You are on page 1of 12

Parvez M Chowdhury

Analyst: Pharmaceuticals and Consumer Goods

parvez@bracepl.com

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

Rating: OUTPERFORM February 24, 2010
Leading the Bangladesh Pharmaceutical Industry
Investment positives

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

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

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

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

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

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

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

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

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

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

70
65 60 55 50

45
40

Mcap (Bn BDT)

vitamins and minerals. which is widely regarded as a “hi-tech” industry. anesthetics. as well as active pharmaceutical ingredients. Branded generics are a category of drugs including prescription products that are either novel dosage forms of off-patent products produced by a manufacturer that is not the originator of the molecule. or a molecule copy of an off-patent product with a trade name.8% in 2009. It exports its products to Europe. and oral anti-diabetic drugs. Roughly 250 companies are operating in the market. Square Pharmaceuticals. eye and ear preparations. The actual size of the market may vary slightly since IMS does not include the rural market in their survey. According to IMS. the retail market size is estimated to be around BDT 55 billion. herbicides and public health insecticides. Bangladesh. The country manufactures about 450 generic drugs for 5. antiallergy preparations. Some larger firms are also starting to produce anti-cancer and anti-retroviral drugs. antidiabetic preparations. Square Pharmaceuticals Limited (SPL) is the largest pharmaceuticals company in Bangladesh. topical preparations. is the largest pharmaceutical company in Bangladesh The market is expected to reach BDT 100 billion in 2011 . the total market size is more than BDT 60 billion. In addition. and aqua products. Founded in 1958 and headquartered in Dhaka. and water purification products. systemic hormone. Further. flouroquinolones. bone calcium regulator. The market size in 2008 was BDT 47 billion with a growth of 6. drugs for urinary incontinence. These include a wide range of products from anti-ulcerants. thyroid therapy. penicillins and cephalosporins. antiviral and antiprotozoal agents. fungicides. In that respect. systemic sex hormone.300 registered brands which have 8. other antibacterials. nematicides. antiparasite preparations. Asia. It also has divisions to produce and sell agrovet and pesticide products. The company also provides local anesthetics. haematinics. antihistamines. is the most developed among the manufacturing industries in Bangladesh. SPL offers a range of pharmaceutical products.300 different forms of dosages and strengths. Africa and South America. which grew by 16. and lipid modifying preparations. About 80% of the drugs sold in Bangladesh are generics and 20% are patented drugs. which include alimentary preparations. systemic antifungal.Square Pharmaceuticals (DSE: SQURPHARMA. The market is expected to reach BDT 100 billion in 2011. manufactures and markets drugs for humans and the animal world. anti-rheumatic non-steroid drugs. Bangladesh’s pharmaceutical industry is the third largest tax paying industry in the country. CNS preparations. 2 Part of the Square group of industries. quinolone antibiotics. Bangladeshi pharmaceutical firms focus primarily on branded generic final formulations using imported APIs. poultry. a US-based market research firm. beta-lactam antibiotics. One of the fastest growing sectors. antihaemorrhagic. cardiovascular preparations.9%. The retail market is about 90% of the total market. NSAIDs and antigout preparations. aromatase inhibitor. Bloomberg: SQUARE:BD) Company Profile The flagship company of the Square group of industries. its animal health products consist of livestock. The company owns and operates modern pharmaceutical factories mainly in Bangladesh and also has a separate division to operate a modern chemical factory which produces and sells basic chemical products. SPL develops. non-narcotic analgesics. respiratory tract preparations. Industry and Competition The pharmaceutical sector. the company offers agro chemical products comprising insecticides.

