Equity Valuation Report on

Square Pharmaceuticals Limited

(Update)

(This document has been prepared by the Research Team of EBL Securities Limited for information only of its clients.
No part of this report should be copied or used in any other report or publication or anything of that sort without
prior permission from the authorized publisher of this report)
 Pharmaceuticals Sector of Bangladesh is estimated to grow
at CAGR of 15% over the next 5 years

13.75% 25.80%
Consistent
Dividend: Cash
Historical 5 Years Revenue CAGR Historical 5 Years NPAT CAGR
Mix of
Cash and Stock
Stock 15.36% 16.53%

Projected 5 Years Revenue CAGR Projected 5 Years NPAT CAGR

Additional
Allocation BDT 2.02
for BMRE billion
in 2016-17

Improvement
in Gross
Profit Margin

2015-16
48.4%

2016-7
50.0%

Square Pharmaceuticals Limited’s Wholly Owned Subsidiary in Kenya

Kenya Pharmaceuticals Market

Size: USD 500 Million

Expected CAGR till 2020 – 11.8%

Kenya provides pharmaceuticals products to 16 countries

0% VAT on Pharmaceuticals Products in Kenya

Investment: USD 25 million

 Square Pharmaceuticals Limited (Update January 2018)
DSE: SQURPHARMA, BLOOMBERG: SQUARE:BD Analyst:
Target Price: BDT 376.5 Current Price: BDT 329.5 MD. Mosavvir Al Ashick
Rating: Over Weight research@eblsecurities.com
Valuation date: 25th January , 2018

