................................................................................................. 141
EQUITY ............................................................................................................................................. 141
NON-CURRENT LIABILITY......................................................................................................... 142
CURRENT LIABLITY .................................................................................................................... 142
TOTAL LIABILITY ........................................................................................................................ 143
TOTAL EQUITY & LIABILITY ................................................................................................... 143
CASH FLOWS FROM OPERATING ACTIVITIES ................................................................... 144
CASH FLOWS FROM INVESTING ACTIVITIES ..................................................................... 144
CASH FLOWS FROM FINANCING ACTIVITIES .................................................................... 145
NET INC/DEC IN CASH & CASH EQUIVALENTS................................................................... 145
CASH & CASH EQUIVALENTS AT THE BEGINNING OF YEAR ........................................ 146
CASH & CASH EQUIVALENTS AT THE END OF YEAR ....................................................... 146
CONCLUSIONS ............................................................................................................................... 147
ANNEXURES .................................................................................................................................... 148
SOURCES.......................................................................................................................................... 169
FEROZSONS LABORATORIES LIMITED XI

FEROZSONS LABORATORIES LIMITED II
EXECUTIVE SUMMARY
This comprehensive financial analysis of the Pakistani pharmaceutical industry contextualizes the
sector wise performance by comparing Ferozsons Laboratories Ltd with certain listed competitors.
These include, Abbott, GSK, Searle, Highnoon and Sanofi – Aventis. Their average has been taken as
a performance measure for the industry at large. The comparison shows that the sector is highly
competitive with strong fundamentals, these companies have established efficient internal controls and
harnessed modern technologies which helped them to make significant strides. The sector distinguishes
itself by lower finance costs which results in profitability. Pakistan serves major share of its
pharmaceutical industry through imports. The recent import data is as follows:
(Source: tradingeconomics.com)
The main focus of this report is the financial performance of Ferozsons relative to the sector. In course
of achieving this task, macroeconomic factors such as GDP, PEST analysis and other relevant financial
data has been presented. To further put things into perspective global and domestic pharmaceutical
sector was examined for the past six years (2012 – 2017).
Various financial metrics have been used to study Ferozsons Labs. The same measurements were used
to ascertain industry performances to make the framework consistent and comparative. All of this
analysis is presented in Pakistan Rupee (PKR). For Ferozsons, company structure and history has also
been illustrated. CAPM was utilized to arrive at Beta, which indicates that the stock of Ferozsons is
stable relative to the market. An attractive investment for the risk averse.
Conclusively, recommendations have been made for the prospective investors about what future holds
for the stock of Ferozsons Labs based on the six-year financial summary.
FEROZSONS LABORATORIES LIMITED 1

INVESTORS’ GUIDE
The Pakistani pharmaceutical industry is dominated by multinational giants. However, apart from
companies like Abbott, GSK, Searle and Sanofi, local pharmaceutical initiatives have made strides with
comparatively limited technological expertise and resources. This has been achieved by strategic
partnerships around the globe and internal expertise. Among the listed companies, Ferozsons’
dominates 1.1% of the market. Given the size of the industry, this seemingly insignificant figure is quite
substantial. A slump in market price could be linked with attrition in profits relative to last year.
Ferozsons, nevertheless, posted strong fundamentals which should keep the investors’ optimistic.
FEROZSONS LABS - FUNDAMENTALS FOR INVESTORS

Year 2012 2013 2014 2015 2016 2017 Average
PAT (Rs. Million) 2766 2882 3832 5711 11335 5002 5255
EPS 13.53 13.54 13.83 24.80 69.72 13.04 24.74
SHARE PRICE 81 111 230 640 1031 387 413.33
P/E RATIO 6.10 8.20 16.70 25.80 14.80 29.60 16.87
DIVIDEND PAYOUT (%) 33.30 51.70 86.80 76.60 31.60 53.70 55.62
BETA 0.67
A consistent expansion in the profits can be seen in the first line of the above illustration, a testament
to strong internal controls and efficient sales and marketing effort. The exponential expansion in the
year 2016 resulted from development of product portfolio. The depletion in profits in subsequent year
is an anomaly caused by inherent risks in the markets. Despite these tribulations, the company reports
a consistent payout ratio. It is also forecasted that retarding trends in income and share price will soon
reverse as the company plans to further diversify the product portfolio. Ferozsons capital structure
remains stable and the company is not under the burden of debt.
EPS
80.00 69.72
70.00
60.00
50.00
40.00
24.80
30.00
20.00 13.53 13.54 13.83 13.04
10.00
0.00
2012 2013 2014 2015 2016 2017
Introduction of new product in the HCV segment caused the rise in the EPS. The erosion in profits in
2017 resulted in the reduction of EPS. For prospective investors, a trend of growth is on the horizon.

CAPITAL ASSET PRICING MODEL FOR BETA CALCULATION
Formula:
KE = RF + RM - RF)
Risk free rate 10.60%
Average market return 21.38%

Cost of equity 17.82%
Re - arranged formula:
= K E - RF
(RM - RF)
= (17.82 - 10.60)
(21.38 - 10.60)
= 7.22%
10.78%
Beta = = 0.67

PHARMACEUTICAL
INDUSTRY
A GLOBAL
PERSEPECTIVE

HISTORY
The history of pharmaceutical industry, like history of anything else, is closely related to our
own history. There is credible and significant historical evidence which tell us that medicine
making goes as far back as 7000 BC. Every civilization, from ancient Greece to China
developed some sort of medicinal science. Great strides were made in the field in the Islamic
Golden Age, when great Muslim scientists brought their ideas to the fore. With the dawn of the
age of enlightenment in Europe and consequently with the advent of rational and scientific
thought, the field of medicine also developed rapidly. The pharmaceutical giant Merck is
considered to be the first formalized setup to start manufacturing of drugs at an industrial scale.
The next to follow was SmithKline Beecham and Glaxo Wellcome (later merged as
GlaxoSmithKline). In the nascent days of pharmaceutical industry, the demarcation between
chemical and medicine making wasn’t clear, the first dedicated production facility was setup
in the year 1859. Meanwhile, Pfizer took its first steps in the 1849 in the USA. The company
expanded at an exponential rate during the American Civil War. Pfizer is also credited with the
establishment of R&D as a function to support the business. The watershed moment for the
industry arrived with the discoveries of Insulin and Penicillin. Insulin’s explosion in the market
solidified the position of major pharmaceutical companies in the market, as this is the only
remedy to a diabetes which before the discovery of Insulin always resulted in a fatality.
Alexander Fleming’s discovery of Penicillin also ushered in a new era. Almost every major
player in the pharmaceutical industry took part in the industrial development of Penicillin.
Considered by many to be the greatest ever discovery in the field of medicine. By this time,
governments established regulatory authorities to protect the consumer and also to set standards
for the industry. To make the competition beneficial for all, protection through patents also
became an industry wide practice. The drug regulatory authorities also started regulating prices
to ensure that exploitative practices do not occur in the market. As the concept of welfare states
took roots, government bodies like NHS became a conduit between the end-user and the
manufacturer. The system of prescription also became more systematic. On the contrary the
American pharma benefited from a more open market. The leaders of the industry started to
invest heavily in research and development which resulted in the expansion and diversification
of their product portfolios. An idea about the size of current pharmaceutical industry can be
formed by the fact that it led the net profit margins by almost 30% globally. As of 2017, the

pharmaceutical industry spends approximately 15% of its net sales on R&D, with the top five
companies in the sector spending upwards of $100 billion annually.

OVERVIEW
It would not be an exaggeration if one claims that the research and development in the field of
pharmacy has impacted the human life in an unparalleled way. Prior to the advent of discovery
and systematic production of medicines the life expectancy of the entire planet on average was
low. In the absence of affordable drugs, even minor ailments like flu proved to be fatal.
Presently, the sector derives its strength by leveraging technology to achieve the organizational
goals and delivery of services. Analysts note that the global pharmaceutical sector will grow
by one and half trillion dollars in three to five years.
Modern Trends
The contemporary pharmaceutical industry is impacted by several factors, some of them are
detailed below:
 The population has exploded in recent years putting immense pressures on healthcare
spending
 Contraction in recovering economies have stagnated growth in the sector
 The demand in underdeveloped economies rather than developed ones resulting in
diminished return on investment
 Emergence of generics undercutting profits
 Increased oversight from regulators.
Risks
Modern pharmaceutical industry faces the following risks:
 The biggest risk in this sector is not getting a desired return after spending heavily on
R&D.
 Another significant risk is associated with compliance. Malpractice of one player can
taint the whole industry and dent the investor’s confidence.
 Tax regimes in certain regions also have an adverse effect on the performance.
 Incidence of counterfeit drugs in the market specifically impact smaller players in the
industry as big pharma has developed strategies to insulate itself.
 As mentioned above, the shrinkage in healthcare budgets has significantly damaged
revenues.

 Expiring patents pose a threat to continued growth and sales of the sector as well.
Mergers and Acquisition

M&As occur in every industry to facilitate expansion, diversification and attainment of
synergies. As far as pharmaceutical industry is concerned, no other industry comes close the
level and frequency of M&A that occur annually within this sector. Following are some reasons
why M&A occur in the pharmaceutical sector:
 The costs associated with the production of medicines are increasing year on year
 Some companies have opted for specialization in research hence manufacturing is
usually outsourced to the acquired entity
 Expiration of patents and incurrence of other charges often drives mergers and
acquisition within the sector
A snapshot of biggest mergers and acquisition of pharmaceutical sector
YEAR PURCHASER TARGET MERGER/ACQUISITION VALUE (BILLIONS USD)

1999 Pfizer (USA) Warner-Lambert (USA) Acquisition 112
2000 Glaxo Wellcome (UK) SmithKline Beechum (UK) Merger 77
2019 Bristol-Myers Squibb (USA) Celgene (USA) Acquisition 80
2004 Sanofi (France) Aventis (France) Acquisition 74
2015 Actavis (Ireland) Allergan (USA) Acquisition 72
2009 Pfizer (USA) Wyeth (USA) Acquisition 70
2002 Pfizer (USA) Pharmacia (UK) Acquisition 65
2018 Takeda Pharmaceutical (Japan) Shire (Ireland) Acquisition 60
2016 Bayer (Germany) Monsanto (USA) Acquisition 66
2009 Merck & Co. (USA) Schering-Plough (USA) Acquisition 48
Prospects
The outlook of the industry looks stable and the margin of growth financially and otherwise
should be encouraging for investors:
 More than 200 drugs are to be introduced

 The exponential rise in population means augmentation in revenues
 The expected growth is 10%
 The sector is known for deployment of new technology hence more efficiency and
independence

The Marketing Process
The sales and marketing process in the pharmaceutical sector differ significantly from any other
industry. Usually, to market a product, the company first develops the market to educate and
inform the potential buyer about the value proposition of the product. This practice, however,
is not feasible for the pharmaceutical sector. The reason being the specialized nature of the
products offered. As the uninitiated simply lacks the knowledge about the formulae and
composition of drugs and how they treat certain diseases. It can be said that the marketing is
an indirect product process in this sector. The drugs are marketed to the doctors who in turn
write prescriptions.
Following process flow elucidates the process:
SALES REPRESENTATIVES
MARKET THE DRUGS TO
DOCTORS
DOCTORS PRESCRIBE THE

MARKETED DRUGS
DRUGS ARE THEN BOUGHT

FROM THE PHARMACY

Research & Development
R&D forms the backbone of this industry. In fact, the industry today stands on the shoulders
of giants who have worked hard altruistically, for the betterment of humanity. Discovery of
penicillin and separation of insulin are testament to this fact. Pharma around the globe spend
massively on research and development to gain competitive advantage. Only technology sector
spends more than pharmaceutical sector on R&D. The assumption of risk is huge on part of the
sector as the results are not guaranteed. Even in the case of successful research and
consequently development and marketing effort, regulations and intrinsic market risk can bog
down the whole endeavor.
A process flow to illustrate the R&D process in the industry:
As evidenced above the entire process takes considerable time and resources. Each phase in
the process incurs as much as a billion dollars. A study estimates that even after this exhaustive
effort, the chances of getting a desired return on investment is one out of three.

In 2015 alone, the industry spent almost $150 billion. Recessions and contractions have come
and gone but the research and development expenditure of the pharmaceutical sector has rose
year on year. Aerospace and defense industries spend six times less.
To further consolidate the argument, the pharmaceutical sector has registered nearly ten
thousand patents with World Intellectual Property Organization (WIPO). No other industry
boasts similar huge figures in terms of R&D and patent registration.
A few figures to put things in perspective and illustrate the point:
RESEARCH & DEVELOPMENT EXPENDITURE

160
140
120
100
USD Billion
80
60
40
20
0
2012 2013 2014 2015 2016 2017
(Source: Evaluate Pharma (2017) World Preview 2017, Outlook to 2022. London: Evaluate Ltd., p 27.
http://info.evaluategroup.com/rs/607-YGS-364/images/wp16.pdf)
Most of the economies worldwide were in a recovery phase post 2008 bust, however, the above
figure illustrates that the pharmaceutical sector was impervious to these economic contractions
and year on year increment in R&D spending continued.
To further elucidate this point and to make a sense of it all, let us see the R&D spending of
pharmaceutical sector relative to other sectors:

R&D IN VES TMEN TS BY S ECTOR
General Industries
Chemicals
Electronic & Electrical Equipment
Tech (Hardware)
Pharma & Biotech

0 50 100 150 200 250 300
EUROS BILLION
EU USA JAPAN RoW Total
As a percentage of sale pharmaceutical industry has the biggest expenditure in the world.
Following are the top ten firms and their R&D expenditure in relation to their sales in 2017.
COMPANY SALES (USD Million) R&D EXPENDITURE (USD Million) % OF SALES

Pfizer 45,345 7,627 16.82%
Novartis 41,875 7,823 18.68%
Roche 41,732 9,181 22.00%
Merck & Co 35,370 7,563 21.38%
Johnson & Johnson 34,397 8,360 24.30%
Sanofi 34,078 6,184 18.15%
GSK 28,668 4,978 17.36%
AbbVie 27,743 4,829 17.41%
Gilead Sciences 25,662 3,523 13.73%
Amgen 21,795 3,482 15.98%
(Source: EvaluatePharma)

Pharmaceutical Sector & Global Economy
As the industry became more and more formal and standardized, pharmaceutical sector has
contributed significantly towards the global economy. The industry has become substantial part
of developed and under developed countries. Pharmaceutical sector has been a reason of
livelihood of millions of employees around the world. The birth of generic medicine industry
has broadened the scope of the sector and spurred the economies of various countries. The
contribution made by the sector to the respective exchequers of various countries also cannot
be disregarded. Investments carried out in the form of R&D and production prove to be a
positive stimulus for the economies. If global impact is considered the production value of the
sector clocked at almost a trillion dollars in 2014 alone.
As far as employment is concerned, the sector played central role in under developed and
developed economies alike. There are about 5.5 million people currently employed in the
sector. A number expected to rise in future. A positive aspect of employment in the sector is
that it is limited to developed regions like Europe or US. The jobs are spread throughout the
globe and result in creation of more jobs in economies which are in building phases.
The following statistics refer to the number of people employed in the sector globally.
2012 2013 2014

ASIA 3,000,000 3,167,000 3,244,000
EUROPE 750,000 800,000 740,000
NORTH AMERICA 276,000 267,000 70,000
SOUTH AMERICA 259,000 363,000 466,000
AFRICA 142,000 191,000 250,000
OCEANIA 19,000 18,000 22,000
WORLDWIDE 4,446,000 4,806,000 4,792,000

The sector is also known for value addition through efficient production procedures (It is the
value of manufactured goods after netting off value of purchased inventory and services). Total
value added by pharmaceutical sector throughout the globe was bigger than the GDP of certain
South American countries (approx. $460 billion). A bifurcated value addition figures can be
seen in the following table:
USD Billion 2009 2010 2011 2012 2013 2014

ASIA 131.1 148.7 157.2 163.3 148.3 153.9
EUROPE 130.5 135.1 146 134.8 140.9 142.8
NORTH AMERICA 110.5 104.9 102.6 105.3 108.3 111.8
SOUTH AMERICA 18.4 20.4 25.2 24.9 21.7 24.6
AFRICA 4.4 5.5 5.5 5.1 6.2 6.8
OCEANIA 2.4 3.5 3.2 3.3 3.6 2.7
WORLDWIDE 397.3 418.1 439.7 436.7 429 442.6
(Source: WIFOR Institute 2016)
As evidenced from the above table, the gross value addition has followed an increasing trend
and will continue to rise in future. Taking the sector and the global economy forward.