9% 3. Although about 250 pharmaceutical companies are registered in Bangladesh.6% 4. The leading manufacturers are therefore 3 .132 1.520 2.0% 2.640 2. These account for almost 30% of the market.2% 1.8% 4.5% 7.929 Market Share 19.239 2.6% respectively.5% 8.1% 3. the local manufacturers dominate the industry as they enjoy approximately 87% of market share.466 2.8% 4. February 2011 Figure 1: Market share Others 20% MNCs 13% Top Ten 67% Table 1: Domestic retail market share of companies Revenue April 09 . allergies or psychological disorders also are among the most important in Bangladesh. Bloomberg: SQUARE:BD) Local companies and MNCs based in Bangladesh produce 95%-97% of the drugs and the rest are imported. Another notable feature of this sector is the concentration of sales among a very small number of top companies.266 1.815 Market Share 19. whereas HIV/AIDS and Antimalarial drugs are not. Anti-acids.9 billion and BDT 4. Coupled with the necessity to import machines.3% 8.7% 100.4 billion in domestic sales for the last four quarters. Incepta and Beximco had BDT 4.524 4.9% 2.March 10 (MM BDT) 11.7% 4.7% 1.2% 7. cardiovascular diseases.5% and 7. as well as from a public health perspective.623 2. The top 10 players control around two-thirds of the market while the top 15 companies cover 77% of the market.919 4.1% 3.355 2.0% 24.3% 4.Square Pharmaceuticals (DSE: SQURPHARMA.2% 1. BAPI and BRAC EPL Research. February 2011 Square Pharmaceuticals has 19.700 1.229 878 908 558 13.817 2.0% Revenue 2009 (MM BDT) 10.9% 4.717 2.9% 2. It is to be noted that typical developed-market therapeutic groups like those addressing diabetes. no MNC is among the top ten in terms of domestic sales. Analgesics.158 54.614 2. Although a number of MNCs are operational in Bangladesh. The second therapeutic group.691 57.0% 100. is much less relevant in terms of market share.7% 4.5% 4.3% and domestic revenues of BDT 11.7% 1. Because Bangladesh API capacity is insignificant.701 4.6% 1.495 2. Cough and Cold preparations and muscle relaxants also figure prominently. The most important therapeutic group in the Bangladeshi market is Systemic Antibiotics. Square’s nearest competitors are Incepta Source: BAPI and BRAC EPL Research.415 2. it is one of the main disadvantages in terms of cost when compared to India. Vitamins. Square Pharmaceuticals is the stand out market leader with a market share of 19.158 4. pharmaceutical companies import approximately 80% of their APIs.2% 23.283 1.5% 4.460 2.8% 4.634 1.240 2.6% 1.6% 4. However.005 936 675 13.5% 4. Mineral supplements. The domestic market is highly concentrated and competitive.3% market share in the local market Pharmaceuticals and Beximco Pharmaceuticals with market shares of 8.0% Top Companies Square Pharmaceuticals Incepta Pharmaceuticals Beximco Pharmaceuticals Opsonin Pharmaceuticals Eskayef Pharmaceuticals Acme Laboratories Renata Limited ACI Limited Aristopharma Drug International Sanofi-Aventis GlaxoSmithKline Novo Nordisk Sandoz Novartis Others Total Source: IMS.2 billion in the four quarters from April 2009 to March 2010. less than 100 actively produce drugs.788 2.

2 34. The performances in both the quarters have been nearly identical.136 74 1. For many APIs.3 1H10 YoY 6. improving gross margin. Net sales for 1H11 grew 24% YoY.898 55% 54% 54% 52% 49% 49% 49% 49% 12% 14% 15% 14% 15% 16% 16% 16% 16% 15% 13% 15% 17% 18% 19% 19% 4 Source: Company Reports and BRAC EPL Research.411 2.174 23% 2.561 20% 742 573 29% 1. such as anti-cancer drugs.124 68 56 1.g.686 29% 1. Operating profit for 1H11 grew 15% YoY while it again grew 6% QoQ in 2Q11.270 1.427 30% 3.302 25% 2.136 3.2 2Q11 4.958 12. Cost of sales as percentage of sales has also been declining gradually over the year.488 16% 670 580 15% 1.187 27. Performance so far this year Square’s performance in 1H11 has been very consistent. Bloomberg: SQUARE:BD) going into API manufacturing.810 92.Square Pharmaceuticals (DSE: SQURPHARMA.741 30% 1.729 670 1.906 3.024 13.136 2.034 18.627 185 1 1. SPL has enjoyed steady growth in sales volume.155 22. focusing mainly on Antibiotics. the domestic market is too small to justify an API manufacturing plant.896 15% 107 50% 90 21% 1. the initial investment and the production scale required are high. February 2011 .121 495 1.270 1. but also other drugs.906 2. Performance in the first half has been very consistent Table 2: Comparative performance in 1H11 BDT Mn Net Sales COGS Gross Profit Operating Expenses Profit from Operations Other Income Allocation for WPPF EBIT Financial Expenses PBT Income Tax PAT P/L from Associate Undertaking Minority Interest NPAT EPS 1H11 8. This stresses the fact that whereas several Bangladeshi manufacturers have the know-how to manufacture APIs.476 24% 3.177 1. Net profit after tax remained virtually unchanged QoQ.042 4.235 114 2. Net profit after tax actually increased by 30% YoY.7 1Q11 1Q10 YoY 3.252 9. February 2011 Sales and Margin Because of its dominating presence throughout the country.100 918 20% 40 74 -45% 1.136 995 14% 74 86 -14% 1.391 30% 70. operating expense as a percentage of sales have been Table 3: Sales and margins Gross Sales (BDT Mn) Cost of Sales/Sales Operating Costs/Sales Net Margin 2006 2007 2008 2009 2010 2011 2012 2013 8. However. profit after tax increased by 21% YoY while it dropped 1% QoQ. thanks to 292% growth in profit from associate undertakings.049 18% 1. for Antiretroviral APIs in Bangladesh.9 2Q11 2Q10 YoY 4.177 1.585 15.344 21% 47 292% 1 59% 1.913 17% 160 -29% 1.059 908 17% 93 52 78% 53 42 25% 1. while those for 2Q11 grew 6% QoQ.1 36.062 909 17% 253 212 19% 809 697 16% 95 25 287% 0 0 78% 904 721 25% 46.753 21% 409 21% 1.059 844 25% 241 196 23% 818 648 26% 89 23 297% 0 0 42% 907 670 35% 46.059 241 818 89 0 907 46. the manufacturers would need to be sure of their access to several export markets.059 93 53 1. This means that in order to establish API manufacturing e. Without the extraordinary profit from associate companies.1 1Q11 3.100 40 1.153 22% 1.729 1.448 3.062 253 809 95 0 904 46.866 742 1.595 1.183 161 109 2.2 QoQ 6% 4% 8% 11% 6% -27% 6% 3% 84% 0% 5% -1% 7% 9% 0% Source: Company Reports and BRAC EPL Research.866 1.124 988 14% 68 55 23% 56 48 17% 1.