Company Fundamentals SQUARE PHARMACEUTICALS LIMITED UPDATE

Sector Pharmaceuticals & Chemicals
Potential Upside 14.26%  The Pharmaceuticals industry of Bangladesh is expected to
Expected Dividend Yield 1.0% grow at a CAGR of 15% over the next five years due to
steady economic growth, population growth, growth of
Market Cap (BDT mn) 243,339.1
income level of people and increased health awareness.
Market weight 5.7%
Being the leader in the growing pharmaceuticals industry;
Paid-up Capital (BDT mn) 7,373.9
Square Pharmaceuticals Limited is expected to grow at the
Free-float Shares (in mn) 483.5
same pace with the industry.
Sector P/E 19.3  Square Pharmaceuticals Limited has maintained on an
Current P/E 22.9 average BDT 3,500 million capital expenditure per year.
Current P/NAV 4.4 Recently, the board of directors has approved BDT 2,020
52-week price range (BDT) 257.7-335.0 million for capital machineries and land purchase. Through
2015-16 2016-17 2017-18 2018-19 continuous capital expenditure, the company ensures its
Actual Actual Expected Expected continuous growth.
 Square Pharma imports raw materials from abroad. Recent
Financial Information (BDT mn)
depreciation of BDT against USD may negatively impact on
Net Sales 33,073 36,543 41,820 48,093 the profitability of the company. However, future income
Gross Profit 15,991 18,268 20,910 24,527 from Square Pharmaceuticals EPZ Limited, Kenya may
EBITDA 11,277 14,255 15,844 18,701 positively impact if BDT continues to depreciate against
Operating Profit 10,796 12,296 13,799 16,349 dollar.
Profit After Tax 9,202 10,646 12,378 14,404  Square Pharmaceuticals Limited achieved YoY revenue
growth 10.5% and NPAT growth 15.7% in 2016-17. The NPAT
Total Assets 44,303 52,531 63,515 75,604
growth surplus revenue growth due to the improvement of
Interest Bearing Debt 3 - 704 1,408
gross profit margin. Gross profit margin for 2015-16 and
Total Equity 40,558 49,041 58,630 69,388 2016-17 was 48.4% and 50% respectively.
Retained Earnings 31,612 38,578 48,619 59,150
SQUARE PHARMACEUTICALS LIMITED EPZ KENYA
Cash 8,523 15,769 20,030 25,686
Square Pharmaceuticals Limited has established a 100% owned
Dividend (C/B)% 40/10* 35/7.5 40/5 50/2.5
subsidiary in Kenya named Square Pharmaceuticals EPZ Kenya;
Margin with a view to serve pharmaceuticals market of Kenya.
Gross Profit 48.4% 50.0% 50.0% 51.0%  Pharmaceuticals market of Kenya is very lucrative; it is
EBITDA 34.1% 39.0% 37.9% 38.9% currently worth USD 500 million with an expected CAGR of
Operating Profit 32.6% 33.6% 33.0% 34.0% 11.8% till 2020. Significant market size and growth rate
Pretax Profit 34.6% 36.6% 36.3% 37.1% provides Square Pharma to grab a huge portion of pharma
Net Profit 27.8% 29.1% 29.6% 29.9% market in Kenya.
 The subsidiary in Kenya provides Square Pharma the
Growth
opportunity to serve in 16 countries of Eastern and
Sales 20.1% 10.5% 14.4% 15.0% Southern Africa. Kenya supplies about 50% of total
Gross Profit 30.3% 14.2% 14.5% 17.3% pharmaceuticals products in this region.
Operating Profit 41.7% 13.9% 12.2% 18.5%  The government of Kenya imposes 0% VAT rate on the
Net Profit 43.6% 15.7% 16.3% 16.4% revenue of pharmaceuticals products in Kenya. Square
Profitability Pharma gets the opportunity to retain larger portion of their
ROA 20.5% 20.1% 19.1% 18.7% revenue due to this policy.
ROE 25.0% 23.8% 23.0% 22.5%  Square Pharmaceuticals EPZ Kenya has started to build a
plant in Nairobi with an initial investment of USD 25
Payout Ratio 23.3%* 24.2% 23.8% 25.6%
million. The yearly capacity of plant is 2,000 million tablets
PEG ratio 2.2% 0.8% 0.9% 1.1%
and capsules and 60 million bottles of liquid formulations.
Leverage  According to the company, the expected capacity utilization
Debt Ratio 0.0% 0.0% 1.1% 1.9% in the first year of the plant is 25%. Commercial operation of
Debt-Equity 0.0% 0.0% 1.2% 2.0% the plant will generate BDT 1,030 million in the first year of
Altman Z-Score 28.0 41.0 31.5 26.0 operation. The commercial operation of the company is
expected to begin in July 2019.
Valuation
Restated EPS (BDT) 12.5 14.4 16.8 19.5 We have updated our valuation based on Discounted Cash Flow
method and Relative Valuation method while assuming next 5-
Restated NAVPS 55.0 66.5 79.5 94.1
Years’ CAGR of revenue to be 15.36%. Historical 5-Years’ CAGR
(BDT)
P/E 20.0 20.8 17.9 15.4
of revenue was 13.57%. Currently, SQURPHARMA is traded at
P/NAV (x) 4.5 4.5 3.8 3.2 BDT 329.5 per share. In our valuation, the target price based on
EV/EBITDA 13.1 14.4 13.4 11.4 DCF and Relative Valuation is determined at BDT 376.5 per
EV/Sales 4.5 5.6 5.1 4.4 share which represents 14.26% upside from current market
price.
*For 15 month Period April 2015- June 2016
 Valuation Report on SQURPHARMA (Update)
Current Price (BDT): 329.50
Square Formulations
FACT BOX
 Industry size: USD 500 million
 Expected 3 years CAGR in
Kenya: 11.8%
 Regulatory Authority:
Pharmacy and Poison Board of
Kenya
 Health care expenditure as
percentage of GDP: 8%
 Per capita healthcare
expenditure: USD 77.7
 Out of pocket of healthcare
expenditure: 61.25%
 Registered wholesaler: 700
 Retail Dealers: 1,300
 Cardiovascular sector size:
USD 40 million
 Diabetes sector size: USD 35.2
million
1 https://data.worldbank.org/indicator/SH.XPD.PCAP?locations=KE
2 https://data.worldbank.org/indicator/SH.XPD.PUBL?locations=KE
2
Date: 25th January, 2018
Target Price (BDT): 376.48
Square Pharmaceuticals Limited
Square Pharmaceuticals Limited is the manufacturer, marketer and distributor of
pharmaceuticals drugs, medicine, basic chemicals, animal health product, agro vet and pesticide
products. The Company’s product portfolio consist of 655 pharmaceuticals product, 63 agrovet
product, 25 pesticide, 14 pellet product and 8 basic chemicals. The products of Square
Pharmaceuticals Limited are available in different forms like tablet, capsule, injection, infusion,