Financial Situation of the Sector
Pharmaceutical sector posted a revenue for $175.1 billion in 2017. The growth augmented to
about 4% since 2012. $40 billion profit was also reported in 2017. However, these profits could
have been higher as major profit attrition was caused by patent cliffs. The emergence of
generics as a result undercut the profits. Analysts have also noted that in several cases the big
pharma continued to manufacture drugs and outsourced R&D to circumvent depletion in sales
and to retain competitive advantage.
Market dynamics of pharmaceutical sector from a financial perspective can be understood

further by sector averages:
Current Ratio
The industry current ratio rests an average of 3.61. It signifies that the companies in the sector
can cover their short-term liabilities without constraining the working capital.
CURRENT RATIO
6.00
4.72
5.00
4.00 3.62
3.41 3.31
3.00
3.00
2.00
1.00
-
2012 2013 2014 2015 2016

Gross Profit
The industry wide gross profit margins were reported upwards of 70% on average in these five
years, indicating that standardized processes and efficiencies. A healthy gross profit margin
helps in the coverage of ever rising costs of operations.
GROSS PROFIT (%)

73.00
71.83
72.00
71.00
70.19 70.26
70.00
69.02
68.81
69.00
68.00
67.00
66.00
2012 2013 2014 2015 2016

Operational Profit
Although gross profit has been substantially higher. A negative trend in operating profits can
be observed. This is due to rise in operational costs and exchange rate snags that multinationals
often face.
OPERATING PROFIT (%)

25.00 22.42
20.62 20.17
20.00 17.94 17.34
15.00
10.00
5.00
-
2012 2013 2014 2015 2016

Net Profit
An upward trend in the net profit margin symbolized industry’s tenacity even in most adverse
macroeconomic exertions. The rising costs of operations has undercut the profits but the
companies have been able to post healthy net profit margins. Industry has an average net profit
margin of 20%.
NET PROFIT (%)

30.00
24.10
25.00
21.63
20.42
20.00 17.81 17.65
15.00
10.00
5.00
-
2012 2013 2014 2015 2016

Return on Assets
The industry return on assets almost follows a flat trend. Companies in the sector generate
substantial returns for the reasons described previously (efficiency et al). As a sector focused
on manufacturing and with considerable assets, the figures reported signify impressive
performance in these five years. ROA is expected to improve as the revenues are also forecasted
to soar in the near future.
RETURN ON ASSETS
16.00
13.30
14.00 12.70
12.10
12.00 11.20
10.70
10.00
8.00
6.00
4.00
2.00
-
2012 2013 2014 2015 2016

Return on Equity
The declining return on equity correlates to the shrinkage in revenues and subsequently, the
net income. Ideally the return on equity should increase year on year, but as noted elsewhere,
major pharmaceutical companies are suffering from factors such as patent cliffs and exchange
rate uncertainties, to name a few. However, it is forecasted that this trend of retardation will
reverse in coming years.
RETURN ON EQUITY
35.00
30.00
25.90
24.10
25.00
18.80
20.00
15.00 13.30
11.02
10.00
5.00
-
2012 2013 2014 2015 2016

Liquidity & Profitability Ratios
2012 2013 2014 2015 2016

Liquidity
Current Ratio 3.41 3.00 4.72 3.62 3.31

Profitability
Gross (%) 70.19 69.02 68.81 71.83 70.26
Operating (%) 20.62 22.42 20.17 17.94 17.34
Net Profit (%) 17.81 17.65 21.63 24.10 20.42
Return on Assets 11.20 12.70 13.30 12.10 10.70
Return on Equity 24.10 25.90 18.80 13.30 11.02

The performance of three of the biggest companies of pharmaceutical sector is used as a
snapshot for the sector to develop an idea about the aggregate financial condition of the sector.
The three companies are Johnson & Johnson, Merck and Pfizer. The statements are compressed
for the sake of brevity.
Johnson & Johnson
A USA based multinational established in 1886. Considered to be one of the biggest

pharmaceutical companies in world. The company is also among the Fortune 500 list with an
asset valuation of more than $150 billion. The five – year performance of J&J is shown in the
table below.
JOHNSON & JOHNSON

(USD Billion) 2012 2013 2014 2015 2016
Cash 14.91 20.93 14.52 13.73 18.97
Accounts Receivable 11.31 11.71 10.99 10.73 11.70
Inventories 7.50 7.88 8.18 8.05 8.14
Total Current Assets 46.12 56.41 59.31 60.21 65.03
PP&E 16.10 16.71 16.13 15.91 15.91
Other Assets 3.42 4.95 3.23 4.41 4.44
Total Assets 121.35 132.68 131.12 133.41 141.21
Accounts Payable 5.83 6.27 7.63 6.67 6.92
Total Current 24.26 25.68 25.09 27.75 26.29
Liabilities
Long Term Debt 11.49 13.33 15.12 12.86 22.44
Total Liabilities 56.52 58.63 61.37 62.26 70.79
Shareholder Equity 64.83 74.05 69.75 71.15 70.42
121.35 132.68 131.12 133.41 141.21
Total Liabilities &
Shareholders’ Equity
Apart from increased cash generation in 2013, the reported cash in successive years remained
relatively stable. The other balance sheet fundamentals also do no manifest abrupt changes in
these five years, except long term debt which jumped to $ 22 billion. Another important thing
to note that is total liabilities have almost achieved parity with shareholders’ equity, indicating
high level of gearing.

JOHNSON & JOHNSON
(USD Billion) 2012 2013 2014 2015 2016
Revenue 67.22 71.31 74.33 70.07 71.89
COGS 21.66 22.34 22.75 21.54 21.69
Gross Profit 45.56 48.97 51.59 48.54 50.21
Operating
Expenses 29.70 30.59 30.63 30.98 29.56
Operating Profit 15.87 18.38 20.96 17.56 20.65
Interest Expense 0.47 0.41 0.47 0.42 0.36
Net Income 10.85 13.83 16.32 15.41 16.54
Sales on average have remained at $70 billion mark. The cost of goods sold reported is an
evidence of supply chain efficiencies, as year on year no uneven spikes can be seen. Majority
of gross profit is being translated into operating profit, which in turn gives us a bottom line
following an upwards trend.

Merck & Co.
Founded in 1891, Merck is an American pharmaceutical giant. Similar to J&J, Merck is also a
Fortune 500 company. Merck has been leading the market with its largest diabetes drug
(Januvia). Its assets currently have a valuation of about $82 billion. Following table illustrates
the five-year performance:
MERCK & CO
(USD Billion) 2012 2013 2014 2015 2016
Cash 13.45 15.62 7.44 8.52 6.52
Inventories 6.54 6.23 5.57 4.70 4.87
PP&E 16.03 14.97 13.14 12.51 12.03
Other Assets 6.72 9.12 5.13 6.14 5.85
Total Assets 106.13 105.65 98.34 101.78 95.38
Total Current
18.35 17.87 18.77 19.20 17.20
Liabilities
Long Term Debt 16.25 20.54 18.70 23.93 24.27
Total Liabilities & 106.13 105.65 98.34 101.78 95.38
Cash and cash equivalents have diminished year on year, with accounts receivable remaining
relatively consistent. This corresponds with the reduction in the net income. The accounts
payable on average have remained at two and half billion. A significant decrease in total assets
can be observed as well.
MERCK & CO
(USD Billion) 2012 2013 2014 2015 2016
Revenue 47.27 44.03 42.24 39.50 39.81
COGS 16.45 16.95 16.77 14.93 13.89
Gross Profit 30.82 27.08 25.47 25.56 25.92
Operating
21.61 21.12 19.80 17.64 20.54
Expenses
Net Income 6.17 4.40 11.92 4.44 3.92

The dwindling net income confirms the decrease in accounts receivable and cash and cash
equivalents. Market analysts have underlined patent cliff as the sole reason behind the fall in
revenue and subsequently net income.
Pfizer
An almost 200-year-old company, Pfizer have made significant inroads in the sector since their
inception. It is listed NYSE and also among the top 100 in Fortune 500. Total assets valuation
is about $160 billion with strategic mergers with companies like GSK and Allergen. Table
shows Pfizer’s performance:
PFIZER
(USD Billion) 2012 2013 2014 2015 2016
Cash 10.39 2.18 3.34 3.64 2.60
Inventories 7.06 6.17 5.66 7.51 6.78
PP&E 14.46 12.40 11.76 13.77 13.32
Other Assets 5.09 5.15 5.06 5.29 5.14
Total Assets 185.80 172.10 169.27 167.46 171.62
Total Current
Liabilities 28.62 23.37 21.63 29.40 31.12
Long Term Debt 31.04 30.46 31.54 28.82 31.40
Total Liabilities & 185.80 172.10 169.27 167.46 171.62
Most noticeable aspect of Pfizer’s balance sheet is the high amount of gearing in the capital
structure. The total liabilities amount to almost double of shareholders’ equity. The total assets
have also diminished year on year. It has been reported that Pfizer raised $8 billion through
debt which expires in 2019. The company may return to a more stable position in near future.

PFIZER
(USD Billion) 2012 2013 2014 2015 2016
Revenue 58.99 51.57 49.61 48.85 52.82
COGS 11.33 9.59 9.58 9.65 12.33
Gross Profit 47.65 42.00 40.03 39.20 40.50
Operating
34.48 25.59 27.14 29.74 31.60
Expenses
Net Income 14.57 22.00 9.14 6.96 7.22
On average the revenues have stayed above $50 billion mark. Company reported exchange rate
complications as main reason of income attrition. During these years massive funds were also
tied to the promotion effort of its new Arthritis drug. Market factors have also contributed to
lesser revenues.
General Overview of the Industry

Non-financial factors effect in several ways on the pharmaceutical sector. In some regions the
market is more open and regulations are lax. In such markets the sector thrives. On the contrary,
some markets have rigorous regulatory standards which impede the performance of the entire
sector. A general overview of the industry within the context of these factors is therefore vital
to gain understanding of the sector.
The Life Cycle:
Observers have noted that presently the pharmaceutical sector is in its maturity. Globally, and
as also mentioned previously, the sector is a major contributor in the economies. From
introducing new manufacturing techniques to provision of employment, the pharmaceutical
sector has been one of the leaders.
The costs associated with R&D and operations are on the rise. Markets are also being flooded
with generics which ultimately undercut the revenues for major players.
The Catalysts:
Even though the global economies have recently recovered from recessions and phases of
stagnant growth, improvement in living standards have risen sharply in countries such as China
and India. Population is also on a growing trend. These factors are positive for the
pharmaceutical sector as a whole new market is under development.
If one analyzes the developed economies, the federal subsidies and health insurance are two
chief contributing factors in growth of the factor.
Other than these two factors, there are certain externalities against which it is sometimes
extremely difficult for companies to insulate themselves. These factors will be analyzed
separately.

Industry PESTEL
There are several external forces and factors which act upon any given sector, these forces can
have enriching as well as corrosive effect on any given sector. Here, these forces are analyzed
in order to ascertain their effect on the pharmaceutical sector.
Political
With wealth disparity on the rise, the populist clamor has forced governments around the globe
to levy heavy taxes on large scale manufacturing. Pharmaceutical sector is expected to take full
brunt of this shifting political landscape. For instance, American politician and former
Democratic Party candidate for presidential nomination, Bernie Sanders has often criticized
the lack of regulation for the pharmaceutical sector. In 2017, the US government imposed $85
billion in taxes which caused reductions in earnings. In countries like Pakistan, government-
imposed pricing undercuts revenues. In Europe too, the sector is under immense pressure to
comply with regulations motivated mostly by political expedience rather than logical market
compulsions. The Brexit has also affected the NHS in England, the healthcare is suffering from
staff shortage, budget cuts and closures. It is also forecasted by industry analysts that if Brexit
happens without a deal, the supply will adversely affect consumers and companies alike. R&D
is another are where Brexit would prove to be a destabilizing factor. The financial analysts also
project that a falling value of sterling post Brexit would bring stagnation within the sector.
However, not all is doom and gloom for the sector as manufacturing efficiencies and
innovations can cancel out the retarding trends the sector is likely to face in the long run.
Economic
Where globalization has opened up avenues of unprecedented growth, it has also been a cause
of cut throat competition between the multinationals. The emerging economies such as Brazil
and India have contributed greatly to this sector in the form of low manufacturing costs,
specifically low labor costs because of their massive populations. These factors will soon break
the hegemony of established pharmaceutical powerhouses based in Europe and the USA. In
developed economies, however, there is an upsurge in aging population.
There is also a specter of another recession on the horizon which would result in loss of buying
power throughout the globe. As mentioned, several times, the growth of big multinational
pharmaceutical companies has been diminished by flooding of generics and myriad other

market forces. The expectation of shareholders is all time high, making the companies beholden
when it comes to yielding returns.
Sociocultural
Countries like Japan, China, Denmark and USA among others have highest percentages senior
citizens. United Nations project that population is expect to age in other regions as well. This
would result in increased demand. Another challenge that pharmaceutical companies could
face in near future would be the marketing of expensive medicines as more and more
consumers get savvy and aware. A demand for more transparency should also be anticipated.
New campaigns would have to be initiated as the trust in large corporates are at an all-time
low.
The onus will shift to the pharmaceutical companies to gather more market data in order to
identify the market requirements and consumer behavior.
Legal
The sector across the world is under regulatory microscope. Increased regulatory oversight and
inconsistency of legislation impedes the overall functioning of the sector. In the US, the trump
administration has lobbied hard to annul the Affordable Care Act or Obamacare. This would
result in lower revenues as millions would be affected.
Environmental
Biggest players in the sector may suffer from revenue in stagnation in the future. In the past
the big pharmaceutical companies based their business models on the success of blockbuster
drugs. The sector, however, has evolved. Blockbuster drugs come with baggage like patent
cliffs and regulatory difficulties. As noted elsewhere, major companies have employed mergers
and acquisition to assuage this problem. Hence, in order to retain markets and competitive
advantage across continents, pharmaceutical companies will have to diversify and, in most
cases, acquire the generic manufacturer.

Porter’s Five Forces
This is a framework which examines the nature of competition within a sector. This tool helps
the organization to set targets relative to its competitors and analyze its own position relative
to the competitors.
Rivalry
More than 50% of the market is owned by 5 largest pharmaceutical companies in terms of
revenue. This dominance is mostly due to the prevalent merger and acquisition strategy
employed by the biggest players in the industry. Unlike other industries, the fall in price does
not necessarily result in bigger market shares. A new product in the market would also not
always be the reason of obsolescence of a market leader drug.
Competitors in the pharmaceutical sector seek to lead in terms operational efficiencies,

innovation in the processes and most importantly research and development.
Sellers’ bargaining power
There is little wriggle room for the prospective buyer. The seller intends to be compensated for
huge research and development costs hence the pricing. In some cases, regulatory authorities
dictate a price cap to insulate the customer. In developed economies, insurance covers the cost
of expensive medicines.
Buyers’ bargaining power
Expanding from the above scenario, the bargaining power of the buyer is very low. In some
cases, there is none. Consumers have no choice but to buy the drugs at given prices. If the drug
in question is lifesaving, there is no way around the pricing and the buyer has to pay the asked
price.
Barriers to entry
The barrier for entry in the pharmaceutical is high. There is a substantial amount to be tied in
the research and development costs. The new entrant would also have to comply with stringent
regulatory requirements. Sector also has huge intellectual barriers, as any nascent venture
would have to invest substantial amount of capital in personnel with knowledge specific to the
sector.

Substitutes
The largest pharmaceutical sector distinguishes itself by resources invested in research and
development. Patent cliffs often result in revenue attrition and loss of business to the generic
manufacturer. This way generics often substitutes the branded drugs. Hence threat of substitute
is considerable in the competitive environment of the sector.

PAKISTAN’S
PHARMACEUTICAL
SECTOR

The Industry
The Pakistani pharmaceutical sector can be considered one of the most vital components of Pakistan’s
economy. Major share of activity comes from this industry. It is, however, in a phase of development.
The main avenue of opportunity for the sector is the burgeoning population of the country which would
ultimately become its consumer base. Pharmaceutical sector also employs thousands of citizens across
the country.
Some relevant stats and environmental data of the Pakistani pharmaceutical sector:
 As of 2017, the GDP stands at $279 billion

 6th most populated country in the world, huge potential market
 Annual health expenditure stands at 2.5% of the GDP. One of the lowest in the world
 Around 20% expenditure is on pharmaceutics
 Per capital gross national income stood at $ 5,560
 Sales of the sector crossed the $3 billion mark in 2017
 Growth rate of the sector stood at 11%
 Pharma exports to more than 40 countries reached $207 million
 A total of 759 players compete in the sector, 27 of which are multinationals
 Multinationals account for 35% of total sales, rest are claimed by the local companies
 Almost 75% medicines are locally manufactured
 30% of the market share is claimed by the listed companies

The Composition
Unlike the industry elsewhere, the Pakistani pharmaceutical sector has easy entry barriers, although the
regulatory oversight can be considered stringent. The reason for lower entry barriers is that local
manufacturers focus primarily on generics which doesn’t really require similar capital as the companies
involved in R&D. One of the major disadvantages of this approach is the exposure to the risk of currency
depreciation. The devaluation of rupee could impede operations of a generic major as the active
pharmaceutical ingredient (API) is usually imported. More than 90% of API is imported in the sector,
the rest in synthesized locally. Regulatory oversight comes from the Drug Regulatory Authority of
Pakistan (DRAP). The DRAP plays the role of a referee in matters of patents, sets the price ceiling and
quality standards for the protection of competition and consumers alike. To further elucidate the
composition of the sector, the following table exhibits the top 10 companies with highest market share.
COMPANY MARKET SHARE

GSK PAKISTAN 7.4%
ABBOTT LABS PAKISTAN 6.2%
GETZ PHARMA PAKISTAN 6.2%
SAMI PHARMACEUTICALS 5.2%
MARTIN DOW 4.1%
THE SEARLE COMPANY 3.7%
SANOFI-AVENTIS PAKISTAN 3.1%
GSK CONSUMER HEALTHCARE PAKISTAN 3.0%
OBS PAKISTAN 2.9%
HILTON PHARMA 2.9%
The market consists of several other entities as mentioned previously, which shows the lack of
consolidation in the sector. The Pakistani pharmaceutical sector is diametrically opposite to the global
sector given the dearth of mergers of acquisitions.
It has been reported that MNCs have exited the local market because of regulatory hindrances like price
controls. In some cases, the discouraging factor has been the failure to protect the intellectual property.
It can be hypothesized that this might be the reason behind import bill of APIs.
Custom duties, price caps, taxes and transfer pricing are some factors which usually effect the business
operations of the sector at large

Listed Companies
Most of the pharmaceutical business is concentrated in private entities. The listed sector of the industry
is dominated by multinationals, with local companies also increasingly going for the IPOs. Top 10 listed
companies by market share are represented in the following table:
COMPANY MARKET SHARE

GSK PAKISTAN 7.4%
ABBOTT LABS PAKISTAN 6.2%
THE SEARLE COMPANY 3.7%
SANOFI-AVENTIS PAKISTAN 3.1%
GSK CONSUMER HEALTHCARE PAKISTAN 3.0%
HIGHNOON 1.7%
AGP LIMITED 1.5%
ICI/WYETH 1.4%
FEROZSONS 1.0%
MACTER 1.0%
Listed companies in the sector report high liquidity, low burden of debt and impressive revenues in a
difficult macroeconomic outlook. Later in this report, it has been highlighted the extent of expansion
in terms of manufacturing capabilities, these companies have planned.
2017 ABBOTT GSK SANOFI SEARLE HIGHNOON

Revenue (PKR Billion) 26.09 32.77 12.46 13.31 5.97
Return on assets 21.9% 12.7% 15.2% 19.1% 27.1%
Return on equity 29.3% 22.7% 24.3% 24.4% 30.1%
Net profit margin 16.1% 9.2% 8.1% 18.0% 10.2%
Gross profit margin 38.7% 26.5% 35.6% 40.0% 48.0%

Inherent Risk in Pakistan’s Pharmaceutical Industry
Rupee Devaluation
The larger percentage of the sector deals in products based on imported APIs. Rupee devaluation
increases the cost of doing business, resulting in increasing prices and hence loss of business.
Companies in the sector insulate themselves from such a predicament by having multiple suppliers and
other hedging methods.
Price Caps
Fragile economic condition of the country forces the government into populist policies. Pharmaceutical
sector in particular faces the brunt of such policies. DRAP often imposes price ceilings and freezes.
Regulations
Prolonged periods of delays in getting permits for new drugs undercut the overall growth and stagnates
the revenue projections.
Market Risk
The debt burden on national economy is rising, a major issue which pegs down growth in every sector.
Pharmaceutical companies also get exposed to illegal, counterfeit and substandard medicines due to
weak regulatory controls. The interest rate instabilities for financial instruments held by the companies
also poses a major financial risk.