The company has a number of such businesses in the pipeline. (SMFL).000.48% 99.46% 5.00% Market Value (BDT Mn) 53. Square Fashions Ltd.   5 . to monetize the investments.882 1. This company also has not become profitable yet.Square Pharmaceuticals (DSE: SQURPHARMA.84% 48. We expect this trend to stabilize in the near future. SPL also has BDT 400 million as share money deposit in SCL on top of the BDT 95.25% of Square Biotechs Ltd.48% of Square Cephalosporins Ltd. Because of the ever growing contribution from its associate companies.754 7. ladies and children. garments for gents.  Square Cephalosporins: SPL holds 99. Square Biotechs: SPL holds 99. SPL previously spun off profitable subsidiaries to monetize investment Table 4: Subsidiaries and Associates of Square Pharmaceuticals Name Square Pharmaceuticals Square Cephalosporins Square Biotechs Square Multi Fabrics Square Textiles Square Hospitals Ltd.900. but has also sprouted a number of other businesses in-house.000 equity holding. SCL owns a modern pharmaceuticals factory and produces and sells pharmaceuticals. drugs and medicines. After profitable commercial operations of its businesses commenced. Besides the equity holding of BDT 9.00% 99. Bloomberg: SQUARE:BD) creeping up slightly in the last few years because of the intense competition in the industry.89% 0. which we expect to stabilize after a while. Square Multi Fabrics: SPL holds 99.50% 46. February 2011 There are currently three companies in which SPL has made a majority investment.365 66 249 6.25% 99. NHFIL CDBL United Hospitals Pioneer Insurance % Owned by SPL 100. (SCL).000 SPL also has BDT 150.000 as share money deposit in the company. The company has not yet become profitable. such as Square Textiles.095 230 10 12 219 Source: Company Reports and BRAC EPL Research. yarn. SMFL was established to carry on the business of manufacturing and marketing all types of knit fabrics.000.085 3. SPL spun off subsidiary businesses.56% 48. sales and distribution of all kinds of biotechnological medicines or drugs. SBL was established to carry on the business of inter alia manufacturing.628 2.50% of Square Multi Fabrics Ltd. Square Knit Fabrics Ltd. The subsidiary has become profitable very quickly after it went into operation in 2007. (SBL). Majority Investments It may be noted that SPL’s management has not only maintained profitability in its core pharmaceuticals business.45% 49. net margin is increasing.86% 10.22% 2.