dry powder, ENT preparation, Opthal preparation, suppository, insulin, pellet etc.
Subsidiary & Associate Companies of Square Pharmaceuticals Limited
Square
Pharmaceuticals
Limited
1 Subsidiay & 3 Associates
Square Textile Square Fashions Square Hospital
Limited Limited Limited Limited
99.5% ownership to 46.36% ownership to 48.63% ownership to 49.94% ownership to
SQURPHARMA SQURPHARMA SQURPHARMA SQURPHARMA
Square Texcom
Square Yarns Limited
Limited
99.48% ownership to 95% ownership to
SQUARETEX SQUARETEX
Pharmaceutical Industry of Kenya
Kenya is the largest pharmaceuticals producer in the common market for Eastern and Southern
Africa region. Kenya supplies about 50% of pharmaceuticals product in these region. Current
pharmaceuticals market of Kenya worth about USD 500 million and expected to grow at a CAGR
of 11.8% during 2018 to 2021. Prescription drug accounted for 78% of the market. Pharmacy
and Poison Board of Kenya acts as a Drug regulatory agency of Kenya. Kenya spends about 8%
of its GDP on health. According to World Bank, per capita health care expenditure of Kenya was
USD 77.70 in 20141. Out of pocket of healthcare expenditure consist about 61.25% of total
expenditure2. The Kenya Medical Supply Agency, a division of Ministry of Health in Kenya largely
carries out the distribution of Pharmaceuticals product in Kenya. There are about 700 registered
wholesale and 1,300 retail dealers in Kenya. Kenya has experienced a remarkable development
in controlling, malaria, TB, Cholera and HIV. Kenya enjoys preferential access to the regional
market under a number of special access and duty reduction programmers related to the East
African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA).
Cardiovascular, diabetes and anti- infective constitute largest and fastest growing prescription
market segments. The worth of cardiovascular sector was about USD 40 million in 2017. The
segment is expected to grow at a CAGR of 15.4% from 2018 to 2021. The Diabetes market of
Kenya was worth about USD 35.2 million in 2017. Anti-infective sector generates about 42%
revenue in prescription sector in the pharmaceuticals market of Kenya. GlaxoSmithKline (GSK)
is the leading pharmaceuticals supplier with around 12% market share. Around 41% of all anti-
infective products sold in Kenya is licensed to GlaxoSmithKline.
 Valuation Report on SQURPHARMA (Update)
Current Price (BDT): 329.50
Kenya supplies 50% of total
pharmaceutical product in
Eastern and Southern Africa.
The subsidiary will provide
huge opportunity to serve the
large market
3 https://news.africa-business.com/pharmaceutucal-importers-kenya-east-africa/
4 http://www.kra.gWWo.ke/vat/vatworking.html
5 https://www.businessdailyafrica.com/corporate/companies/Bangladeshi-firm-breaks-ground-Sh7-5bn-drugs-plant-Nairobi/4003102-4255652-bke8v3z/
3
Date: 25th January, 2018
Target Price (BDT): 376.48
The top selling cardiovascular product is Nebilit, licensed to Menarini, accounts for
approximately 7% of revenue of all prescription product sold. Among the diabetes therapeutic
segment, Glucophage of Merck Serono is the most sold product3.
Tax rate on pharmaceuticals product in Kenya: According to the Kenya Regulatory Authority,
0% VAT rate is applicable on Pharmaceuticals products. 4
Square Pharmaceuticals Kenya EPZ Limited: The 100% owned subsidiary of Square
Pharmaceuticals Limted provides immense opportunity to grab Eastern and Southern
African pharma market
Square Pharmaceuticals Limited announced in
January 9, 2017 to establish a subsidiary Nairobi,
Kenya with an estimated cost of USD 20 million.
Among this USD 8 million will be equity financed
and rest USD 12 million will be debt financed
according to the news published on DSE. The
company also informed that Bangladesh Bank
has approved equity investment outside the
country for the venture. After a year of
announcement, Square Pharmaceuticals
Limited started to construct a manufacturing
plant in the Export Processing Zone near Athi
river on January 8, 2018. The revised investment
for the project is USD 25 million. The capacity of Map: Potential Pharma market of Eastern and
the manufacturing plant will be 2,000 million of Southern Africa for Square Pharmaceuticals Limited
tablets and capsules and 60 million bottles of
liquid formulation. The plant will largely produce medicine for HIV/AIDS, malaria, tuberculosis,
diabetes and cardiovascular disease. The expected operational date of the manufacturing plant
is July, 2019. Square Pharmaceuticals Limited has registration for 117 products with Pharmacy
and Poison Board of Kenya. With the establishment of the manufacturing plant, Square Pharma
will be able to produce those registered products which are currently exported.
In Kenya, local manufacturer meet up 30% of the demand, rest 70% is met by export. Square
Pharmaceuticals Limited started export sales to Kenya in 2005. According to company personnel,
local production of pharmaceuticals products in Kenya will reduce cost of drugs by 40%5. Thus,
Square Pharmaceuticals will have an immense opportunity to grab Kenyan market through low
priced drug penetration. This will also reduce the export time and ensure faster delivery of the
product. At the same time, Square Pharmaceuticals Limited has the opportunity to grab the
pharmaceuticals market of Eastern and Southern Africa as Kenya supply about 50% of total
pharmaceuticals products in this region.
 Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48
Revised Assumptions
Square Pharmaceuticals Limited Gross Revenue: Consolidated gross revenue (including VAT) of Square Pharmaceuticals Limited
Consolidated Gross Revenue
Revenue Growth grew at a 5 years CAGR of 14% from 2012-13 to 2016-17. With the future economic growth,
10.33%
45,0 00 25. 00%
population growth, average income growth, it is expected that revenue will grow at a 5 years
20.35%
40,0 00