FINANCIAL OVERVIEW
OF PAKISTAN’S
PHARMACEUTICAL
SECTOR

COMPETITORS’ FINANCIAL PERFORMANCE
We will now look at financial performance of each competitor throughout the six years (2012
– 2017). Following are the competitors against whom the financial health and performance of
Ferozsons Laboratories will be benchmarked further in this report:
 GlaxoSmithKline Pakistan Limited

 Sanofi Aventis Pakistan Limited
 Searle Pakistan Limited
 Abbot Laboratories Pakistan Limited
 Highnoon Laboratories Limited

RETURN ON ASSET
Return on Asset
GSK Sanofi Searle Abbott Highnoon Labs
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
Highnoon labs show a growing trend for the six years in question, but it should be noted that
their total assets carry relatively low value compared to the market leaders like Abbott, GSK
and Sanofi Aventis. Years 2013 and 2014 were recovery periods for national economy hence
lower values of return on assets are natural. Abbott reports a consistent return throughout the
six years underlining their operational stability and maintenance of strong sales despite tough
competition and unfavorable macroeconomic environment. Searle Pakistan recorded
diminishing returns on asset through years 2012 – 2015, but resurgence can be seen in
subsequent years.

RETURN ON CAPITAL EMPLOYED
Return on Capital Employed

50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
Here too Abbott exhibits a consistent movement from 2012 – 2017 relative to competitors.
GSK’s figures throughout these years are lowest. Balance sheet shows that GSK opted for
substantial debt financing which resulted in the contraction of ROCE. It can be said the Abbott
and Sanofi have contributed to the rising industry average of ROCE. with Highnoon Labs have
also been instrumental in raising industry profile in the eyes of investors. Since, this ratio also
gauges the efficiency of a company with regards to utilizations of capital. It is fair to say that
with exception of some time periods the overall performance of the competitors can be deemed
satisfactory.

RETURN ON EQUITY
Return on Equity
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
Global industrial average of return on equity as of January 2018 was 14.49%. Using this as our
benchmark the ratios reported by Pakistani pharmaceutical companies are remarkable. An
inconsistent growth can be seen in early years however the trend reverses and the industry
improve its returns on equity in 2016 and 2017. Highnoon labs return on equity has increased
despite unconducive economic circumstances. Abbott maintains steady growth with minor falls
but recovers in succeeding years.

GROSS PROFIT MARGIN
Gross Profit Margin

60.0
50.0
40.0
30.0
20.0
10.0
-
2012 2013 2014 2015 2016 2017
The average gross profit margin of Searle and Highnoon have consistently outperformed other
industry players. Searle saw an overall growth of 25.61%, this growth was result of increasing
coverage and maturity of the product range. Highnoon attributed the growth to strengthening
of alimentary and metabolism segment drugs. Abbott follows these two companies but posts a
gross profit margin which is constant throughout these years. Sanofi and GSK had relatively
lower gross profit margins which could have been caused by saturation in the market.
On average the industry revenue grew which translated in the increment of gross profit margins
through 2012 – 17.

OPERATING PROFIT MARGIN
Operating Profit Margin

30.0
25.0
20.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
The operating profit margin is indicative of operational efficiency. The steep decline in
Sanofi’s operating profit margin can be linked to their increased cost of distribution and
marketing expenses which soared to almost 19% from the previous years, denting Sanofi’s
operating profits. Abbott, on the contrary maintained their operating margins throughout these
years with effective cost controls and addition of new products to the mix in segments like
nutrition, General Health Care and Diabetes Care. Searle’s rapid growth can be ascribed to
revenues of almost 10 billion PKR, a percentage growth of 25.61%. Highnoon has shown a
trend of steady growth as they reported controls over operational expenses with continuous
improvements in efficiency. Highnoon labs also registered a growth of 18% in net revenues in
the year 2017, leaving behind GSK and Sanofi.

NET PROFIT MARGIN
Net Profit Margin

20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
-
2012 2013 2014 2015 2016 2017
A high net profit margin usually translated into growth in the price of shares, which eventually
results in higher profitability. Sanofi’s decline till 2015 can be result of uncertainty over pricing
policies and macroeconomic factors like inflation and depreciation of Pakistani rupee. Sanofi
also reported logjams in supply of raw materials which could have resulted in lower returns.
Sanofi was also facing significant risk of nonpayment from the customers. However, the
improvement in subsequent years can be seen. This growth was a result in price increase of
some products and more importantly a 3.55% reduction in distribution and marketing expenses.
Abbott has shown notable consistency in net margins. Searle reported 21.94% increase in net
profits in the year 2017 continuing their trend of steady growth.

CURRENT RATIO
Current Ratio
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
2012 2013 2014 2015 2016 2017
Abbott stands out compared to the other investors which is a reflection of their effective
liquidity management. A formal cash flow system has been implemented by Abbott for
monitoring of cash inflows and outflows. Abbott also invests in less risky short-term ventures
ensuring availability of liquid assets. Rest of the competitors, albeit do not exhibit figures as
high as Abbott show a consistent current ratio of 1 or more, implying that the competitors have
been current asset and current liabilities ideally.
A lower current ratio is usually caused by slower inflow of cash. This however, is not an
impeding factor. Pharmaceutical industry of Pakistan is highly competitive and this is the
normal course of business in such an industry.

ASSET TURNOVER
Asset Turnover
2.50
2.00
1.50
1.00
0.50
-
2012 2013 2014 2015 2016 2017
US pharmaceutical industry has reported an average asset turnover below 0.5. The industry
players in Pakistan have shown an asset turnover of above 1 consistently if benchmarked
against the US industry average. Asset turnover is a measure of effectiveness and efficiency in
utilization of assets, hence higher figures are favorable. Asset turnover ratio is used as a general
efficiency ratio in most sectors.
Highnoon Labs leads the industry in this regard as can been in the above graph. Compared to
other competitors their value of assets is far less which could be the reason behind asset high
asset turnover. Abbott and Sanofi have shown a stable asset turnover over these six years. The
local pharmaceutical industry is a high turnover sector as consumption of medicine has
increased with rise in population. Therefore, companies reporting a higher asset turnover is
only logical.

INVENTORY TURNOVER
Inventory Turnover
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
-
2012 2013 2014 2015 2016 2017
Searle stands out by exhibiting highest inventory turnover. This can be a result of sharp growth
in sales revenue as mentioned in previous ratios. It shows that Searle has been managing
inventory better than competitors. GSK, Sanofi and Highnoon show similar trends throughout
the years with inventory turnover of above 2.
Abbott has shown a more consistent trend relative to its competitors. Abbott’s inventory
turnover corresponds to US average of 7.43 as reported in 2017 if this figure is taken as a
benchmark.

LONG TERM DEBT TO EQUITY
Debt to Equity
2.5
2.0
1.5
1.0
0.5
-
2012 2013 2014 2015 2016 2017
The debt to equity ratio of major Pakistani pharmaceutical sector illustrates that the participants
have stable financing structure. Sanofi however is an outlier in this regard. The 2014 and 2015
debt to equity of Sanofi shows a higher degree of gearing hence a riskier venture for any
potential investor. Sanofi financed its operations through debt in those years. This ratio also
corresponds to Sanofi’s diminished gross and net profit margins in the same year. It is to be
noted that Sanofi also spent nearly Rs. 350 million in capital expenditures.
GSK is least geared of the five companies under analysis with an average gearing ratio of 0.1.
showing a more stable capital structure, making it an attractive investment opportunity for a
more risk averse investor. GSK utilizes internal cash generation for capital expenditures as
opposed to external long- or short-term financing.

NET WORKING CAPITAL
Net Working Capital

5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
2012 2013 2014 2015 2016 2017
A working capital above 1 shows that a company would be able to meet its short-term
obligations with the liquid assets. Abbott leads the competitors because of their effective
control over cash inflows and outflows by establishing a cash flow system as mentioned
previously.
The remaining competitors also report a favorable working capital ratio indicating that best
practices regarding management of long- and short-term assets and liabilities has been
established throughout the sector, and day to day operations are not constrained because of
liquidity issues. However, a balance is to be struck to achieve a suitable figure as higher
working capital ratio indicates that inventory is not being turned into cash or surplus cash is
uninvested.

P/E RATIO
P/E Ratio
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
While interpreting P/E ratio, other economic variables should be considered like
macroeconomic environment. Uncertainty has loomed large in recent years due to widespread
entrenchment and political partisanship.
GSK’s lower EPS and increased share price has resulted in growth of P/E ratio through the
years 2012 - 2016. Relative to other competitors Searle trading volume is the highest, which
should have resulted in a lower EPS and subsequently a higher P/E ratio. However, this is not
the case as Searle traded at a lower price compared to Highnoon, GSK, Abbott and Sanofi.
Abbott’s EPS in contrast has been higher than GSK which resulted in lower P/E ratio.
The decline earnings for Highnoon and a higher market price resulted in the sharp rise in their
P/E ratio.
The above industry average is manifestation of investor’s confidence regarding the

pharmaceutical industry of Pakistan.

COMPETITORS’ RATIOS
Return on Asset (%)

2012 2013 2014 2015 2016 2017
GSK 8.1 5.6 8.4 13.5 13.2 12.7
Sanofi 8.9 4.7 3.0 0.9 14.9 15.2
Searle 7.8 12.1 14.2 17.6 18.1 19.1
Abbott 22.4 22.6 20.5 21.8 22.8 21.9
Highnoon Labs 9.4 14.7 21.3 29.1 27.9 27.1
Return on Capital Employed (%)

2012 2013 2014 2015 2016 2017
GSK 8.3 6.2 9.1 13.5 12.9 14.2
Sanofi 40.0 30.5 21.1 15.5 44.9 39.0
Searle 25.5 21.0 23.6 31.8 28.0 27.0
Abbott 31.2 28.9 25.9 27.7 27.6 29.3
Highnoon Labs 14.7 19.8 28.4 35.3 32.5 30.1
Return on Equity (%)
2012 2013 2014 2015 2016 2017

GSK 11.5 9.4 14.1 20.2 19.8 22.7
Sanofi 5.1 13.9 10.0 2.8 29.9 24.3
Searle 19.0 19.7 22.7 27.3 25.2 24.4
Abbott 31.2 28.9 25.9 27.7 27.6 29.3
Highnoon Labs 14.7 19.8 28.4 35.3 32.5 30.1

Gross Profit Margin (%)
2012 2013 2014 2015 2016 2017
GSK 26.2 24.7 25.6 27.0 27.1 26.5
Sanofi 30.4 30.5 25.5 26.0 33.8 35.6
Searle 44.0 45.5 40.8 48.6 39.0 39.0
Abbott 37.4 38.5 38.3 38.9 40.1 38.7
Highnoon Labs 41.6 40.9 44.8 47.5 38.0 47.8
Operating Profit Margin (%)

2012 2013 2014 2015 2016 2017
GSK 10.2 7.8 11.2 15.0 13.4 13.5
Sanofi 10.0 8.8 6.3 4.4 13.7 15.0
Searle 11.0 19.7 11.5 24.1 25.0 22.1
Abbott 19.8 21.4 22.0 23.7 24.2 23.0
Highnoon Labs 6.6 7.9 11.3 16.3 16.7 16.1
Net Profit Margin (%)

2012 2013 2014 2015 2016 2017
GSK 5.60 4.21 6.72 10.54 9.60 9.24
Sanofi 5.64 3.52 2.40 0.62 8.57 8.08
Searle 8.60 10.18 12.41 16.05 18.01 17.98
Abbott 13.73 14.69 14.30 16.94 17.20 16.12
Highnoon Labs 4.19 5.17 7.36 10.01 10.36 10.21

Current Ratio
2012 2013 2014 2015 2016 2017
GSK 2.30 1.91 1.84 1.85 1.70 1.56

Sanofi 1.16 1.27 1.21 1.22 1.73 1.98
Searle 1.25 1.45 1.32 2.02 2.39 2.09
Abbott 2.71 3.26 3.86 3.73 4.30 2.96
Highnoon Labs 1.76 1.45 1.32 2.02 2.39 2.09
Asset Turnover
2012 2013 2014 2015 2016 2017
GSK 1.43 1.41 1.20 1.18 1.30 1.50

Sanofi 1.59 1.35 1.27 1.46 1.74 1.88
Searle 0.98 1.01 0.97 1.08 0.98 0.98
Abbott 1.63 1.54 1.43 1.28 1.33 1.36
Highnoon Labs 1.46 1.91 1.90 1.92 1.78 1.73
Inventory Turnover
2012 2013 2014 2015 2016 2017
GSK 3.10 4.00 3.62 5.06 4.97 5.39

Sanofi 3.20 3.59 2.65 3.78 4.50 5.17
Searle 6.94 9.05 7.55 7.41 7.36 8.82
Abbott 4.01 6.23 6.98 7.28 6.54 7.51
Highnoon Labs 4.80 5.39 5.82 5.12 5.11 5.29

Net Working Capital
2012 2013 2014 2015 2016 2017
GSK 2.3 1.7 1.6 1.9 1.7 1.5
Sanofi 1.2 1.8 1.2 1.2 1.7 2.0
Searle 1.3 1.6 1.7 2.0 2.2 2.4
Abbott 2.7 3.6 3.9 3.7 4.6 3.0
Highnoon Labs 1.8 2.4 2.2 2.7 2.8 4.2
Debt to Equity
2012 2013 2014 2015 2016 2017
GSK 0.1 0.1 0.1 0.1 0.1 0.1

Sanofi 0.1 1.6 2.0 1.8 0.8 0.6
Searle 0.5 0.8 0.9 0.6 0.4 0.4
Abbott 0.4 0.3 0.3 0.3 0.2 0.3
Highnoon Labs 0.4 0.4 0.2 0.2 0.2 0.2
P/E Ratio
2012 2013 2014 2015 2016 2017
GSK 14.6 30.9 37.3 26.5 26.1 21.3

Sanofi 5.4 14.5 32.3 29.9 9.7 18.8
Searle 11.8 6.6 14.7 20.2 25.4 46.9
Abbott 10.8 12.7 18.9 17.6 18.2 20.3
Highnoon Labs 8.4 9.8 13.7 15.9 26.7 26.2

RATIO ANALYSIS OF THE INDUSTRY
Returns 2012 2013 2014 2015 2016 2017

Return on Asset 11.3 11.9 13.5 16.6 19.4 19.2
Return on Capital Employed 23.9 21.3 21.6 24.8 29.2 27.9
Return on Equity 16.3 18.3 20.2 22.7 27.0 26.2
Operating Performance
Gross Profit Margin 35.9 36.0 35.0 37.6 35.6 37.5
Operating Profit Margin 11.5 13.1 12.5 16.7 18.6 18.0
Net Profit Margin 7.6 7.6 8.6 10.8 12.7 12.3
Efficiency
Current Ratio 1.8 1.9 1.9 2.2 2.5 2.1
Asset Turnover 1.4 1.4 1.4 1.4 1.4 1.5
Inventory Turnover 4.4 5.7 5.3 5.7 5.7 6.4
Net Working Capital 1.8 2.2 2.1 2.3 2.6 2.6
Debt to Equity 0.3 0.6 0.7 0.6 0.4 0.3
Valuation
P/E Ratio 10.2 14.9 23.4 22.0 21.2 26.7

INDUSTRY RETURN ON ASSET
Return on Asset
25.0
19.4 19.2
20.0
16.6
15.0 13.5
11.3 11.9
10.0
5.0
-
2012 2013 2014 2015 2016 2017
The steady upward trend as represented above is an indication of effective management and utilization
of resources by individual performers within the industry. Higher return on assets have been reported
throughout the past six year by major players like Abbott Pakistan declaring a return on asset of more
than 20%.
Highnoon labs show a growing trend for the six years in question, but it should be noted that their total
assets carry relatively low value compared to the market leaders like Abbott, GSK and Sanofi Aventis.
Years 2013 and 2014 were recovery periods for national economy hence lower values of return on
assets are natural. Abbott reports a consistent return throughout the six years underlining their
operational stability and maintenance of strong sales despite tough competition and unfavorable
macroeconomic environment. Searle Pakistan recorded diminishing returns on asset through years 2012
– 2015, but resurgence can be seen in subsequent years.
Industries which are not capital-intensive yield higher return on assets. Hence, the measure is best suited
to comparisons made between companies or sectors with same levels of capitalization.