279 14% 60% 17% 2011 15. We anticipate a 25% cost overrun for a final cost of BDT 4.107 20% 50% 21% 2013 22.239 547 15.0 billion (including an estimated cost overrun of 25%). 25% of the capacity will come on line in each of the following four years.6 billion.786 18% 50% 19% 2012 18.367 18% 58% 19% 2010 12.189 24.030 336 11. Expansion Program In order to meet increasing demand in the domestic as well as foreign markets. Source: Company Reports and BRAC EPL Research. Bloomberg: SQUARE:BD) Minority Investments          Square Textiles Square Knit Fabrics Square Fashions Square Hospitals United Hospitals National Housing and Finance Pioneer Insurance Central Depository Bangladesh Limited (CDBL) Square Informatix Investment in Marketable Securities The currently holds marketable securities amounting to BDT 221 million with an unrealized gain of BDT 167 million. which is already under way. completing in 2017 for a total cost of BDT 2. is expected to be completed by 2012 at a total cost of BDT 3. We made an assumption that the new plants will operate with an 85% efficiency and after the year of completion. Table 5: Local sales vs export Local Sales Export Sales Total Sales Local Sales Growth Export Growth Total Sales Growth 2008 9. the contribution of export to the total sales is still 6 . February 2011 International Market Square is one of the leading exporters of pharmaceutical products from Bangladesh.5 billion. But revenue contribution may come after 2012.915 365 13.353 212 9.859 1. SPL has undertaken an ambitious expansion program to be completed in two phases. However.048 25% 45% 26% Ambitious expansion program will increase capacity significantly. Second phase will also do the same.Square Pharmaceuticals (DSE: SQURPHARMA.566 10% 10% 10% 2009 11.287 820 19. The first phase is expected to nearly double the current capacity. The second phase will start in 2014. The first phase. We expect the expansion programs contributing to revenue growth after 2012.

In Bangladesh. the UK or even the USA because of the enhanced purchasing power of consumers in those markets. The benchmark index DGEN has dropped 35% during the same period. Cambodia. it seems to be in a better position than most other companies. pharmaceutical companies make marginal profits from these drugs. it could overcome some of the problems above. Yemen. SPL will need to continuously maintain and renovate its manufacturing plants.000 shares with average daily turnover of BDT 184 million. This means it is expected to have a large outflow in capital expenditure each year. The stock price retraced 21% since the start of the market correction in December 6. North Korea. Outlook The company has done very well to maintain its margins. Therefore. Papua New Guinea. we think its sales volume could grow significantly over the years. Current export destinations include Myanmar. Kenya. The same drugs that SPL sells for Tk.Square Pharmaceuticals (DSE: SQURPHARMA. Somalia. However. Tajikistan and the UK. given Square’s market share. Mauritania. Belize. the MHRA of UK renewed SPL’s MHRA GMP (Good Manufacturing Practice) certification for three more years. On the other hand. Liquidity SPL has a free float of 46%. Philippines. the companies make the bulk of their profits from these “nonessential” drugs. they are forced to be content with prices lower than they would expect. Vietnam. they cannot set prices too high as the purchasing power of the population is low. Nepal. Afghanistan.3 million in FY09. However. However. the pharmaceutical companies have no power to set prices for “essential drugs”. the companies are free to set prices on products outside of this list. a list of lifesaving drugs decided by the government. Surinam. Eritrea. Malawi. Sri Lanka. Ghana. We believe if SPL focuses more on the international market. we anticipate an ever-competitive market where pharmaceutical companies lower prices and give up margins to retain market share. Malaysia. Bloomberg: SQUARE:BD) very small. Bhutan. As a result. SPL 7 Competition may reduce margins for most players in the long run Export market could significant boost sales volume . Tanzania. The exports are expected to rise in the coming years. The company exported BDT 364.5 million worth of pharmaceutical products in FY10 compared to BDT 336. The stock is quite liquid and traded regularly. Only the government has the power to decide prices of these drugs and price revisions by the government are few and far between. Even then. Average daily trade for the last 12 months was slightly over 55. 10. Hong Kong. 2010. Hence. UK MHRA certification renewed for three years recently Stock Price Resilience SPL has been one of the most resilient stocks among all the stocks in BRAC EPL coverage universe in the face of severe market correction. This could affect bottom lines of all pharmaceutical companies in Bangladesh. for example. could be sold at prices several times higher in Australia. Libya. because of the strict quality controls and regulations in the developed market such as Europe and the USA. In March 2010. So. Mauritius.

is now a listed company. Square Cephalosporins is the only one which is fully operational and profitable. Capital expenditure for the projects is expected to be financed internally by the company’s solid cash generation. an associate of Square Pharma and a former subsidiary. This results in a very low debt to equity ratio. Although the company guidance was for production to start before 2010. Square Square Textiles. Square Biotechs and Square Multi Fabrics are yet to be in full blown production. The two expansion programs. The company will gradually seek more certification from other regulators in developed markets. it has been delayed. SPL expects that in time it will be able to list its current subsidiaries in the capital market. We expect these two to start production properly in 2011 and add to consolidated revenue. which is essential to enter the UK and European markets. Investment in Square Textiles was BDT 183 million on a cost basis and current market value of this investment is more than BDT 12 billion. which includes expansion and maintenance. SPL management seems to be hoping that it will eventually be able to list its subsidiaries. which we discussed earlier are expected to double the production capacity in 2014. Bloomberg: SQUARE:BD) already has a certification from the UK MHRA. Therefore we assume major portion of investing activity to be financed internally. Among the three subsidiaries. allowing it to monetize its investment. The company accumulates a large amount of cash at the end of our horizon.Square Pharmaceuticals (DSE: SQURPHARMA. The company’s operating cash flow is higher than its total capital expenditure. Existing subsidiaries may present excellent capital gain opportunity 8 .