13.97% 20. 00%

CAGR of 15.36% from 2017-18 to 2021-2022. We assume that the consolidated revenue from
35,0 00

30,0 00

11.40%
12.08% Square Pharmaceuticals Limited (without considering revenue from Square Pharmaceuticals EPZ
15. 00%

Kenya) will grow at 15% per year in forecasted years. It is also assumed that the consolidated
25,0 00

20,0 00

10. 00%

15,0 00
revenue will grow at a rate of 15% in 2017-18 and 2018-19. We further assume that the
consolidated revenue of Square Pharmaceuticals Limited (considering revenue from Square
10,0 00
5.0 0%

5,00 0

24,930 27,942 31,845 38,325 42,285

- 0.0 0%

Pharmaceuticals EPZ Kenya) will grow at the rate of 15.92%, 15.83% and 15.05% in the year
2012-13 2013-14 2014-15 2015-16 2016-17
2019-20, 2020-21 and 2021-22 respectively.

Square Pharmaceuticals EPZ Kenya is expected to commence operation in July, 2020. We assume
that the company will utilize 25% of its capacity in the first year of operation; followed by 30%,
35% and 40% capacity utilization. The average per unit revenue in Bangladesh in BDT 6.20.
Square Pharmaceuticals EPZ Kenya targeted the lower segment of Kenya. That’s why we assume
that average per unit revenue in Kenya will be BDT 2. The average per unit revenue is expected
to remain constant over the projected period.

2019-20 E 2020-21 E 2021-2022 E

Expected Consolidated Revenue of Square Pharmaceuticals Limited 64,825 75,090 86,389
Expected Revenue from Square Pharmaceuticals Limited Kenya 1,030 1,236 1,442
Expected Contribution to total Revenue by Square Pharmaceuticals 1.59% 1.65% 1.67%
Limited Kenya

VAT: Historical average VAT rate on revenue of Square Pharmaceuticals Limited and Square
Formulation Limited was 14% of gross revenue. This rate is maintained in the forecasted sales
of Square Pharmaceuticals Limited in Bangladesh. The government of Kenya imposes no VAT.
Therefore, no VAT is calculated on the forecasted sales of Square Pharmaceuticals EPZ Limited.

Cost of Goods Sold: 2016-17 shows improvement in profit margin. Cost of goods sold has been
accounted for 50% of revenue. There is a 2% improvement of gross profit margin. Cost of goods
sold in 2017-18 Q1 accounts for 49.5% of total revenue. Considering the improvement in profit
margin, the cost of goods sold has been assumed as 50% of total sales in 2017-18. Cost of goods
sold has been assumed as 49% of total sales for the projected periods.

Selling & Distribution Expense and

Historical Costs as % of revenue
Administrative Expense: Selling and Cost of Goods Sold Selling & Distribution Expenses
distribution expense has slightly Administrative Expenses
increased in 2016-17. It is
2016-17 50% 14% 3%
accounted for 14% of total sales.
Administrative expense accounts 2015-16 52% 13% 3%

for 3% of total sales. Considering

2014-15 55% 14% 3%
the recent information, selling and
distribution expense is assumed as 2013-14 56% 15% 3%
14% of total sales for the forecasted
2012-13 56% 14% 4%
years and administrative expense in
assumed as 3% of total sales.

4
 Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48
Other non-operating income: Other non-operating income for Square Pharmaceuticals Limited
Capital Expenditure (BDT mn) include bank interest, interest on loan to sister concern, rental income, sale of scrap, foreign
exchange gain, commission, dividend etc. Other non-operating income has increased as
2016-17 3,289
percentage of total sales in 2016-17. Other non- operating income was 3% of total sales. In 2017-
2015-16 2,799
18 Q1, it is 4% of total sales. We remain conservative of non-operating income, it is assumed as
2014-15 3,275 3% of total sales in the forecasted years.
2013-14 2,716
Provision for WPPF: From 2011-12 to 2015-17 period, provision for WPPF was 5% of profit
2012-13 5,416
before WPPF & taxes. We expect this rate will prevail in the projected years.
2011-12 3,769

Capital Expenditure: According to the annual report 2016-17, Square Pharmaceuticals Limited
allocated BDT 3,289 million for capital expenditure. Square Pharmaceuticals Limited has recently
announced that the company will spend additional BDT 2,002 million for purchasing land and
importing machineries as capital expenditure. It is assumed that additional expenditure for
capital machinery and land will be allocated equally in the next 3 years from 2017-18 to 2019-
20 and BDT 2,070 million (USD 25 million, where 1 USD = 82.8 BDT) will be allocated equally
from in the next three years from 2017-18 to 2019-20. Moreover, we expect that Square
Pharmaceuticals Limited will allocate their average capital expenditure with 10% addition in
2020-21 and 2021-22.