INDUSTRY RETURN ON CAPITAL EMPLOYED

35.0
29.2
30.0 27.9
23.9 24.8
25.0 21.6
21.3
20.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
GSK’s figures throughout these years are lowest. Balance sheet shows that GSK opted for substantial
debt financing which resulted in the contraction of ROCE. It can be said the Abbott and Sanofi have
contributed to the rising industry average of ROCE. with Highnoon Labs have also been instrumental
in raising industry profile in the eyes of investors. Since, this ratio also gauges the efficiency of a
company with regards to utilizations of capital. It is fair to say that with exception of some time periods
the overall performance of the competitors can be deemed satisfactory
The slump in the years 2013 and 2014 can be attributed to overall sluggish nature of the national
economy in those years. Investments in large scale manufacturing witnessed a drop of almost 25%.
Pharmaceutical sector posted an uninspiring growth rate of merely 0.49% in the two years where ROCE
recorded a slump. Some companies also manage the capital structure in accordance with the prevalent
economic conditions of the country, which can have a tangential effect on the ROCE.
However, the surge in the ROCE in the years 2016 and 2017 can be credited to the overall growth in
the economy. Pharmaceutical sector appreciated with a growth rate of 8.7% through these years as
reported by the ministry of finance.

INDUSTRY RETURN ON EQUITY
Return on Equity
30.0 27.0 26.2
25.0 22.7
20.2
20.0 18.3
16.3
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
The gradual upward movement of return on equity indicates the increasing confidence of investor in
the pharmaceutical sector.
Global industrial average of return on equity as of January 2018 was 14.49%. Using this as our
benchmark the ratios reported by Pakistani pharmaceutical companies are remarkable. An inconsistent
growth can be seen in early years however the trend reverses and the industry improve its returns on
equity in 2016 and 2017. Highnoon labs return on equity has increased despite unconducive economic
circumstances. Abbott maintains steady growth with minor falls but recovers in succeeding years.
The figure of 16.3% as reported in the year 2012 is satisfactory compared to the growth of the sector
and macroeconomic adversity country faced at that point of time. The increase in subsequent years can
be credited to the relative recovery in the national economy.

INDUSTRY GROSS PROFIT MARGIN
Gross Profit Margin

50.0
45.0
40.0 37.6 37.5
35.9 36.0 35.0 35.6
35.0
30.0
25.0
20.0
15.0
10.0
5.0
2012 2013 2014 2015 2016 2017
The radical shifts in the gross profit margin is related to the macroeconomic variables of the country.
The large-scale manufacturing was specifically affected by the decelerating growth. The ministry of
finance reported a meager 2.4% growth in large-scale manufacturing, a year on year decrease compared
to 2013. The growth figure stood at a negative 1%.
The average gross profit margin of Searle and Highnoon have consistently outperformed other industry
players. Searle saw an overall growth of 25.61%, this growth was result of increasing coverage and
maturity of the product range. Highnoon attributed the growth to strengthening of alimentary and
metabolism segment drugs. Abbott follows these two companies but posts a gross profit margin which
is constant throughout these years. Sanofi and GSK had relatively lower gross profit margins which
could have been caused by saturation in the market.
The increase in drug prices by 15% in the year 2015 caused an increase of gross profit margins
throughout the sector. Market leaders such as GSK and Abbott Labs reported gross profit margins of
27% and 38% respectively. With Highnoon labs and Searle Pakistan reported gross profit margins in
excess of 40% on average.

INDUSTRY OPERATING PROFIT MARGINS

30.0
25.0
20.0 18.6 18.0

16.7
15.0 13.1 12.5

11.5
10.0
5.0
2012 2013 2014 2015 2016 2017
The steep decline in Sanofi’s operating profit margin can be linked to their increased cost of distribution
and marketing expenses which soared to almost 19% from the previous years, denting Sanofi’s
operating profits. Abbott, on the contrary maintained their operating margins throughout these years
with effective cost controls and addition of new products to the mix in segments like nutrition, General
Health Care and Diabetes Care. Searle’s rapid growth can be ascribed to revenues of almost 10 billion
PKR, a percentage growth of 25.61%. Highnoon has shown a trend of steady growth as they reported
controls over operational expenses with continuous improvements in efficiency. Highnoon labs also
registered a growth of 18% in net revenues in the year 2017, leaving behind GSK and Sanofi.
Globally, pharmaceutical sector often reports operating profit margins upwards of 20%. As the industry
has become highly automated and labor intensity has diminished in recent years. The other major cost
which sometimes dilute operating income are the costs of raw material.
Comparing with developed economies, the operating margin of Pakistani pharmaceutical industry
should not make any potential investor reticent.

INDUSTRY NET PROFIT MARGIN
Net Profit Margin

14.0 12.7
12.3
12.0 10.8
10.0 8.6
7.6 7.6
8.0
6.0
4.0
2.0
-
2012 2013 2014 2015 2016 2017
US net profit margin for pharmaceutical sector sits at 14% on average. Assuming this as our benchmark,
domestic pharmaceutical sector is not far off the mark keeping in mind that US is a developed economy.
In the above grid, net profit margins are following an upwards trajectory. The margins in the years from
2012 to 2014 were affected by an economy which was in its recovery phase. Furthermore, major
pharmaceutical companies have been adjusting price since 2012 as the regulatory authorities and yearly
budgets repeatedly imposed price freezes.
However, the improvement in the net profit margins are a result of efficient processes established by
the companies as a recourse to maximize profits after regulations from the government.
The overall sector was facing an erosion Rs. 112 billion annually as of January 2017. The price freeze
policy has also resulted in declining pharmaceutical exports to $103 million from $250 million.
Abbott has shown notable consistency in net margins. Searle reported 21.94% increase in net profits in
the year 2017 continuing their trend of steady growth.

INDUSTRY CURRENT RATIO
Current Ratio
3.0
2.5
2.5
2.2 2.1
1.8 1.9 1.9
2.0
1.5
1.0
0.5
-
2012 2013 2014 2015 2016 2017
Abbott stands out compared to the other investors which is a reflection of their effective liquidity
management. A formal cash flow system has been implemented by Abbott for monitoring of cash
inflows and outflows. Abbott also invests in less risky short-term ventures ensuring availability of liquid
assets. Rest of the competitors, albeit do not exhibit figures as high as Abbott show a consistent current
ratio of 1 or more, implying that the competitors have been current asset and current liabilities ideally.
A lower current ratio is usually caused by slower inflow of cash. This however, is not an impeding
factor. Pharmaceutical industry of Pakistan is highly competitive and this is the normal course of
business in such an industry.
The figures above indicate that the current ratio is reasonable and industry is able to maintain its current
asset and the management of current liabilities is also efficient hence denominator is not increasing and
impeding operations.
The slight decline in 2017 shouldn’t be a cause of alarm as previous trends show that these fluctuations
are normal and the industry will reverse this movement.

INDUSTRY ASSET TURNOVER
Asset Turnover
3.0
2.5
2.0
1.4 1.4 1.4 1.5

1.4 1.4
1.5
1.0
0.5
-
2012 2013 2014 2015 2016 2017
The industry players in Pakistan have shown an asset turnover of above 1 consistently if benchmarked
against the US industry average which exhibited an asset turnover of below 0.5. Asset turnover is a
measure of effectiveness and efficiency in utilization of assets, hence higher figures are favorable. Asset
turnover ratio is used as a general efficiency ratio in most sectors.
Highnoon Labs leads the industry in this regard as can been in the above graph. Compared to other
competitors their value of assets is far less which could be the reason behind asset high asset turnover.
Abbott and Sanofi have shown a stable asset turnover over these six years. The local pharmaceutical
industry is a high turnover sector as consumption of medicine has increased with rise in population.
Therefore, companies reporting a higher asset turnover is only logical.
A higher than average asset turnover means lower margins. As we have seen above that industry has
reported high gross profit margins and substantial net profit margins. Therefore, it can be concluded
that the asset turnover ratio is reasonable.

INDUSTRY INVENTORY TURNOVER
Inventory Turnover
7.0 6.4
5.7 5.7 5.7
6.0 5.3
5.0 4.4
4.0
3.0
2.0
1.0
-
2012 2013 2014 2015 2016 2017
International pharmaceutical giant Merck has consistently reported an inventory turnover of around 2.5,
it can be ascertained from this fact that the movement of inventory is profitable for the company. Other
global pharmaceutical leaders have reported similar figures as well with Pfizer reporting an inventory
turnover of 1.5 on average. Assuming these figures as benchmarks, the above ratios look remarkable.
Searle stands out by exhibiting highest inventory turnover. This can be a result of sharp growth in sales
revenue as mentioned in previous ratios. It shows that Searle has been managing inventory better than
competitors. GSK, Sanofi and Highnoon show similar trends throughout the years with inventory
turnover of above 2.
Abbott has shown a more consistent trend relative to its competitors. Abbott’s inventory turnover
corresponds to US average of 7.43 as reported in 2017 if this figure is taken as a benchmark.
The inventory turnover ratio has two dimensions, efficiency and profitability. If the efficiency is
undercutting overall returns of the company then this whole metric becomes useless.
However, it is difficult to determine whether this efficiency in Pakistani pharmaceutical industry is

resulting in profitability from the above data. In itself the ratio means that the companies are managing
inventory well and revenue generation is quick.

INDUSTRY NET WORKING CAPITAL
Net Working Capital

3.0
2.6 2.6
2.5 2.3
2.2
2.1
2.0 1.8
1.5
1.0
0.5
-
2012 2013 2014 2015 2016 2017
A favorable net working capital ratio means that the company has a buffer to meet current financial
obligations and also the ability to make investments. If US pharmaceutical sector is used as a
benchmark, it has an average working capital ratio 2.0.
Market leaders such as Abbott, Sanofi and GSK had an average net working capital ratio of 2.4. This
figure also agrees with the asset side of their respective balance sheets which depicts a trend of financial
health year on year. The numbers stated by these companies can be used to establish that they are
operating at an ideal level of short-term debt management and will be able to remain solvent for
foreseeable future.
Conversely, if the reported ratio is extraordinarily high it means that the entity is not arraying its short-
term assets in an effective way.

INDUSTRY LONG TERM DEBT TO EQUITY RATIO
Debt to Equity
2.0
1.5
1.0
0.7
0.6 0.6
0.5 0.4 0.3

0.3
-
2012 2013 2014 2015 2016 2017
Inference can be made from the above debt to equity ratio is that the sector is not highly geared. It can
also be concluded that operations are being carried out in an efficient way and resource utilization is
optimal, since companies with stagnant performance often look for additional debt financing, which
results in high gearing ratios.
The debt to equity ratio of major Pakistani pharmaceutical sector illustrates that the participants have
stable financing structure. Sanofi however is an outlier in this regard. The 2014 and 2015 debt to equity
of Sanofi shows a higher degree of gearing hence a riskier venture for any potential investor. Sanofi
financed its operations through debt in those years. This ratio also corresponds to Sanofi’s diminished
gross and net profit margins in the same year. It is to be noted that Sanofi also spent nearly Rs. 350
million in capital expenditures.
GSK is least geared of the five companies under analysis with an average gearing ratio of 0.1. showing
a more stable capital structure, making it an attractive investment opportunity for a more risk averse
investor. GSK utilizes internal cash generation for capital expenditures as opposed to external long- or
short-term financing.

INDUSTRY P/E RATIO
P/E Ratio
30.0
26.7
25.0 23.4
22.0 21.2
20.0
14.9
15.0
10.2
10.0
5.0
-
2012 2013 2014 2015 2016 2017
Generally, a higher P/E ratio implies that the market is expecting growth in the future. The ascension
in successive years is a demonstration of growth within the sector. As with most performance
measurement ratios, P/E ratio is only useful if it is used in right context. It would be futile to compare
it against other industries.
As far as the P/E ratio of Pakistani pharmaceutical sector is concerned, the six-year average (2012 –
2107) stands at 19.1, which is a satisfactory figure if recent economic environment and other fiscal
variables are considered.
However, P/E ratios should be assessed with a degree of skepticism because unlike market value of a
particular stock which can be established through various sources, earnings can be manipulated by the
management of companies. GSK’s lower EPS and increased share price has resulted in growth of P/E
ratio through the years 2012 - 2016. Relative to other competitors Searle trading volume is the highest,
which should have resulted in a lower EPS and subsequently a higher P/E ratio. However, this is not
the case as Searle traded at a lower price compared to Highnoon, GSK, Abbott and Sanofi. Abbott’s
EPS in contrast has been higher than GSK which resulted in lower P/E ratio.

COMBINED INDUSTRY INCOME STATEMENT
Industry Income Statement

(PKR Billions)
2012 2013 2014 2015 2016 2017
Sales 55.12 59.40 62.25 69.23 79.20 90.59

Cost of Sales 31.93 40.30 42.19 45.28 50.10 57.52
Gross Profit 23.19 19.10 20.06 23.95 29.11 33.07
Operating Expenses 15.76 11.42 11.81 12.01 14.45 16.87
Operating Profit 7.43 7.68 8.25 11.94 14.65 16.20
Other Income 0.78 0.83 1.79 1.93 2.52 2.70
Finance Cost 1.22 0.44 0.54 0.55 0.30 0.28
Profit Before Tax 6.98 8.08 9.50 13.32 16.87 18.62
Taxation 2.88 2.44 2.95 3.21 4.54 4.85
Profit After Tax 4.11 5.64 6.54 10.10 12.33 13.78
Even though the domestic business environment ails from afflictions like inflation, stagnant
growth and general uncertainty, the pharmaceutical sector has persevered and repaid investors’
trust by returning averages on par with global pharmaceutical sector (as observed in ratio
analysis earlier).
The general outlook of the industry is that of growth with minor dips in performance. However,
it would be inexpedient to isolate a single cause. The pharmaceutical sector has long been
fettered by absence of a uniform pricing policy from the regulatory authority. Although, there
had been inefficiencies within the sector as seen in the previous comparisons, those retarding
trend were reversed soon.
Trend and common size analysis can be used to further contextualize the performance of our
combined industrial sample.

HORIZONTAL ANALYSIS

Horizontal Analysis
2012 as
Base Year 2012 2013 2014 2015 2016 2017
(PKR
Billions)
Sales 55.12 100.00% 107.76% 112.94% 125.60% 143.69% 164.35%
Cost of Sales 31.93 100.00% 126.20% 132.11% 141.79% 156.87% 180.11%
Gross Profit 23.19 100.00% 82.37% 86.54% 103.30% 125.54% 142.64%
Operating Expenses 15.76 100.00% 72.44% 74.95% 76.19% 91.72% 107.05%
Operating Profit 7.43 100.00% 103.43% 111.12% 160.83% 197.31% 218.19%
Other Income 0.78 100.00% 107.60% 230.56% 248.31% 324.95% 347.56%
Finance Cost 1.22 100.00% 36.00% 44.68% 45.45% 24.95% 22.61%
Profit Before Tax 6.98 100.00% 115.67% 135.99% 190.69% 241.57% 266.70%
Taxation 2.88 100.00% 84.89% 102.66% 111.69% 157.79% 168.60%
Profit After Tax 4.11 100.00% 137.22% 159.32% 246.00% 300.23% 335.37%
Year on year growth has been registered by the Pakistani pharmaceutical sector which clearly
corresponds to the investors’ faith in the sector. Surge in sales can be attributed to several
factors from increase in population to improvement in industry wide practices adopted by best
performers. An almost analogous rise can be seen in the cost of sales which shares a correlation
with high rates of inflation since 2012 and haphazard economic outlook. Rigorous internal
controls and manufacturing efficiencies have clearly resulted in contraction of operating
expenses that ultimately lead to high operating profits. Income from other sources (mainly
derived from returns on treasury bills, income on savings and deposits and disposal of assets
among other sources) soared through these six years indicating prudent management of
liquidity. Substantial amount has been incurred through exchange losses and bank charges in
terms of finance costs. Pakistan has one of highest corporate tax rates in the world. The
corporate tax in 2012 was 35%, causing the companies to register a low profit after tax. In the
subsequent years, however, the government relaxed the tax rate by 4% bringing it to 31% for
2017. Improvements in operations, increase in selling price along with business-friendly tax
regime amplified the bottom line increasing the net profit figures threefold.