Dividends: Square Pharmaceuticals Limited has decreased stock dividend and increased cash
dividend. It is assumed that company will allocate more cash dividend as they have plenty of
cash in hand. The historical and forecasted dividend payout ratio for the next three years is
shown in the following table.

2014-15 2015-16 2016-17 2017-18 E 2018-19 E 2019-20 E

34.5% 23.3%* 24.2% 26.6% 28.3% 26.2%
* For 15 months period
Long Term Loan & Financial Expense: Square Pharmaceuticals Limited currently has no debt
outstanding as on 2017-18 Q1. As the company is setting up a subsidiary in Nairobi, Kenya; the
company will have to take long term debt of BDT 1,408 million (Considering BDT 1 =USD 82.8,
Debt required for the subsidiary is USD 17 million). The expected completion date of the project
is June 2019. It is assumed that Square Pharmaceuticals Limited will take 50% of this debt
amount in each year of 2017-18 and 2018-19 for the completion of the work in two phrases.
According to Bank of Kenya, the weighted average interest rate of Kenya is 13.69%. It is assumed
that 13.69% will be charged on long term debt. The debt is will be repaid in equal six-yearly-
installment over the period from 2019-20 to 2024-25.

Recent rise in cut off rate of 5 years T-bond rate: In 2017, 5 years t-bond rate was 5.93%. In
2018, the cut of rate is 5.99%. The discount rate has increased due to recent increase of risk free
rate.
Particulars Previous Assumption Revised Assumption
2017-18 2018-19 2019-20 2020-21 2017-18 2018-19 2019-20 2020-21
Revenue Growth 18.00% 15.00% 15.11% 14.70% 15.00% 15.00% 15.92% 15.83%
As % of Sales
Cost of Goods Sales 51.0% 51.0% 51.0% 51.0% 50.0% 49.0% 49.0% 48.0%
Selling & Distribution Expenses 13.2% 13.2% 13.2% 13.2% 13.8% 13.8% 13.8% 13.8%
Administrative Expenses 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%
Other Non-Operating income 2% 2% 2% 2% 3.0% 3.0% 3.0% 3.0%
Financial Expense as % of
interest bearing debt for Square
Pharmaceuticals EPZ Kenya 9.0% 9.0% 9.0% 9.0% 13.7% 13.7% 13.7% 13.7%

5
Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48
Free cash flow to firm Valuation
With a discount rate of 11.15% and terminal growth rate of 5.5%. Free cash Flow to firm analysis
gives Net Present Value (PV) of Free Cash Flow to Firm (FCFF) of BDT 269.28 billion as of
February, 2018. The fair value using DCF method stands at BDT 385.62 per share for the
company, which implies an upside of 17.0% from current market price.
2017-18 2018-19 2019-20 2020-21 2021-2022 Terminal
Profit for the Year 12,378 14,404 16,619 19,641 22,496
Add: After Tax Interest Expenses 73 147 122 97 72
Add: Depreciation & Amortization 2,046 2,352 2,372 3,116 3,079
Less: Investment (Divestment) in NWC 3,018 1,210 1,491 1,719 1,880
Less: CAPEX 4,646 6,004 7,361 3,618 3,980
Free Cash Flow to the Firm 6,833 9,689 10,262 17,516 19,787 369,273

Enterprise Value at February 2018 269,284

Plus: Cash & cash equivalent 15,769
Less: Interest Bearing Debt 704
Equity Value 284,349
Value of Non-Controlling interest 15
Equity Value Shareholders 284,334
No. of Share Outstanding 737.3
Value per Share 385.62

Sensitivity Analysis
We have also checked the sensitivity analysis of FCFF value per share on different discount rate
and terminal growth rate. We considered a discount with a range from 9.0% to 12.0% and
terminal rate with a range from 3.5% to 6.5%. As a result, we got values range from 247.8 to
783.8
Sensitivity Analysis of Free Cash flow to firm
Discount Rates
9.0% 9.5% 10.0% 10.50% 11.0% 11.2% 11.5% 12.0%
Terminal Growth

3.50% 420.9 385.1 354.8 328.9 306.4 300.3 286.8 269.5

4.00% 457.0 414.6 379.4 349.6 324.1 317.2 302.1 282.8
5.00% 556.0 493.4 443.4 402.4 368.4 359.2 339.6 314.9
5.50% 626.8 547.6 486.0 436.8 396.5 385.8 363.0 334.7
6.00% 721.1 617.2 539.3 478.7 430.3 417.6 390.7 357.8
6.50% 853.2 710.0 607.8 531.1 471.6 456.2 424.0 385.0