107.76%
126.20%
82.37%
72.44%
2013
103.43%
84.89%
137.22%
112.94%
132.11%
86.54%
74.95%
2014
111.12%
102.66%
159.32%
FEROZSONS LABORATORIES LIMITED

125.60%
141.79%
103.30%
76.19%
2015
160.83%
111.69%
246.00%
143.69%
156.87%
125.54%
91.72%
2016
197.31%
157.79%
300.23%
164.35%
180.11%
142.64%
107.05%
2017
218.19%
168.60%
335.37%
COMBINED INDUSTRY HORIZONTAL ANALYSIS (Graph)
Sales
Taxation
Gross Profit
Cost Of Sales
Profit After Tax

Operating Profit
Operating Expenses
71
VERTICAL ANALYSIS

Vertical Analysis
2012 2013 2014 2015 2016 2017
Sales (Billions) 55.12 59.40 62.25 69.23 79.20 90.59
Sales (Percentage) 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Sales 57.94% 67.85% 67.77% 65.40% 63.25% 63.49%
Gross Profit 42.06% 32.15% 32.23% 34.60% 36.75% 36.51%
Operating Expenses 28.59% 19.22% 18.97% 17.34% 18.25% 18.62%
Operating Profit 13.47% 12.93% 13.26% 17.25% 18.50% 17.89%
Other Income 1.41% 1.41% 2.87% 2.78% 3.18% 2.98%
Finance Cost 2.21% 0.74% 0.87% 0.80% 0.38% 0.30%
Profit Before Tax 12.67% 13.60% 15.25% 19.24% 21.30% 20.56%
Taxation 5.22% 4.11% 4.74% 4.64% 5.73% 5.35%
Profit After Tax 7.45% 9.49% 10.51% 14.60% 15.57% 15.21%
There is a marked rise in the revenues year on year but cost of sales has also gone up in
congruence. The pharmaceutical sector countered this unfavorable trend by controlling costs
on operational level. This can be confirmed by the fact that the costs have not been driven by
operating expenses. With the exception of 2012, operating expenses have been kept under 20%.
A testament to industry wide practices. Abbott consistently posted higher net profit margins
originating from capacity increments through capital expenditure in previous years. Comparing
the bottom line with US pharmaceutical averages, the local industry has yielded a 15.21% profit
after tax against 10.91% of US.

COMBINED INDUSTRY VERTICAL ANALYSIS (Graph)
Sales (Pecentage) Cost Of Sales Gross Profit Operating Expenses
Profit Before Tax Taxation Profit After Tax
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
67.85%
67.77%
65.40%
63.49%
63.25%
57.94%
42.06%
36.75%
36.51%
34.60%
32.23%
32.15%
28.59%
21.30%
20.56%
19.22%
19.24%
18.97%
18.62%
18.25%
17.34%
15.57%
15.25%
15.21%
14.60%
13.60%
12.67%
10.51%
9.49%
7.45%
5.73%
5.35%
5.22%
4.74%
4.64%
4.11%
2012 2013 2014 2015 2016 2017
COMBINED INDUSTRY BALANCE SHEET
Industry Balance Sheet

(PKR Billions)
2012 2013 2014 2015 2016 2017
Cash 5.06 5.85 8.81 11.82 12.40 11.18
Inventory 10.87 12.61 14.33 12.55 14.29 14.60
Current Asset 23.02 26.40 31.54 35.77 38.46 40.00
Investments 0.32 2.19 0.95 0.97 0.79 2.58
Fixed Asset 14.97 15.90 17.34 18.92 21.51 24.76
Total Assets 37.99 42.30 48.89 54.69 59.97 64.76
Current Liability 12.17 13.62 16.36 17.00 16.32 18.77
Non – current liability 2.39 2.11 2.90 2.50 2.50 1.84
Total Liabilities 14.56 15.73 19.26 19.50 18.82 20.62
Paid Up Capital 4.23 5.06 5.32 5.72 5.74 6.39
Total Equity 23.27 25.92 29.66 35.20 39.80 44.14
Total Liabilities & Equity 37.99 42.30 48.89 54.69 59.97 64.76
As a capital-intensive industry, increases in fixed assets should be a positive sign for any
investor. From the outset one can also ascertain that companies within this sector can cover
short-term dues with ease. The amount of long-term liabilities is also an illustration of the
capital structure of the company. With the exception of Sanofi and Searle, which were
relatively more geared than the rest, other players have opted to finance through equity. Due to
the nature of the sector, customer defaults are very uncommon, hence, the current assets look
favorable. The efficient management of liquidity has also been a mainstay of Pakistani
pharmaceutical sector with Abbott even deploying a formal system to manage the cash inflows
and outflows.

Horizontal Analysis
2012 as Base Year 2012 2013 2014 2015 2016 2017
(PKR Billions)
Cash 5.06 100% 116% 174% 234% 245% 221%
Inventory 10.87 100% 116% 132% 115% 132% 134%
Current Asset 23.02 100% 115% 137% 155% 167% 174%
Investments 0.32 100% 686% 298% 303% 249% 810%
Fixed Asset 14.97 100% 106% 116% 126% 144% 165%
Total Assets 37.99 100% 111% 129% 144% 158% 170%
Current Liability 12.17 100% 112% 134% 140% 134% 154%
Non – current liability 2.39 100% 88% 121% 105% 105% 77%
Total Liabilities 14.56 100% 108% 132% 134% 129% 142%
Paid Up Capital 4.23 100% 120% 126% 135% 136% 151%
Total Equity 23.27 100% 111% 127% 151% 171% 190%
Total Liabilities & Equity 37.99 100% 111% 129% 144% 158% 170%
The year on year increase in the current assets is a manifestation of how quickly short-term
liquidity is being generated through operations and the considerable coverage these companies
have for short-term liabilities. It follows logic that current ratio agrees with the above figures.
It is also vital for large manufacturing sector that there is constant capital expenditure for
acquisition of fixed assets. This growth in capacity is also reflected in rising net income through
these six years.
A balance has been struck between liabilities and total equity to structure the company in such
a way that most operations are financed through equity rather than debt.

COMBINED INDUSTRY HORIZONTAL ANALYSIS (Graph)
Total Assets Total Liabilities Total Equity Total Liabilities & Equity
190%
171%
170%
170%
158%
158%
151%
144%
144%
142%
134%
132%
129%
129%
129%
127%
111%
111%
111%
108%
100%
100%
100%
100%
2012 2013 2014 2015 2016 2017
VERTICAL ANALYSIS

Vertical Analysis
2012 2013 2014 2015 2016 2017
Cash 13% 14% 18% 22% 21% 17%
Inventory 29% 30% 29% 23% 24% 23%
Current Asset 61% 62% 65% 65% 64% 62%
Investments 1% 5% 2% 2% 1% 4%
Fixed Asset 39% 38% 35% 35% 36% 38%
Total Assets 100% 100% 100% 100% 100% 100%
Total Assets (PKR Billions) 37.99 42.30 48.89 54.69 59.97 64.76
Current Liability 32% 32% 33% 31% 27% 29%
Non – current liability 6% 5% 6% 5% 4% 3%
Total Liabilities 38% 37% 39% 36% 31% 32%
Paid Up Capital 11% 12% 11% 10% 10% 10%
Total Equity 61% 61% 61% 64% 66% 68%
Total Liabilities & Equity 100% 100% 100% 100% 100% 100%
Current assets form major part of the total assets and this trend has continued for the past six
years. There hasn’t been a significant change in the capital structure of the companies within
the sector. The fixed assets remain in the 40% range with respect to the total assets illustrating

that capital expenditures have been made prudently. As seen previously, the companies are not
constrained by liquidity and possess abundant reserves to carry out operations. Effective credit
management has also resulted in shrinkage of current liabilities. Given the high cost of debt
financing and uncertain macroeconomic conditions, equity forms a significant part of funding
rising up to almost 70%. Overall the vertical analysis of industry balance sheet shows that the
companies have made an active effort to minimize risk.
Current Asset Fixed Asset Total Assets Current Liability

Fixed Liability Total Liabilities Total Equity
100%
100%
100%
100%
100%
100%
68%
66%
65%
65%
64%
64%
62%
62%
61%
61%
61%
61%
39%
39%
38%
38%
38%
37%
36%
36%
35%
35%
33%
32%
32%
32%
31%
31%
29%
27%
6%
6%
5%
5%
4%
3%
2012 2013 2014 2015 2016 2017

COMBINED INDUSTRY CASH FLOW STATEMENT
Industry Cash Flows

(PKR Billions)
2012 2013 2014 2015 2016 2017
Cash flows from operating activities 5.96 3.48 6.32 9.09 10.59 10.73
Cash flows from investing activities (3.81) (1.62) (1.82) (1.80) (4.26) (3.70)
Cash flows from financing activities (1.29) (1.62) (2.16) (2.07) (4.85) (9.41)
Net increase/(decrease) in cash and cash
equivalents 0.86 0.24 2.35 5.22 1.48 (2.38)
Cash and cash equivalents and the beginning of
the year 2.21 3.41 4.19 6.54 10.99 12.49
Cash and cash equivalents and the end of the year 3.07 3.65 6.54 11.76 12.47 10.11
Cash flow statement verifies what has been observed formerly. The entities have healthy cash
generation through operations. This cash has been judiciously invested in a such a way that
these short-term investments did not cause impediments in liquidity. The only decrease in cash
and cash equivalents can be observed in 2017, when few companies made improvements in
their operational capacity.
Industry Cash Flows

Horizontal Analysis (%)
2012 as Base Year 2012 2013 2014 2015 2016 2017
Cash flows from operating activities 100% 58% 106% 153% 178% 180%
Cash flows from investing activities 100% 43% 48% 47% 112% 97%
Cash flows from financing activities 100% 125% 167% 160% 375% 728%
Net increase/(decrease) in cash and cash -
equivalents 100% 28% 273% 608% 172% 277%
Cash and cash equivalents and the beginning of
the year 100% 154% 190% 296% 498% 566%
Cash and cash equivalents and the end of the
year 100% 119% 213% 383% 407% 330%
A slight regression in 2013 was overturned in the subsequent years as operating activities
yielded remarkable cash flows up until 2017. The year on year growth in cash and cash
equivalents corresponds to trends seen in liquidity ratios. Market leaders such as Abbott, Searle
and Sanofi posted high revenues which ultimately reflected in abundant liquidity.

FEROZSONS LABORATORIES LIMITED

PROFILE
Sector Pharmaceutical
Market Capitalization Rs. 3.5 billion
Paid up Capital Rs. 301.87 million
Number of shares 30.19 million
Listed PSX
Symbol FEROZ
National Tax Number 0657289-5
Associates BF Biosciences Ltd
Farmacia

INTRODUCTION
Ferozsons Labs, initially incorporated as a private limited company in 1954, sharing its
nascency with a few years older Pakistan. To its credit, Ferozsons Labs has the honor of being
the first pharmaceutical company to be listed the then Karachi Stock Exchange. Presently,
having a market capitalization Rs. 15.17 billion making it the biggest name in the sector having
entirely local roots.
The company operates in its own niche having agreements with various international
conglomerates like General Electric.
Ferozsons has also partnered exclusively with Gilead Sciences for the distribution of their
products in HCV, HBV and HIV range. The company also has the rights to manufacture
generics for HCV.
Ferozsons also represents the Boston Scientific Corporation for their range of medical devices
in the areas of cardiology, electrophysiology, endoscopy, gastroenterology, pulmonology,
urology and peripheral interventions.
With Bagó Group of Argentina, Ferozsons Labs have set up a world class biotech CGMP
compliant facility through a joint venture, BF Biosciences Limited. Making it the first and only
company in Pakistan currently to have a biotech manufacturing facility in the country.

HISTORY
Mrs. Akhter Khalid Waheed took the helm as Chairperson and Chief Executive. During her
tenure as CEO, a testament to her leadership is the consistent growth of the company in terms
of stable revenues and healthy profits.
Ferozsons exports to the most underdeveloped and developed economies alike.
To eradicate critical ailments, the company made strategic associations with Boston Scientific
and a joint venture with Argentinian Bago group to form BF Biosciences Ltd.
Recently the company partnered with GE healthcare to provide biotech solutions to the local
customer base.

A Timeline

FINANCIAL
PERFORMANCE OF
FEROZSONS LABS

FEROZSONS LABORATORIES LIMITED INCOME STATEMENT
Ferozsons Labs
Income Statement
PKR Million 2012 2013 2014 2015 2016 2017
Revenue – net 2766.4 2881.7 3831.6 5711.2 11335.2 5002.4
Cost of sales 1457.1 1483.7 2003.5 3114.7 6740.9 3091.0
Gross profit 1309.3 1398.0 1828.1 2596.5 4594.3 1911.5
Administrative expenses 152.8 167.7 196.2 218.2 308.1 335.6
Selling and distribution expenses 658.5 702.5 852.8 971.4 1255.8 1023.2
Other expenses 45.0 43.6 64.1 105.3 280.6 7.3
Other income 52.1 54.3 64.5 74.0 121.3 63.5
Profit from operations 505.1 538.5 779.5 1375.7 2871.1 608.9
Finance cost 12.5 15.5 18.8 16.0 12.6 17.7
Profit before taxation 492.5 523.0 760.7 1359.6 2858.5 591.2
Taxation 16.3 56.6 208.6 415.8 625.4 196.6
Profit after taxation 476.3 466.4 552.2 943.8 2233.1 394.6
Earnings per share - basic and

diluted 13.53 13.54 13.83 24.80 69.72 13.04
There has been a steady generation of revenues for the past six years. An escalation can be seen
2016 resulting from introduction of a new product. In the following year the revenues depleted
as unconducive market factors eroded the projected revenues substantially. Macroeconomic
factors also contributed to the upsurge in cost of sales. The increment in revenues also resulted
in a diminished finance cost and a slight improvement in post-tax profits. These items fell in
2017 as well because of the reasons stated elsewhere.

Ferozsons Labs
2012 as Base
Year Horizontal Analysis
PKR Million 2012 2013 2014 2015 2016 2017
Revenue - net 2766.37 100% 104% 139% 206% 410% 181%
Cost of sales 1457.07 100% 102% 138% 214% 463% 212%
Gross profit 1309.30 100% 107% 140% 198% 351% 146%
Administrative expenses 152.85 100% 110% 128% 143% 202% 220%
Selling and distribution
658.51
expenses 100% 107% 130% 148% 191% 155%
Other expenses 44.97 100% 97% 143% 234% 624% 16%
Other income 52.08 100% 104% 124% 142% 233% 122%
Profit from operations 505.06 100% 107% 154% 272% 568% 121%
Finance cost 12.54 100% 123% 150% 128% 101% 141%
Profit before taxation 492.52 100% 106% 154% 276% 580% 120%
Taxation 16.26 100% 348% 1283% 2558% 3847% 1209%
Profit after taxation 476.27 100% 98% 116% 198% 469% 83%
Benchmarking against 2012, the company has made significant strides in the following years.
a marked increase in administrative expenses can be observed resulting from increased cost of
doing business and a developing market and national economy. Selling and distribution for
2017 shows rise from previous years. This corresponds with the changing market dynamic with
each successive year.

Ferozsons Labs
Vertical Analysis
2012 2013 2014 2015 2016 2017
Revenue - net (PKR Billions) 2766.4 2881.7 3831.6 5711.2 11335.2 5002.4
Revenue - net (Percentage) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 52.7% 51.5% 52.3% 54.5% 59.5% 61.8%
Gross profit 47.3% 48.5% 47.7% 45.5% 40.5% 38.2%
Administrative expenses 5.5% 5.8% 5.1% 3.8% 2.7% 6.7%
Selling and distribution expenses 23.8% 24.4% 22.3% 17.0% 11.1% 20.5%
Other expenses 1.6% 1.5% 1.7% 1.8% 2.5% 0.1%
Other income 1.9% 1.9% 1.7% 1.3% 1.1% 1.3%
Profit from operations 18.3% 18.7% 20.3% 24.1% 25.3% 12.2%
Finance cost 0.5% 0.5% 0.5% 0.3% 0.1% 0.4%
Profit before taxation 17.8% 18.1% 19.9% 23.8% 25.2% 11.8%
Taxation 0.6% 2.0% 5.4% 7.3% 5.5% 3.9%
Profit after taxation 17.2% 16.2% 14.4% 16.5% 19.7% 7.9%
Cost of sales as a percentage of revenues spiked significantly in 2017 relative to past years.
This is a result of strategic decision made by Ferozsons to make a provision of slow-moving
inventory and deprecation related to cost of sales. Incidentally this reduced the gross profit as
well. Profit after taxation also couldn’t match the figures reported in prior years. This trend
however, is expected to reverse as the company is preparing to introduce new products and has
made several strategic partnerships with companies in North and South America.

FEROZSONS LABORATORIES LIMITED BALANCE SHEET
Ferozsons Labs (PKR Million) 2012 2013 2014 2015 2016 2017
ASSETS
Non-current assets
Property, plant and equipment 1479.5 1518.8 1633.3 1742.2 3009.1 3082.3
Intangibles 3.7 1.9 0.9 1.5 5.5 3.2
Long term deposits 7.5 7.7 7.8 7.4 10.3 11.1
1490.8 1528.4 1642.0 1751.2 3025.0 3096.5
Current assets
Stores, spares parts and loose tools 9.5 19.6 33.2 41.5 44.7 45.6
Stock in trade 583.1 846.9 863.6 1389.9 2071.3 1766.7
Loans and advances - considered goods 15.3 18.0 174.2 280.8 447.4 429.8
Trade debts - considered good 325.7 206.2 25.8 41.5 43.7 77.2
Deposits and prepayments 23.7 46.3 46.5 78.2 116.4 170.1
Other receivables 10.0 7.4 3.9 2.6 7.6 9.0
Short term investments 345.2 413.5 748.7 857.9 667.2 855.9
Income tax – net 119.2 72.4 52.8 - 55.2 146.0
Cash and bank balances 97.6 107.0 165.9 782.0 384.8 244.4
1529.3 1737.3 2114.6 3474.4 3838.3 3744.7
Total assets 3020.1 3265.7 3756.6 5225.6 6863.2 6841.1
EQUITY
Share capital and reserves
Issued, subscribed and paid up capital 287.5 301.9 301.9 301.9 301.9 301.9
Capital reserve 0.3 0.3 0.3 0.3 0.3 0.3
Accumulated profit 1744.2 2061.0 2289.5 2811.3 4279.7 4265.3
Equity attributable to owners of the Company 2032.0 2363.2 2591.7 3113.5 4581.9 4567.5
Non-controlling interests 60.8 72.1 98.8 138.7 168.7 171.5
2092.8 2435.3 2690.4 3252.2 4750.5 4739.1
Non-current liabilities
Deferred taxation 103.3 64.9 121.8 100.6 268.7 246.5
Current liabilities
439.7 386.7 523.7 1456.4 821.3 876.4
Total equity and liability 3020.1 3265.7 3756.6 5225.6 6863.2 6841.1

Ferozsons invested in assets through these six years. Fixed assets almost doubled in year 2016.
This was in preparation of introducing a new drug and to subsequently meet the newly created
demand.
Increment in sales did not impact cash and bank balances in a significant manner, however
considerable rise in receivables can be seen which corroborates with the increased sales in
2016.
The company is also not facing a debt burden as long-term liability is covered by equity.

VERTICAL ANALYSIS
Ferozsons Labs 2012 2013 2014 2015 2016 2017

ASSETS
Non-current assets 49.4% 46.8% 43.7% 33.5% 44.1% 45.3%
Property, plant and equipment 49.0% 46.5% 43.5% 33.3% 43.8% 45.1%
Intangibles 0.1% 0.1% 0.0% 0.0% 0.1% 0.0%
Long term deposits 0.2% 0.2% 0.2% 0.1% 0.2% 0.2%
Current assets 50.6% 53.2% 56.3% 66.5% 55.9% 54.7%

Stores, spares parts and loose tools 0.3% 0.6% 0.9% 0.8% 0.7% 0.7%
Stock in trade 19.3% 25.9% 23.0% 26.6% 30.2% 25.8%
Loans and advances – considered goods 0.5% 0.6% 4.6% 5.4% 6.5% 6.3%
Trade debts – considered good 10.8% 6.3% 0.7% 0.8% 0.6% 1.1%
Deposits and prepayments 0.8% 1.4% 1.2% 1.5% 1.7% 2.5%
Other receivables 0.3% 0.2% 0.1% 0.1% 0.1% 0.1%
Short term investments 11.4% 12.7% 19.9% 16.4% 9.7% 12.5%
Income tax – net 3.9% 2.2% 1.4% - 0.8% 2.1%
Cash and bank balances 3.2% 3.3% 4.4% 15.0% 5.6% 3.6%
Total assets (Percentage) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Total assets (PKR Million) 3020.09 3265.70 3756.62 5225.59 6863.23 6841.15
EQUITY 69.3% 74.6% 71.6% 62.2% 69.2% 69.3%
Issued, subscribed and paid up capital 9.5% 9.2% 8.0% 5.8% 4.4% 4.4%
Capital reserve 0.01% 0.01% 0.01% 0.01% 0.00% 0.00%
Accumulated profit 57.8% 63.1% 60.9% 53.8% 62.4% 62.3%
Equity attributable to owners of the
Company 67.3% 72.4% 69.0% 59.6% 66.8% 66.8%
Non-controlling interests 2.0% 2.2% 2.6% 2.7% 2.5% 2.5%
Deferred taxation 3.4% 2.0% 3.2% 1.9% 3.9% 3.6%
Current liabilities 14.6% 11.8% 13.9% 27.9% 12.0% 12.8%
Total equity and liability 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Current assets constitute the major part of the company’s assets, indicating the high liquidity.
More than 20% of the current assets is tied in inventories. The company also made provisions
of slow – moving inventory as the HCV product now faces obsolescence with the influx of
generics in the market. Non - current assets form the other significant portion of total assets.
Liabilities, both current and long – term are but a very small part of companies’ total assets
which should encourage potential investors.

HORIZONTAL ANALYSIS
2012 as
Ferozsons Labs Base Year 2012 2013 2014 2015 2016 2017
(PKR
ASSETS Million)
Non-current assets
Property, plant and equipment 1479.5 100% 103% 110% 118% 203% 208%
Intangibles 3.7 100% 51% 25% 40% 149% 85%
Long term deposits 7.5 100% 103% 103% 99% 137% 147%
1490.8 100% 103% 110% 117% 203% 208%
Current assets
Stores, spares parts and loose tools 9.5 100% 206% 350% 437% 471% 481%
Stock in trade 583.1 100% 145% 148% 238% 355% 303%
Loans and advances - considered goods 15.3 100% 118% 1139% 1836% 2925% 2810%
Trade debts - considered good 325.7 100% 63% 8% 13% 13% 24%
Deposits and prepayments 23.7 100% 195% 196% 330% 491% 717%
Other receivables 10.0 100% 74% 39% 26% 76% 90%
Short term investments 345.2 100% 120% 217% 248% 193% 248%
Income tax – net 119.2 100% 61% 44% - 46% 123%
Cash and bank balances 97.6 100% 110% 170% 801% 394% 250%
1529.3 100% 114% 138% 227% 251% 245%
Total assets 3020.1 100% 108% 124% 173% 227% 227%
EQUITY
Issued, subscribed and paid up capital 287.5 100% 105% 105% 105% 105% 105%
Capital reserve 0.3 100% 100% 100% 100% 100% 100%
Accumulated profit 1744.2 100% 118% 131% 161% 245% 245%
Equity attributable to owners of the
Company 2032.0 100% 116% 128% 153% 225% 225%
Non-controlling interests 60.8 100% 119% 162% 228% 278% 282%
2092.8 100% 116% 129% 155% 227% 226%
Deferred taxation 103.3 100% 63% 118% 97% 260% 239%
Current liabilities
439.7 100% 88% 119% 331% 187% 199%
Total equity and liability 3020.1 100% 108% 124% 173% 227% 227%

Relative to 2012, the current liabilities in 2015, rose by 300%. The sales and marketing effort
were financed through short term borrowing.
Major items of current and non – assets also followed an upward trajectory year on year, a
testimony to consistent improvement. The plummeting receivables and rising sales seem
counter intuitive from the get go. This can be seen as tightened controls over debtors.

RATIO ANALYSIS OF FEROZSONS LABS LIMITED
Efficiency
2012 2013 2014 2015 2016 2017
Fixed Asset Turnover Ratio 1.9 1.9 2.3 3.3 3.7 1.6
Payables Turnover Ratio 54.0 78.0 82.0 141.0 18.0 90.0
Accounts Payables Days 6.8 4.7 4.5 2.6 20.3 4.1
Receivables Turnover Ratio 22.0 26.0 21.0 19.0 14.0 31.0
Accounts Receivables Days 16.6 14.0 17.4 19.2 26.1 11.8
Inventory Turnover 3.6 4.7 3.9 4.1 5.5 2.8
Liquidity
2012 2013 2014 2015 2016 2017
Current Ratio 3.5 4.5 4.0 2.4 4.7 4.3
Operating Cash Flow to Sales Ratio 21.0 14.6 20.2 21.9 6.1 19.8
Interest Cover (Times) 54.9 39.4 34.2 78.5 239.0 38.0
Solvency
2012 2013 2014 2015 2016 2017
Long Term Debt to Equity Ratio 0.26 0.19 0.24 0.48 0.23 0.24
Company Valuation Ratio
2012 2013 2014 2015 2016 2017
Price to Earning 6.1 8.2 16.7 25.8 14.8 29.6
Earnings per share - basic and diluted 13.5 13.5 13.8 24.8 69.7 13.0
Profitability
2012 2013 2014 2015 2016 2017
Gross Profit Margin 51.0 53.8 51.4 45.4 40.5 38.2
Net Profit Margin 17.2 20.9 16.5 16.5 19.7 7.9
Operating Profit Margin 23.9 22.4 20.8 24.7 26.7 11.1
PBT 17.8 19.1 20.8 24.7 26.7 11.1
Return on Equity 21.0 17.6 15.4 25.7 38.7 6.9
Return on Capital Employed 17.0 23.3 19.1 37.3 50.2 9.3

Return on Asset 15.6 15.7 13.2 18.1 32.5 5.8
RETURN ON ASSET
Return on Asset
35.0 32.5
30.0
25.0
20.0 18.1
15.6 15.7
15.0 13.2
10.0
5.8
5.0
-
2012 2013 2014 2015 2016 2017
For years Ferozsons posted stable returns. Up until 2015, the gap between industry and
Ferozsons was moderate as it posted a higher top line because of operational efficiency and
sales network. As they introduced the new HCV drug, by Gilead Sciences to the market, the
income after tax rose nearly by 200%. The subsequent slump is as abrupt as the augmentation
in the previous year. Ferozsons’ returns fell by 26.77% mainly due to the flooding of markets
by generics and unlicensed drugs in the Hepatitis C segment. The net revenues of 2017 are in
line with the revenues from 2012 to 2105. However there has been an increase in total assets
relative to these years. The bottom line in 2017 couldn’t be proportional to the addition in assets
because of some of the reasons stated above.


60.0
50.2
50.0
37.3
40.0
30.0
23.3
19.1
20.0 17.0
9.3
10.0
-
2012 2013 2014 2015 2016 2017
As in the case of assets, capital employed also increased in the past six years. The falling net
revenue in 2017 couldn’t match with the addition of asset in the previous two years. Ferozsons’
short lived surge was down to a unique product in the market. As the market gained, albeit
through the exposure of unhealthy competition, the initiative was lost in the year 2017 and the
bottom-line declined hard relative to the market. It is projected that the sales outside Gilead
portfolio will increase in the coming years. Essentially, the company is doing well, and a
projection of recovery wouldn’t be illogical.

RETURN ON EQUITY
Return on Equity
45.0
38.7
40.0
35.0
30.0 25.7
25.0 21.0
20.0 17.6
15.4
15.0
10.0 6.9
5.0
-
2012 2013 2014 2015 2016 2017
Unlike increments in assets, the change in equity was not exponential. But as the net income
declined the return on equity went down with it. Two reasons can be cited for this. The decrease
in net revenues and an increase in selling and distribution expenses which ultimately resulted
in shrinkages of profit before tax.
Ferozsons Labs has been volatile, which can be attributed to diminishing revenues in some of
the product portfolios. Yet, this slump should not be a cause of alarm as the investors continue
to keep faith in the company’s performance. This is evidenced by the growing sales in other
segments as reported in 2017 financials.

GROSS PROFIT MARGIN
Gross Profit Margin

60.0 53.8
51.0 51.4
50.0 45.4
40.5
38.2
40.0
30.0
20.0
10.0
-
2012 2013 2014 2015 2016 2017
Ferozsons’ gross profit margin remained significantly higher than the industrial averages. In
2014, the company posted revenues of Rs. 3.8 billion, followed by Rs. 5.7 billion in 2015. The
company also kept stringent controls over the costs that ultimately contributed in higher gross
profit margins. The decline in 2016 and 2017 is due to decrease in sales and provisions made
for slow moving stock. The company, however, managed to be competitive and matched
industrial performance. Ferozsons is expected to bounce back in the coming years as sales from
other segments are projected to contribute. If Drug Regulatory Authority cracks down the
unlicensed products in the HCV segment, Ferozsons can recover considerable revenues in the
coming years.

OPERATING PROFIT MARGINS

30.0
26.7
23.9 24.7
25.0 22.4
20.8
20.0
15.0
11.1
10.0
5.0
-
2012 2013 2014 2015 2016 2017
The operating profit margins of Ferozsons soared until 2016, after which a steep decline can
be seen. It corresponds to the fall in gross profit margins. Although, the figure reported in 2017
is not adverse by any metric, the fall in revenues in individual product segment (HCV) is a
contributing factor here too. The operating profit margin however, will cover markups and tax
liabilities, indicating that the numbers are satisfactory. The performance of Ferozsons
pharmaceutical as far as operating profits are concerned matches with the overall industry
average. Like its global counterpart, the Pakistani pharmaceutical has efficient systems in place
to curb costs.

NET PROFIT MARGIN
Net Profit Margin

25.0
20.9
19.7
20.0
17.2 16.5 16.5
15.0
10.0 7.9
5.0
-
2012 2013 2014 2015 2016 2017
Ferozsons showed remarkable margins even when the industry performed lower on average.
The company attributes the decline in net sales to the increasing use of oral medication in the
its key segment as Ferozsons generally focuses on interferons. There are, however, several of
Ferozsons’ products pending approval with the DRA. Margins were higher in 2016 when the
company introduced the breakthrough HCV drug indicating that falling trend in 2017 will soon
reverse in the future as Ferozsons has a lot to offer in other product segments as well. Another
major contributor to net income erosion in 2017 is taxation. Although the taxes paid were lower
than 2015 and 2016 but considerably higher than 2012 and 2013.

PROFIT BEFORE TAXATION
PBT
30.0
26.7
24.7
25.0
20.8
19.1
20.0 17.8
15.0
11.1
10.0
5.0
-
2012 2013 2014 2015 2016 2017
The increment in operating, selling and distribution expenses in 2017 compared to that of 2012
– 2014 is relatively higher. This has resulted in a sharply declining profit before tax margin.
One important factor to keep in mind is that the cost of sales of 2017 is also higher than
subsequent years as provision for slow moving inventory of about 300 million were made. The
profit before tax ratio of 2017 is by no means a sign of mediocre performance but a
consequence of adjustments made by the company which would soon bear profits for the
owners in the long run.

CURRENT RATIO
Current Ratio
5.0 4.7
4.5
4.5 4.3
4.0
4.0
3.5
3.5
3.0
2.4
2.5
2.0
1.5
1.0
2012 2013 2014 2015 2016 2017
Ferozsons’ short-term liabilities are not impeding their operations, as they have adequate
current asset reserves to cover these liabilities almost 5 times. In 2015, the fall occurred because
the company was preparing to launch a new product and sales/marketing was largely financed
on the basis of current liabilities. Even then the figure was above 1, which is a sign of financial
health.
The success of HCV drug reflected in cash reserves as well, resulting in resurgence of the
current ratio.

FIXED ASSET TURNOVER
Fixed Asset Turnover Ratio

4.0 3.7
3.5 3.3
3.0
2.3
2.5
1.9 1.9
2.0 1.6
1.5
1.0
0.5
-
2012 2013 2014 2015 2016 2017
Ferozsons show a steady growth until 2015 with an upsurge in 2016 due to expansion in
revenues as evidenced in previous ratio analysis. The abrupt decline in 2017 is due to
unforeseen fall in sales however asset utilization is optimum that is reflected in continued
revenue generation from other product portfolios. Ferozsons’ asset turnover is likely to improve
in the next years.
Moreover, it is to be noted that the company added more assets in 2016 and 2017. The 2016
fixed asset turnover was high because sales were proportional to these additions, this was not
the case in 2017. But the company still managed to post a satisfactory turnover figure which
will likely improve in subsequent years.

INVENTORY TURNOVER
Inventory Turnove r
6.0 5.5
5.0 4.7
4.1
3.9
4.0 3.6
2.8
3.0
2.0
1.0
-
2012 2013 2014 2015 2016 2017
It is to be considered that the above metric reacts to market demand which is an uncontrollable
macroeconomic variable. The important aspect is to maintain margins and keep the movement
of inventory smooth, which the company has managed to achieve amidst the falling trend in
sales for the year 2017. The above ratio also shows that the company is generating sales in
other portfolios as well and not dependent on one product. As noted previously the company
made provisions for slow moving inventory which has also affected adversely the turnover for
2017. The number should not be a cause for alarm.

PAYABLES TURNOVER RATIO
Payables Turnover Ratio

150.0 141.0
120.0
90.0
90.0 78.0 82.0
54.0
60.0
30.0 18.0
-
2012 2013 2014 2015 2016 2017
Ferozsons payables turnover ratio has been upwards of 50 since the past six years. The upsurge
in 2015 was due to the added sales, marketing and distributions expenditures company was
incurring in the preparation of launching a new a product and in order to not put pressure on
current assets, paid off liabilities quickly. The result of all these expenditures can be seen in
2016 where the sales increased sharply. In 2017, as the sales declined and cash flow constraints
grew but the payables turnover went up again to 90, which shows that the company is efficient
in paying off liabilities even in adverse circumstances. If the current ratio is any indication, the
above figure should not cause alarm as the company has shown ability to pay off short term
debts. The year 2015 was also the year when the prices increased on active ingredients of major
drugs which are usually imported.

ACCOUNT PAYABLES DAYS
Accounts Payables Days

25.0
20.3
20.0
15.0
10.0
6.8
4.7 4.5 4.1
5.0 2.6
-
2012 2013 2014 2015 2016 2017
2016 was a year of remarkable sales. These sales were made possible with various short-term
operating, sales and marketing expenditures. The exponential rise from 2015 is attributable to
the increase in such expenditures. The above graph also signifies that Ferozsons managed its
cash outflow to increase its working capital to meet the extra demand it faced after the
introduction of new product. The lower values in the graph are an indication that Ferozsons
prioritizes that payment of liabilities to alleviate debt burden on the balance sheet.

RECEIVABLES TURNOVER RATIO
Receivables Turnove r Ratio

35.0
31.0
30.0
26.0
25.0 22.0 21.0
19.0
20.0
14.0
15.0
10.0
5.0
-
2012 2013 2014 2015 2016 2017
The above is largely influenced by the sales policies of a company. From the above graph it
can be ascertained that Ferozsons manages the extension of credit sales efficiently. It is only
logical that the increase in sales in 2015 and 2016 has translated into a slowdown in collection
of cash from the customers. As the net revenues surged, so did the credit sales. Hence a dip in
the years 2015 and 2016.
The company faced decline in sales in 2017 and consequently started quick collection of
receivables in order to avert any more losses of sales.

ACCOUNTS RECEIVABLES DAYS
Accounts Receivables Days

30.0
26.1
25.0
19.2
20.0 17.4
16.6
14.0
15.0 11.8
10.0
5.0
-
2012 2013 2014 2015 2016 2017
Accounts receivables days increases in the year of surging sales revenues. In order to meet the
added demand Ferozsons extended the collection period which resulted in an upswing in
receivables days in 2016.
As the net sales decreased in the year 2017, the company tightened its controls over credit sales
which is evidenced in the figure posted for the year.