Relative Valuation Methods

We conducted relative valuation using different relative valuations techniques.
Multiple Expected EPS Valuations
Peers P/E (Note 1) 20.25 16.79 339.93
Average Historical P/E multiple (Note 2) 23.26 16.79 390.46
Multiple Expected EBITDA Enterprise Value
Peer EV/EBITDA 16.08 15,844.46 254,718.85
Total Debt 704
Cash & Cash Equiv. 20,030
Equity Value 274,044.75
Non-Controlling interest 15.28
Equity Value to 274,029.46
Shareholders
Number of Shares 737.34
Value Per Share 371.64

6
Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48
Average

Valuation Methods Valuations

Peers P/E 339.93
Average Historical P/E multiple 390.46
EV/EBITDA 371.64
Average Value Per share 367.35

Note1: Calculations of Peer’s multiples

Company Name P/E P/B EV/EBITDA
Acme Laboratories 14.31 1.39 7.86
Beximco Pharma 16.34 1.64 10.96
IBNE Sina 25.39 5.27 21.02
Renata (Consolidated) 24.96 5.17 24.46
Average Multiple 20.25 3.37 16.08

Note 2: Calculation of Historical PE

Historical PE P/E
Current P/E 19.90
PE at YE 2017 18.96
PE at YE 2016 17.18
PE at YE 2015 27.41
PE at YE 2014 29.93
PE at YE 2013 21.88
Average 23.26

Determination of Target Price

Valuation Methods Estimated Value Weights
We recommend an equal weight on Discounted Cash Flow 385.62 50%
value that we derived from DCF Relative valuations 367.35 50%
valuation and relative valuations Target Price 376.48 100%
method. Based on the weighted
average of the DCF and relative Current Price 329.50
valuation we get a target price of Target Price 376.48
BDT 376.48 for the company. Expected Capital Gain 14.26%
Target Holding Period 6 Months
At current market price, Square
Expected Dividend Yield 0.99%
Pharma’s shares have a P/E multiple
Total Return 15.25%
of 22.90 for 2016-17 earnings. With
our recommended target price the stock gives a total of 15.25% expected return. We therefore
state an ‘Overweight’ rating on the Square Pharma’s stock at its prevailing price level.

Price Volume Movement

350 2,000,000
Volume Price
330
1,600,000

310
1,200,000
290
800,000
270

400,000
250

230 0
1-Jan-15 1-Jul-15 1-Jan-16 1-Jul-16 1-Jan-17 1-Jul-17 1-Jan-18

7
 Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48
Appendix

Yearly Financial Statements and Analysis

Amount in BDT million (Except Otherwise Stated)

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Revenue 31,845 38,325 42,285 48,628 55,922 64,825
Less: Vat 4,313 5,252 5,742 6,808 7,829 9,003
Net Revenue 27,532 33,073 36,543 41,820 48,093 55,822

Cost of Goods Sold 15,260 17,082 18,275 20,910 23,565 27,353

Gross Profit 12,272 15,991 18,268 20,910 24,527 28,469

Other Operating Income

Total Operating Income 12,272 15,991 18,268 20,910 24,527 28,469

Operating Expenses: 4,656 5,195 5,972 7,111 8,178 9,492

Selling & Distribution Expenses 3,863 4,350 5,057 5,787 6,655 7,725
Administrative Expenses 793 845 915 1,324 1,523 1,767

Operating Profit 7,617 10,796 12,296 13,799 16,349 18,977

Financial Expenses 116 5 0 96 193 160

Other Non-Operating Income 332 657 1,094 1,459 1,678 1,945
Profit Before WPPF 7,833 11,448 13,389 15,161 17,834 20,762
Provision For WPPF 396 544 647 741 871 1,015
Profit Before Tax 7,438 10,904 12,742 14,420 16,963 19,747

Income tax expense 1,756 2,389 2,949 3,337 3,926 4,570

Deferred Tax 174 227 75
Deferred Tax Asset 75
Total Tax 1,855 2,616 3,024 3,337 3,926 4,570

Earning After Tax 5,583 8,288 9,719 11,083 13,037 15,177

Profit/(Loss) from Associates Undertaking 827 917 927 1,296 1,367 1,442
Total Comprehensive Income 6,410 9,202 10,646 12,378 14,404 16,619

Basic EPS 13.3 16.1 17.1 16.8 19.5 22.5

Number of Share Outstanding 482.0 554.3 623.6 737.4 737.4 737.4
Restated EPS 8.7 12.5 14.4 16.8 19.5 22.5

8
Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48

Consolidated Statement of Financial Position

Amount in BDT million (Except Otherwise Stated)

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
ASSETS
Non-Current Assets 25,600 27,240 29,355 32,408 37,179 42,565
Property, Plant and Equipment 18,148 18,848 19,323 22,423 26,075 31,069
Capital Work-in-Progress 88
Investment 234 556 589 589 589 589
Investment in Marketable Securities 898 1,072 1,938 1,938 2,684 2,684
Investment in Associates Companies 6,160 6,765 7,505 7,458 7,831 8,222
Deferred tax asset 72 - - - -

Current Assets 11,040 17,063 23,176 31,107 38,425 46,099

Inventories 3,661 3,695 3,731 4,854 5,583 6,480
Accounts Receivables 909 1,336 2,204 2,300 2,645 3,070
Advances,Deposits and Prepayments 852 1,131 1,451 1,660 1,909 2,216
Short Term Loan 1,095 2,379 21 2,263 2,602 3,020
Cash and Cash Equivalents 4,524 8,523 15,769 20,030 25,686 31,313

Total Assets 36,640 44,303 52,531 63,515 75,604 88,664

EQUITY AND LIABILITIES

Shareholders' Equity 32,914 40,558 49,041 58,630 69,388 81,675
Share Capital 5,543 6,236 6,859 7,228 7,421 7,421
Share Premium 2,035 2,035 2,035 2,035 2,035 2,035
Reserve 106 106 106 106 106 106
Tax Holiday Reserve 302 853
Retained Earnings/ Revenue Reserve 24,960 31,612 38,578 48,619 59,150 71,401
Non-Controlling Interest 1 13 15 18 21
Gain on Marketable Securities 270 267 597 627 658 691

Non-Current Liabilities: 1,137 1,054 1,129 1,872 2,751 2,727

Long Term Loans 237 704 1,408 1,168
Deferred Tax Liability 900 1,054 1,129 1,168 1,344 1,560

Current Liabilities: 2,590 2,692 2,361 3,013 3,465 4,262

Short Term Bank Loans 2 3
Long Term Loans - Current Portion 73 240
Trade Creditors 651 694 843 965 1,109 1,288
Liabilities for other finance 1,766 1,952 1,490 1,966 2,260 2,624
Liabilities for Expenses & Services 98 43 28 83 95 110

TOTAL SHAREHOLDERS' EQUITY AND

LIABILITIES 36,640 44,304 52,531 63,515 75,604 88,664

Net Asset Value (NAV) per share 44.6 55.0 66.5 79.5 94.1 110.8

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 Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48

Financial Analysis
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Liquidity Ratios:
Current Ratio 4.3 6.3 9.8 10.3 11.1 10.8
Quick Ratio 2.8 5.0 8.2 8.7 9.5 9.3
Cash Ratio 2.2 4.0 0.0 0.8 0.8 0.7

Operating Efficiency Ratios

Inventory Turnover Ratio 8.8 9.0 9.8 9.7 9.2 9.3
Receivable Turnover Ratio 31.5 29.5 20.6 18.6 19.5 19.5
Average Collection Period (Days) 11.4 12.2 17.4 19.4 18.5 18.4
Inventory Conversion Period(Days) 40.9 40.0 36.6 37.0 39.1 38.9
Operating Cycle (Days) 52.3 52.3 54.0 56.3 57.6 57.3
A/C Payable Turnover Ratio 36.7 25.4 23.8 23.1 22.7 22.8
Payables Payment Period (Days) 9.8 14.2 15.1 15.6 15.8 15.8
Cash Conversion Cycle (Days) 42.5 38.1 38.9 40.8 41.7 41.5
Total Asset Turnover 0.85 0.82 0.75 0.72 0.69 0.68
Fixed Asset Turnover 1.84 1.79 1.91 2.00 1.98 1.95

Operating Profitability Ratios

Gross Profit Margin (GPM) 44.6% 48.4% 50.0% 50.0% 51.0% 51.0%
Operating Profit Margin (OPM) 27.7% 32.6% 33.6% 33.0% 34.0% 34.0%
Pre Tax Profit Margin 28.5% 34.6% 36.6% 36.3% 37.1% 37.2%
Net Profit Margin (NPM) 23.3% 26.9% 29.1% 29.6% 29.9% 29.8%
Return on Total Assets (ROA) 17.3% 20.5% 20.1% 19.1% 18.7% 18.5%
Return on Equity (ROE) 22.0% 24.2% 23.8% 23.0% 22.5% 22.0%

Leverage Ratios
Total Debt to Equity 0.9% 0.0% 0.0% 1.2% 2.0% 1.7%
Debt to Total Assets 0.9% 0.0% 0.0% 1.1% 1.9% 1.6%