LONG TERM DEBT TO EQUITY RATIO
Debt to Equity Ratio

1.00
0.90
0.80
0.70
0.60
0.48
0.50
0.40
0.26 0.24 0.24
0.30 0.23
0.19
0.20
0.10
-
2012 2013 2014 2015 2016 2017
The debt to equity ratio of Ferozsons is within the desired range. There is a spike in 2015 which
was caused by additional expenditures. Even then the debt to equity ratio remained in safe
range. An indication that the company is not highly geared. Ferozsons, like other competitors
has the capital structure which is more inclined towards equity financing. The fluctuation in
the year 2015 was caused by operational activities carried out in launching a new product. The
short-term credit increased by 300%, with Workers’ Profit Participation Funds and Central
Research Funds had expansions of 87% and 83% respectively. However, there are abundant
equity reserves to cover these liabilities as shown in the above trends. Ferozsons’ position
demonstrates financial health and satisfactory financing structure.

P/E RATIO
Price to Earning
35.0
29.6
30.0
25.8
25.0
20.0 16.7
14.8
15.0
10.0 8.2
6.1
5.0
-
2012 2013 2014 2015 2016 2017
It’s hard to ascertain whether a higher P/E ratio is better. A stock’s P/E ratio does not indicate
the current position. It is held that lower P/E ratios indicate a growth in near future. This seems
to be the case of Ferozsons. The stock went a few points up in 2015 as investors were
anticipating expansion in revenues and consequently in the bottom line. The P/E ratio plunged
in 2016 as the company witnessed record revenue figures, but the price could not correspond
to this growth.
In 2017 the resurgence is seen which is due to the decline in net income. Ferozsons posted an
average ratio of 16.9.

OPERATING CASH FLOW TO SALES
Operating Cash Flow to Sales Ratio

25.0
21.9
21.0
20.2 19.8
20.0
14.6
15.0
10.0
6.1
5.0
-
2012 2013 2014 2015 2016 2017
The company has been able to match the cash from operations with its sales with the exception
of year 2016. Ferozsons continues to demonstrate a parallel growth operating cashflows and
sales. Even the year (2017) of stagnant sales, the company demonstrated a healthy trend in this
regard and continued to convert its sales into operating cash flows. This ratio also corresponds
with accounts receivables turnover ratio as the number being reported there were positive as
well, showing major portion of sales turning into cash.

INTEREST COVER
Interest Cover (Times)

300.0
239.0
250.0
200.0
150.0
100.0 78.5
54.9
39.4 34.2 38.0
50.0
-
2012 2013 2014 2015 2016 2017
Like current ratio and debt to equity ratio, Ferozsons here establishes as well that the company can pay
off its liabilities without any serious constraints. This not only suggests that the company’s financial
strength is outstanding, but also goes to show that in an event Ferozsons needs to acquire more debt,
the potential creditor would not raise any serious objections.

COMPARISON OF
INDUSTRY WITH
FEROZSONS
LABORATORIES
LIMITED
(PSX SYMBOL: FEROZ)
INDUSTRY
FEROZ

RETURN ON ASSET
Return on Asset
35.00 32.54
30.00
25.00
19.38 19.20
20.00 18.06
15.64 15.65 16.58
13.24 INDUSTRY
13.49
15.00 11.32 11.94 FEROZ
10.00
5.77
5.00
0.00
2012 2013 2014 2015 2016 2017
Ferozsons has been a consistent outlier relative to the industry, even though it does not have a
market share near to that of competitors like Abbott and GSK. However, Ferozsons has
strategically formed a niche which allows it to maintain such high numbers. Up until 2015, the
gap between industry and Ferozsons was moderate as it posted a higher top line because of
operational efficiency and sales network. As they introduced the new HCV drug, by Gilead
Sciences to the market, the income after tax rose nearly by 200%. The subsequent slump is as
abrupt as the augmentation in the previous year. While the industry posted a stable return on
asset, Ferozsons’ return fell by 26.77%, mainly because the market became saturated by
generic and unlicensed drugs in the HCV segment.


60.00
50.2
50.00
37.3
40.00
29.18 27.93
30.00 24.77 INDUSTRY
23.95 23.3
21.28 21.62
19.1 FEROZ
20.00 17.0
9.3
10.00
0.00
2012 2013 2014 2015 2016 2017
The industry and the company are incongruous here as well. GSK’s debt financing diminished
average industrial ROCE in the years 2012 – 14. However, in the following years the ROCE
improved with Highnoon reporting higher ROCE figures than companies with substantially
greater market share. A booming population and increasing consumption are the major causes
of average industrial growth after 2014.
As observed earlier, Ferozsons’ short lived surge was down to a unique product in the market.
As the market gained, albeit through the exposure of unhealthy competition, the initiative was
lost in the year 2017 and the bottom-line declined hard relative to the market. It is projected
that the sales outside Gilead portfolio will increase in the coming years. Essentially, the
company is doing well, and a projection of recovery wouldn’t be illogical.

RETURN ON EQUITY
Return on Equity
45.0
38.7
40.0
35.0
30.0 25.7 27.0 26.2
25.0 22.7
21.0 20.2 INDUSTRY
18.3
17.6
20.0 16.3 15.4 FEROZ
15.0
10.0 6.9
5.0
0.0
2012 2013 2014 2015 2016 2017
Industry returns have shown steady growth in financial performance ratios throughout the six
years under review. Numbers, if viewed alone indicate a positive outlook of the pharmaceutical
sector. Given the fact that this sector is capital intensive and income proportional to the large
assets is a testament to procedural efficiency and operational control.
Ferozsons Labs, on the contrary has been volatile, which can be attributed to diminishing
revenues in some of the product portfolios. Yet, this slump should not be a cause of alarm as
the investors continue to keep faith in the company’s performance. This is evidenced by the
growing sales in other segments as reported in 2017 financials.

GROSS PROFIT MARGIN
Gross Profit Margin

60.0 53.8
51.0 51.4
50.0 45.4
40.5
35.9 36.0 37.6 37.5
40.0 35.0 35.6
38.2
30.0 INDUSTRY
FEROZ
20.0
10.0
0.0
2012 2013 2014 2015 2016 2017
The industry has been visibly outperformed by Ferozsons for the past six years. The
pharmaceutical sector also showed trends of retardation from 2012 – 14 as it shrunk by 1%.
Large scale manufacturing was specially affected in these years. Highnoon, Abbott and Sanofi
posted gross profit margins in excess of 25% in the successive years improving the overall
industrial average.
Ferozsons’ gross profit margin remained significantly higher than the industrial averages. In
2014, the company posted revenues of Rs. 3.8 billion, followed by Rs. 5.7 billion in 2015. The
company also kept rigorous controls over the costs that ultimately contributed in higher gross
profit margins. The decline in 2016 and 2017 is due to decrease in sales and provisions made
for slow moving stock. The company, however, managed to be competitive and matched
industrial performance.

OPERATING PROFIT MARGIN

30.0
26.7
23.9 24.7
25.0 22.4
20.8
18.6 18.0
20.0
16.7
15.0 13.1 12.5 INDUSTRY

11.5 11.1
FEROZ
10.0
5.0
0.0
2012 2013 2014 2015 2016 2017
Rigorous controls over processes and operational efficiencies have become synonymous with
the pharmaceutical industry. Year 2012 – 14 show low figures, but they are not adverse. One
must consider the burden of macroeconomic and other regulatory factors on the operations.
The upward shift in trends is down to Highnoon, GSK, Sanofi and Abbott. Each of these
competitors established controls which translated in the average growth. Abbott also added
products to its nutrition portfolio.
The operating profit margins of Ferozsons soared until 2016, after which a steep decline can
be seen. It corresponds to the fall in gross profit margins. Although, the figure reported in 2017
is not adverse by any metric, the fall in revenues in individual product segment (HCV) is a
contributing factor here too. The operating profit margin however, will cover markups and tax
liabilities, indicating that the numbers are satisfactory.

NET PROFIT MARGIN
Net Profit Margin

25.00
20.92
19.70
20.00
17.20 16.54
16.47
15.00 12.75 12.33

10.83 INDUSTRY
10.00 8.64 FEROZ
7.55 7.55 7.89
5.00
0.00
2012 2013 2014 2015 2016 2017
Pharmaceutical sector is a highly regulated segment in Pakistan. It has been under the dual
pressures of price freezes and inflations. Exports dropped to more than $100 million. Tax rates
were particularly higher in the first three years in question. The economy eased a bit after 2014
which translated into increasing net profit margins in 2015. Another reason of this increase is
governments’ approval of price increase. Drug prices raised by almost 3% in 2015.
Multinational pharmaceutical giants raised the prices by 15%. The maintenance in a steady rise
in margins is a result of control and cost cutting.
Compared to the industry, Ferozsons showed remarkable margins even when the industry
performed lower on average. The 2013 margins were higher than 2016 when the company
introduced the breakthrough HCV drug indicating that falling trend in 2017 will soon reverse
in the future as Ferozsons has a lot to offer in other product segments as well.

CURRENT RATIO
Current Ratio
6.0
5.1
4.8 4.7
5.0 4.6
4.3
4.0
3.0 2.5 INDUSTRY

2.4
2.2 2.1
1.8 1.9 1.9 FEROZ
2.0
1.0
0.0
2012 2013 2014 2015 2016 2017
The industry follows a high consumption pattern; hence the inflow of cash and other short-term
assets is almost never an issue. On top of this favorable variable, companies like Abbott have
implemented systems to maintain seamless flow of cash. Competitors also manage their short-
term assets by investing in less risky instruments so that liquidity does not become a constraint.
Ferozsons’ short-term liabilities are not impeding their operations, as they have adequate
current asset reserves to cover these liabilities almost 5 times. In 2015, the fall occurred because
the company was preparing to launch a new product and sales/marketing was largely financed
on the basis of current liabilities. Even then the figure was above 1, which is a sign of financial
health.
The success of HCV drug reflected in cash reserves as well, resulting in resurgence of the
current ratio.

ASSET TURNOVER
Asset Turnover
1.8
1.6 1.7
1.4 1.5
1.4 1.4 1.4 1.4
1.4
1.2
1.1
1.0 1.0
0.9 0.9 INDUSTRY
0.8
0.7 FEROZ
0.6
0.4
0.2
0.0
2012 2013 2014 2015 2016 2017
The companies in the pharmaceutical sectors have different asset basis. Most of these
companies often generate revenues in proportion to the values of their assets and that is
reflected in the above trends. Abbott, Sanofi and GSK have large assets, and they have been
able to generate revenues by resourcefully utilizing the assets. A consistent turnover on average
has been reported. The marginal increase in the year 2017 is down to the performance of
Highnoon Labs, which reported remarkable revenues. However, it is to be considered that the
average asset base of Highnoon is significantly lower than Abbott.
Ferozsons show a steady growth until 2015 with an upsurge in 2016 due to expansion in
revenues as evidenced in previous ratio analysis. The abrupt decline in 2017 is due to
unforeseen fall in sales however asset utilization is optimum that is reflected in continued
revenue generation from other product portfolios. Ferozsons’ asset turnover is likely to improve
in the next years.

INVENTORY TURNOVER
Inventory Turnover
7.0 6.4
5.7 5.7 5.7
6.0 5.3 5.5
4.7
5.0 4.4
3.9 4.1
4.0 3.6
INDUSTRY
2.8
3.0 FEROZ
2.0
1.0
0.0
2012 2013 2014 2015 2016 2017
The above ratio is used ascertain how quickly inventory is turned into revenues. The high rates
of industry inventory turnover can be attributed to the Searle reporting highest figures on six-
year average. Abbott’s figures were on parity with global giants like Merck and Pfizer. This
high industry turnovers are characteristic to the industry as inventory moves faster in the market
given the ever-increasing demand of the medicines.
Inventory turnover has been slower for Ferozsons relative to the market but the numbers in
themselves do not indicate a negative trend. The ratio is almost on par, and in some cases,
better than competitors like GSK and Highnoon. It is to be considered that the above metric
also reacts to market demand which is an uncontrollable macroeconomic variable. The
important aspect is to maintain margins and keep the movement of inventory smooth.

LONG TERM DEBT TO EQUITY
Debt to Equity
2.00
1.50
1.00 INDUSTRY
0.70 FEROZ
0.64 0.59
0.48
0.50 0.35 0.33
0.28 0.24 0.23 0.24
0.19
0.26
0.00
2012 2013 2014 2015 2016 2017
The debt to equity ratio of both industry and Ferozsons are within the desired range. The spike
in the 2013 - 2014 are due to the debt financing Sanofi opted for. Sanofi spent Rs. 350 million
on capital expenditures which increased the overall industrial average. The figures, however
did not exceed 1, which would have indicated high gearing. Ferozsons, like other competitors
has the capital structure which is more inclined towards equity financing. The fluctuation in
the year 2015 was caused by operational activities carried out in launching a new product. The
short-term credit increased by 300%, with Workers’ Profit Participation Funds and Central
Research Funds had expansions of 87% and 83% respectively. However, there are abundant
equity reserves to cover these liabilities as shown in the above trends. Ferozsons’ position
demonstrates financial health and satisfactory financing structure.

P/E RATIO
P/E Ratio
35.0
30.0 29.6
25.8 26.7
25.0
23.4
22.0 21.2
20.0
INDUSTRY
16.7
15.0 14.9 14.8 FEROZ
10.0 10.2
8.2
5.0 6.1
0.0
2012 2013 2014 2015 2016 2017
It’s hard to ascertain whether a higher P/E ratio is better. A stock’s P/E ratio does not indicate
the current position. It is held that lower P/E ratios indicate a growth in near future. This seems
to be the case of Ferozsons. The ratio was lower compared to the industrial average, but steady
growth can be seen in the subsequent years. The stock went a few points up in 2015 as investors
were anticipating expansion in revenues and consequently in the bottom line. The P/E ratio
plunged in 2016 as the company witnessed record revenue figures, but the price could not
correspond to this growth.
In 2017 the resurgence is seen which is due to the decline in net income. Industry average of
these past six years was 19.7 while Ferozsons followed closely with an average ratio of 16.9.

COMPARISON OF
FINANCIAL STATEMENTS
OF INDUSTRY WITH
FEROZSONS

SALES
SALES (PKR Billion)

FEROZ INDUSTRY
20.00
18.00 18.12
16.00 15.84
14.00 13.85
12.00 11.88 12.45
11.02 11.34
10.00
8.00
6.00 5.71
5.00
4.00 3.83
2.77 2.88
2.00
0.00
2012 2013 2014 2015 2016 2017
The blue line stands for average industry sales. Up until 2015, Ferozsons follows the upward
trajectory of the industry. The sharp rise in revenues due to a breakout product in 2016 almost
touched the average industry revenues. In 2017, the industry continued the surge, however,
Ferozsons revenues nosedived as the market got swarmed with HCV generics. With the
introduction of new products in coming years, revenues are likely to recover.

COST OF SALES
COST OF SALES
FEROZ INDUSTRY
14.00
12.00
11.50
10.00 10.02
9.06
8.00 8.06 8.44
6.39 6.74
6.00
4.00
3.11 3.09
2.00 2.00
1.46 1.48
0.00
2012 2013 2014 2015 2016 2017
Inflation during these six years contributed to the rising costs. Comparing the cost of sales of
Ferozsons of 2017 with the years 2012 – 2015, a slight increment can be seen. This is due to
the parking of depreciation related to manufacturing in the cost of sales. Another reason for
this spike is provision made for the obsolete inventory. Industry average also rose in 2017,
mainly because of macroeconomic burdens of the national economy and large scale
manufacturing industry.

GROSS PROFIT
GROSS PROFIT
FEROZ INDUSTRY
7.00
6.61
6.00 5.82
5.00 4.79
4.64 4.59
4.00 3.82 4.01
3.00
2.60
2.00 1.83 1.91
1.31 1.40
1.00
0.00
2012 2013 2014 2015 2016 2017
When the average industry gross profit slumped in 2013, due to weak domestic consumption patterns,
Ferozsons can be seen going up. However, in successive years quick improvement in industrial averages
can be seen. Highnoon, Searle and Abbott posted impressive gross profit margins taking the overall
industry average to a higher point. The rapid rise in 2016 for Ferozsons will be seen for all financial
indicators. It is indeed a remarkable feat to be head to head with industrial average. Keeping in mind
that the sample for comparison contains multinational pharmaceutical giants.

OPERATING EXPENSES
OPERATING EXPENSES
FEROZ INDUSTRY
4.00
3.50
3.37
3.15
3.00 2.89
2.50 2.40
2.28 2.36
2.00 1.97
1.50 1.43
1.37
1.18
1.00 0.91 0.97
0.50
0.00
2012 2013 2014 2015 2016 2017
The Pakistani pharmaceutical industry is dominated by multinationals. These companies have

accumulated years of experience in operational and manufacturing efficiencies. The evidence of which
can be seen in the illustration above. During the adverse period in national business environment, these
companies managed keep their expenses below 3 billion mark on average which is noteworthy.
Ferozsons’ operating expenses can be seen rising year on year. The cause if this increment is not
operational inefficiency but rather expansion efforts carried out to meet the forecasted demand of their
highest selling products. The major part of their operational expense is selling and distribution.

PROFIT FROM OPERATIONS
PROFIT FROM OPERATIONS

FEROZ INDUSTRY
3.50
3.24
3.00 2.93
2.87
2.50
2.39
2.00
1.54 1.65
1.50 1.49 1.38
1.00
0.78
0.50 0.51 0.54 0.61
0.00
2012 2013 2014 2015 2016 2017
On average the companies report a profit of around one and a half billion up until 2014. The revision in
pricing and currency stabilization in the international market enabled the industry to post average profit
for 2015 and 2016 of 2.39 billion and almost 3 billion respectively. Ferozsons figure in 2016 are an
anomaly for the reasons stated several times in this report. The industry continued to grow in 2017, but
Ferozsons’ unforeseen slump could skew any investor’s opinion. However, any such decision should
be taken after studying other financial indicators as well. It is forecasted that this trend of retardation is
likely to change course for positive in near future.