Coverage Ratios
Times Interest Earned (TIE) 65.9 2,159.2 79,844.2 143.2 84.8 118.7

Valuation Ratios
P/B (price to book) Ratio 5.7 4.5 4.5 3.8 3.2 2.7
Book Value Per Share 44.6 55.0 66.5 79.5 94.1 110.8
Basic EPS 13.3 16.1 17.1 16.8 19.5 22.5
Restated EPS 8.7 12.4 14.4 16.8 19.5 22.5
P/E Ratio 29.2 20.2 20.8 17.9 15.4 13.3
EV/EBITDA 16.0 13.1 14.4 13.4 11.4 9.8
EV/Sales 5.6 4.5 5.6 5.1 4.4 3.7
Price/Sales 5.8 4.7 6.1 5.6 5.0 4.3
Sales/ Share 44.2 53.0 49.6 54.0 60.6 70.3

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 Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48

Extended DUPONT ANALYSIS

Net Profit/Pretax Profit 75.1% 76.0% 76.3% 76.9% 76.9% 76.9%
Pretax Profit/EBIT 97.6% 101.0% 103.6% 104.5% 103.8% 104.1%
EBIT/Sales 27.7% 32.6% 33.6% 33.0% 34.0% 34.0%
Sales/Assets 85.1% 81.7% 75.5% 72.1% 69.1% 68.0%
Assets/Equity 1.3 1.2 1.2 1.2 1.2 1.2
ROE 22.0% 24.2% 23.8% 23.0% 22.5% 22.0%

Calculations used in relative valuations

Acme Laboratories Beximco Pharma IBNE Sina Renata (Consolidated)

Number of Share
Outstanding 211.6 405.6 28.4 70.0
Price 113.9 103.0 245.3 1,182.2
Market Value of Equity 24,101.2 41,772.7 6,966.5 82,789.5
Short Term Loan 7,095.0 1,955.0 327.0 1,968.8
Long Term Loan 3,025.0 2,635.0 229.5 95.9
Total Debt 10,120.0 4,590.0 556.5 2,064.7
Cash & Cash Equivalents 1,382.0 275.0 197.0 617.0
Enterprise Value 32,839.2 46,087.7 7,326.0 84,237.2

EBIT 3,051.0 3,448.0 256.0 2,811.0

Depreciation & Amortization 1,128.0 756.0 92.5 632.6
EBITDA 4,179.0 4,204.0 348.5 3,443.6

Revenue 13,576.0 15,509.0 4,009.0 16,043.0

Revenue/ Share 64.16 38.24 141.16 13.57

TERMINOLOGIES
P/E = Price to Earning
P/B = Price to Book Value
P/S = Price to sales
EBIT = Earnings before Interest and Tax
EBITDA = Earnings before Interest, tax, depreciation and amortization

STOCK RATING
 Overweight: Overweight indicates that the stock is expected to outperform the broader market averages. It usually derives the rating from
comparing the expected return from the stock in a specified time period with weighted average cost of capital. Overweight concludes that
expected return from the stock is greater than the weighted average cost of capital.
 Market weight: Market weight indicates that the stock is expected to equal performance of broader market averages. It usually derives the
rating from comparing the expected return from the stock in a specified time period with weighted average cost of capital. Market weight
concludes that expected return from the stock is equal to weighted average cost of capital.
 Underweight: Underweight indicates that the stock is expected to underperform broader market averages. It usually derives the rating from
comparing the expected return from the stock in a specified time period with weighted average cost of capital. Underweight concludes that
expected return from the stock is less than the weighted average cost of capital.
 Not-Rated: “Not-Rated” implies that currently the analyst does not have adequate conviction about the stock's total return relative to the
broader market average.

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Valuation Report on SQURPHARMA (Update) Date: 25th January, 2018
Current Price (BDT): 329.50 Target Price (BDT): 376.48
DISCLAIMER
This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients
residing both in Bangladesh and abroad, on the basis of the publicly available information in the market and own research.
This document has been prepared for information purpose only and does not solicit any action based on the material contained
herein and should not be taken as an offer or solicitation to buy or sell or subscribe to any security. Neither EBLSL nor any of
its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that
the information or data of the sources used in the documents are genuine, accurate, complete, authentic and correct.
However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not take any
responsibility for any decisions made by investors based on the information herein.

ANALYST DISCLAIMER
The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report
accurately reflect their personal views about the subject matters discussed. No part of their compensation was, is, or will
be, directly or indirectly, related to the specific recommendations or views expressed in the research report. The views of the
author(s) do not necessarily reflect the views of the EBL Securities Limited (EBLSL) and are subject to change without any
notice. All reasonable care has been taken to ensure the accuracy of the contents of this document and the author(s) will not
take any responsibility for any decisions made by investors based on the information herein.

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