FINANCE COST
FINANCE COST
FEROZ INDUSTRY
0.25 0.24
0.20
0.15
0.11 0.11
0.10
0.09
0.06 0.06
0.05
0.01 0.02 0.02 0.02 0.01 0.02

0.00
2012 2013 2014 2015 2016 2017
The initial rise in average finance cost of industry can be attributed to Sanofi’s 300 million debt
financing. Stabilization in successive years are an evidence that the big players in the industry tend to
avoid debt financing. This should also be a persuasive factor for any investor as Ferozsons has kept its
gearing to minimum. The debt burden is lowest compared to the industrial average, attesting to the
prudence of the company.

PROFIT BEFORE TAX
PROFIT BEFORE TAXATION

FEROZ INDUSTRY
4.00
3.72
3.50
3.37
3.00
2.86
2.66
2.50
2.00 1.90
1.50 1.62
1.40 1.36
1.00
0.76
0.50 0.49 0.52 0.59
0.00
2012 2013 2014 2015 2016 2017
The profit before taxation follows fairly similar trajectory to gross profit. The industry has Ferozsons
has reaped the rewards of operational efficiency and have successfully managed to translate high
percentage of revenues into profit before taxation. Abbott and GSK reported high bottom lines resulting
in a bolstered pre tax profit for the sample on average. Sanofi, Searle and Highnoon are also close
followers. Ferozsons impresses here as well. Being a wholly Pakistan based pharmaceutical it has
maintained its performance amidst fierce competition from international pharmaceutical giants.

TAXATION
TAXATION
FEROZ INDUSTRY
1.20
1.00 0.97
0.91
0.80
0.60 0.64 0.63

0.58 0.59
0.49
0.40 0.42
0.20 0.21 0.20
0.02 0.06
0.00
2012 2013 2014 2015 2016 2017
Pharmaceutical sector has been one of the highest contributors to the exchequer. Business friendly
governments have progressively diminished the rate of corporate taxation in order to incentivize
investment. The corporate tax stood at 35% in 2012 which was subsequently brought down to 31% in
2017. The tax rates are likely to fall further in future.

PROFIT AFTER TAX
PROFIT AFTER TAX

FEROZ INDUSTRY
3.00
2.76
2.50 2.47
2.23
2.00 2.02
1.50
1.31
1.13
1.00 0.94
0.82
0.50 0.48 0.47 0.55
0.39
0.00
2012 2013 2014 2015 2016 2017
The after-tax profit of industry on average has been almost 2 billion. A steady upward trend for both
industry and Ferozsons can be observed. The game changing HCV drug Sovaldi took the profits to
unprecedented levels, enabling the company to nearly match the industry average.
Generally, industry taken as an aggregate, performed well given factors such price controls by
regulators, recovering economy, inflation, currency depreciation and shrinkage in exports.

NON-CURRENT ASSET
NON CURRENT ASSET

FEROZ INDUSTRY
6.00
5.00 4.95
4.50
4.00 4.01
3.70
3.39
3.00 3.09 3.02 3.10
2.00
1.64 1.75
1.49 1.53
1.00
0.00
2012 2013 2014 2015 2016 2017
CURRENT ASSETS
CURRENT ASSET
FEROZ INDUSTRY
9.00
8.00 8.00
7.69
7.00 7.15
6.00 6.31
5.00 5.28
4.60
4.00 3.84 3.74
3.47
3.00
2.00 2.11
1.53 1.74
1.00
0.00
2012 2013 2014 2015 2016 2017

TOTAL ASSET
TOTAL ASSET
FEROZ INDUSTRY
14.00
12.95
12.00 12.19
11.16
10.00 10.01
8.67
8.00 7.70
6.86 6.84
6.00
5.23
4.00 3.76
3.02 3.27
2.00
0.00
2012 2013 2014 2015 2016 2017
EQUITY
EQUITY
FEROZ INDUSTRY
10.00
9.00 8.83
8.00 8.17
7.00 7.26
6.00 6.16
5.53
5.00 4.79 4.75 4.74
4.00
3.00 3.25
2.44 2.69
2.00 2.09
1.00
0.00
2012 2013 2014 2015 2016 2017

NON-CURRENT LIABILITY
NON CURRENT LIABILITY

FEROZ INDUSTRY
0.70
0.60 0.58
0.50 0.50 0.50
0.48
0.40 0.42
0.37
0.30
0.27 0.25
0.20
0.10 0.10 0.12 0.10

0.06
0.00
2012 2013 2014 2015 2016 2017
CURRENT LIABLITY
CURRENT LIABILITY
FEROZ INDUSTRY
4.00
3.75
3.50 3.40
3.27 3.26
3.00
2.72
2.50 2.43
2.00
1.50 1.46
1.00
0.82 0.88
0.50 0.44 0.52
0.39
0.00
2012 2013 2014 2015 2016 2017

TOTAL LIABILITY
TOTAL LIABILITY
FEROZ INDUSTRY
4.50
4.00 4.12
3.85 3.90 3.76
3.50
3.00 3.15
2.91
2.50
2.00
1.50 1.56
1.00 1.09 1.12
0.50 0.54 0.65
0.45
0.00
2012 2013 2014 2015 2016 2017
TOTAL EQUITY & LIABILITY
TOTAL LIABILITY
FEROZ INDUSTRY
14.00
12.95
12.00 12.19
11.16
10.00 10.01
8.67
8.00 7.70
6.86 6.84
6.00
5.23
4.00 3.76
3.02 3.27
2.00
0.00
2012 2013 2014 2015 2016 2017

CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM OPERATIONS

FEROZ INDUSTRY
2.50
2.12 2.15
2.00
1.82
1.50
1.37
1.19 1.26
1.00
0.87 0.86
0.70 0.74
0.50 0.52
0.33
0.00
2012 2013 2014 2015 2016 2017
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM INVESTMENTS

FEROZ INDUSTRY
0.00
-0.10 2012 2013 2014 2015 2016 2017
-0.20 -0.20
-0.30 -0.32
-0.36 -0.36
-0.40
-0.43 -0.44
-0.50 -0.51 -0.53
-0.60
-0.70
-0.76 -0.74
-0.80
-0.85
-0.90

CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS FROM FINANCE

FEROZ INDUSTRY
0.00
-0.15
2012 -0.12
2013 2014 2015 2016 2017
-0.20
-0.26 -0.31
-0.32
-0.40 -0.43 -0.40
-0.41 -0.46
-0.60
-0.80 -0.74
-1.00 -0.97
-1.20
-1.40
-1.60
-1.80
-1.88
-2.00
NET INC/DEC IN CASH & CASH EQUIVALENTS
Net increase/(decrease) in cash and cash

equivalents
FEROZ INDUSTRY
1.20
1.00 1.04
0.80
0.60 0.61
0.40 0.47
0.30
0.20 0.17
0.00 0.05
0.01 0.06
-0.06
2012 2013 2014 2015 2016 -0.12
2017
-0.20
-0.40 -0.44 -0.48
-0.60

CASH & CASH EQUIVALENTS AT THE BEGINNING OF YEAR
Cash and cash equivalents at the beginning of the

year
FEROZ INDUSTRY
3.00
2.50 2.50
2.20
2.00
1.50
1.31
1.00
0.84 0.78
0.68
0.50 0.44 0.34
0.16 0.10 0.11 0.17
0.00
2012 2013 2014 2015 2016 2017
CASH & CASH EQUIVALENTS AT THE END OF YEAR
Cash and cash equivalents at the end of the year

FEROZ INDUSTRY
3.00
2.50 2.49
2.35
2.00 2.02
1.50
1.31
1.00
0.73 0.78
0.61
0.50
0.34
0.17 0.22
0.00 0.10 0.11
2012 2013 2014 2015 2016 2017

CONCLUSIONS
Following are some conclusions drawn after the analysis:
The overall financial environment of the pharmaceutical sector is satisfactory.

The sector should be trusted by potential investors given the fact that current financial
indicators point towards growth
The industry grew by 12% in these six years
Regulators should implement measures to assuage the inherent risks concerned with
unhealthy competition to protect the industry and the consumer
Ferozsons’ current business course is that of stability, although the lower bottom line
posted in 2017
Financial metrics indicate that the company’s gearing is low and liquidity high,
insulating it from adversity
Ferozsons’ lower debt burden should entice potential investors
A number of international alliances has been made to introduce new products in the
local markets which would take Ferozsons’ stock to a new level
Diversification is also on the horizon as the company has expanded in the field of
biotech
Capital structure of the company is more tilted towards equity financing, similar to the
other competitors
Lower net profit in 2017 should not dissuade investors, as other fundamentals are
relatively healthier and stable.
Dividend has gone up in successive years
Analysts believe that if constraints on pricing are eased, the sector can spur the
economy
Ferozsons does not face any liquidity and solvency issues
Ferozsons’ beta sits at 0.67, a less volatile stock relative to the market

ANNEXURES

SOURCES
Annual Statements 2012 – 2017
 Ferozsons Labs
 Sanofi Aventis
 Abbott Labs
 The Searle
 Highnoon Labs
http://jcrvis.com.pk/docs/Pharma201803.pdf
http://www.finance.gov.pk/survey_1617.html
http://www.ppma.org.pk/wp-content/uploads/2017/09/Final-Report-Pharma-Industry_August-
http://www.sbp.org.pk/reports/annual/arFY17/Anul-index-eng-17.htm
http://www.scstrade.com/
https://blog.marketresearch.com/the-growing-pharmaceuticals-market-expert-forecasts-and-
analysis
https://fp.brecorder.com/2017/05/20170523181216/
https://fp.brecorder.com/2018/08/20180807397352/
https://pharmaceuticalcommerce.com/business-and-finance/global-pharma-market-will-reach-1-12-
trillion-2022/
https://pharmaphorum.com/articles/a_history_of_the_pharmaceutical_industry/
https://tradingeconomics.com/pakistan/indicators
https://www.brecorder.com/2019/01/18/467077/drug-price-hike-too-little-too-late/
https://www.icap.org.pk/paib/pdf/guidelines/PharmaIndustry.pdf
https://www.ifpma.org/wp-content/uploads/2017/02/IFPMA-Facts-And-Figures-2017.pdf
https://www.statista.com/topics/1764/global-pharmaceutical-industry/

7/2/2019 Turnitin Originality Report
Turnitin Originality Report
FINANCIAL ANALYSIS OF FEROZSONS LABORATORIES LIMITED WITH often
PHARMACEUTICAL SECTOR OF PAKISTAN by Muzammil Ahmed 60022
From BSAF (BSAF)
« Processed on 02-Jul-2019 17:40 PKT e ID: 1148673796 « Word Count: 20127
Similarity Index 7% Similarity by Source
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sources:
[1] 2% match (student papers from 23-Dec-2016) Submitted to Oxford Brookes University
on 2016-12-23
[2 | < 1% match (Internet from 17-Oct-2018) https://amrelisteels.com/wp-
content/uploads/2017/10/Amreli-Steels-Annual-Report-2017.pdf
< 1% match (student papers from 16-Jan-2019) Submitted to RDI Distance Learning on 2019-
01-16
[+]
< 1% match (Internet from 06-Mar-2012) http://nfoods.com/contents/wp-
content/uploads/reports/quarterly_report_oct2k11(1).pdf
< 1% match (student papers from 24-Aug-2016) Submitted to London School of Business
and Finance on 2016-08-24
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and Finance on 2017-08-10
[|] [fe] Bl
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< 1% match (Internet from 27-Mar-2019) https://ferozsons-labs.com/company-profile/
(9 | < 1% match (student papers from 12-May-2019) Submitted to Anglia Ruskin University
on 2019-05-12
< 1% match (Internet from 22-May-2014) http://www.rejectshop.com.au/medias/Appendix-
4E-and-Annual-Report-24-June-2007.pdf? |

context=bWFzdGVyfGRvY3VtZW50c3wzMDY30TM5fGFwcGxpY 2F0aW9uL
3BkZnxkb2N1bWVudHMvaDViL2g2V y84Nzk2NTI4NDEWwNjUOL
[11] < 1% match (Internet from 25-Feb-2019) https://baadalsg.
inflibnet.ac.in/bitstream/10603/117606/13/13_chapter%205.pdf
[12 | < 1% match (student papers from 04-Dec-2018) Submitted to Higher Education
Commission Pakistan on 2018-12-04
| 13 | < 1% match (student papers from 06-Jan-2012) Submitted to Higher Education
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< 1% match (student papers from 18-Aug-2017) Submitted to Oxford Brookes University on
2017-08-18
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2018-03-31
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http://www.unilever.pk/Images/Unilever%20Pakistan%20Limited%20Q1%202012_tcm96-
351900.pdf
< 1% match (Internet from 17-Apr-2015) http://habibfunds.com/pdf/arjun2009.pdf
< 1% match (Internet from 14-Dec-2018) http://www.khybertobacco.com/wp-
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< 1% match (publications) Rist Michael, Pizzica Albert J.. "Financial Ratios for Executives",
Springer Nature, 2015
| 32 | < 1% match (Internet from 18-Dec-2018) http://www.
rupaligroup.com/pdf_files/2010/Annual/Annual%202010.pdf
| 33 | < 1% match (Internet from 09-Aug-2018)
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http:/Awww.ministryoftextiles.gov.in/sites/default/files/StudyReport-CCIC-As-|s.pdf
| 35 | < 1% match (student papers from 30-Oct-2018) Submitted to Higher Education
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< 1% match (Internet from 13-Jan-2015)
http://;www.sharedresearch.jp/system/report_updates/pdfs/000/003/383/original/7603_E
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http://www.pacepakistan.com/finance/fcsc/Half%20Yearly%20Accounts%20(un-
audited)%2031%20Dec%202005.pdf
< 1% match (Internet from 09-Feb-2019) http://www.
lottechem.pk/resource/Quarterly%20Report%20March%202017.pdf
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< 1% match (Internet from 24-Sep-2018) http://www.dgcement.com/financial-
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55 | < 1% match (Internet from 13-Oct-2010)
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< 1% match (Internet from 07-Jan-2018) http:/Awww.highnoon-labs.com/wp-
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firstre.net/media/financial_reports/Financial Report First Real Estate 2011 ENG.pdf
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PAF – KARACHI INSTITUTE OF ECONOMICS AND

FINAL YEAR PROJECT

FINANCIAL ANALYSIS OF FEROZSONS LABORATORIES LIMITED WITH

THESIS TITLE: FINANCIAL ANALYSIS OF FERONZSONS LABS

LIMITED WITH PHARMACEUTICAL SECTOR OF

SUBMITTED BY: MUZAMMIL AHMED

THESIS SUPERVISOR: Mr. JALAL AHMED KHAN

ACADEMIC YEAR: 2019

FEROZSONS LABORATORIES LIMITED II

MUZAMMIL AHMED (60022)

FEROZSONS LABORATORIES LIMITED III

MUZAMMIL AHMED (60022)

FEROZSONS LABORATORIES LIMITED IV

This report is of Financial Analysis of FEROZSONS LABS LIMITED with PHARMACEUTICAL

MUZAMMIL AHMED (60022)

FEROZSONS LABORATORIES LIMITED V

The method for research and analyses is as follows:

companies have been taken as representative of the overall sector.

affecting the financial position of the sector.

FEROZSONS LABORATORIES LIMITED VI

CORPORATE HEAD QUARTER

5 KM SUNDAR RAIWIND ROAD, RAIWIND,

Total Number of Listed Companies -------- 12

Number of Competitors selected -------- 05

LIST OF COMPANIES USED IN INDUSTRY ANALYSIS:

 GlaxoSmithKline Pakistan Limited

FEROZSONS LABORATORIES LIMITED VII

FEROZSONS LABORATORIES LIMITED XI

FEROZSONS LABORATORIES LIMITED 1

FEROZSONS LABS - FUNDAMENTALS FOR INVESTORS

FEROZSONS LABORATORIES LIMITED 2

Risk free rate 10.60%

Average market return 21.38%

Beta = = 0.67

FEROZSONS LABORATORIES LIMITED 3

FEROZSONS LABORATORIES LIMITED 4

FEROZSONS LABORATORIES LIMITED 5

FEROZSONS LABORATORIES LIMITED 6

FEROZSONS LABORATORIES LIMITED 7

Mergers and Acquisition

A snapshot of biggest mergers and acquisition of pharmaceutical sector

YEAR PURCHASER TARGET MERGER/ACQUISITION VALUE (BILLIONS USD)

 More than 200 drugs are to be introduced

FEROZSONS LABORATORIES LIMITED 8

Following process flow elucidates the process:

DOCTORS PRESCRIBE THE

DRUGS ARE THEN BOUGHT

FEROZSONS LABORATORIES LIMITED 9

A process flow to illustrate the R&D process in the industry:

FEROZSONS LABORATORIES LIMITED 10

A few figures to put things in perspective and illustrate the point:

RESEARCH & DEVELOPMENT EXPENDITURE

FEROZSONS LABORATORIES LIMITED 11

Electronic & Electrical Equipment

Pharma & Biotech

EU USA JAPAN RoW Total

COMPANY SALES (USD Million) R&D EXPENDITURE (USD Million) % OF SALES

FEROZSONS LABORATORIES LIMITED 12

2012 2013 2014

FEROZSONS LABORATORIES LIMITED 13

USD Billion 2009 2010 2011 2012 2013 2014

FEROZSONS LABORATORIES LIMITED 14

Market dynamics of pharmaceutical sector from a financial perspective can be understood