Table 6: Sum of the Parts Valuation Name Square Pharmaceuticals Square Cephalosporins Square Biotechs Square Multi Fabrics Square Textiles Square Hospitals Ltd.3x Total Return * All EPS and BVPS figures are from audited reports of latest fiscal year of the respective Source: Company Data.255) 221 73.50% 46.332 20 3.98 365. With an estimated dividend yield of 1%.092 1% 26% Fair Value Current Price Dividend Yield 24. February 2011 9 .754 7.850. SPL is trading at a slight discount to these companies.092.6x 26. Square Fashions Ltd. BRAC EPL Research. We have also used four other leading pharmaceutical companies trading in the DSE for comparison purposes. Based on both of our valuations.Square Pharmaceuticals (DSE: SQURPHARMA.00% 99.0x on estimated 2012 EPS of BDT 217. In any case.86% 10.037 265 795 EPS 2.2x 8.89% 0.882 1. of Shares Value/Share Source: Company Data. We derive value per share for each of these companies using various valuation methodologies depending on the type of business and its relationship with the parent company.4x Square Pharmaceuticals 2012 Estimates Multiples Value/Share EPS 217 18. we arrive at a fair price of BDT 3.22% 2.7x 29. a Sum-of-the-Parts (SOTP) valuation appears to be more relevant.628 2.738 Value/Share 2. February 2011 % Owned 100. Square Knit Fabrics Ltd.365 66 249 5. We use DCF valuation for Square Pharmaceutical’s standalone business as well as Square Cephalosporins. Normalized values are used for privately held companies within the Square group. our fair price would provide a 12month total return of 26%. Since a few of the companies are yet to become fully operational or profitable.095 223 10 12 207 (2. DSE.25% 99.46% 5.738 Table 7: Comparative Valuation* Other Pharmaceuticals Beximco Pharmaceuticals Renata Limited ACI Limited GlaxoSmithKline Average Square Pharmaceuticals 3. Bloomberg: SQUARE:BD) Valuation Since Square Pharmaceuticals is involved in a number of subsidiaries and associate companies. we arrive at a fair value of BDT 3.3x.0x 3.740 375 3 13 299 198 83 107 11 1 1 11 (115) 11 3.88 P/E 37.874 3. NHFIL CDBL United Hospitals Pioneer Insurance Net Cash Non-Operating Assets Total Value No. At a trailing P/E multiple of 24.092 127.4x based on their latest published audited report.901 3. BRAC EPL Research. Using a P/E multiple of 18.0x 30.64 26. we arrive at a 12-month fair value of BDT 3.738.00% Valuation Methodology DCF DCF 1x 2010 P/B 1x 2010 P/B Market Value Normalized Valuation Normalized Valuation Normalized Valuation Market Value At cost At cost Market Value Market Value 53.84% 48. The average P/E of these companies is 26. we believe this value is likely to rise once these companies start to make profits.45% 49.56% 48. the value has considerable upside on the current market price of BDT 3. From our SOTP valuation.48% 99. Two other privately held companies are taken at cost.850 3.21 30. We also take the market value of associate companies that are publicly listed.901.29 Price 110 11.

164 0 12.681 634 185 3.Secured Deferred Tax Liability Non-Current Liabilities Equity Minority Interest Total Liabilities and Equity 2008 2.401 16.523 2012E 3.971 (7.293) 3.876) 6.296 1.296 608 6.523 354 226 580 25.348 1.326 258 (158) 3.174 446 233 236 443 4.485) 5.200 (455) 2.618 (2.458 185 4.929 409 (138) 3.630 891 330 33 1.019) 3.046 (1.058 2010 12.797 3.900 0 11.924 0 16.202 (1.915 341 (4) 4.296 3.493) (1.237) 338 270 608 2012E 4.593 (2.082 634 152 541 119 1.368 130 (2) 2.642 705 217 478 94 856 2.116 (55) (2) 2.497 2011E 15.592) 10.392 (277) 4.858 734 (199) 4.396 1. February 2011 10 .056 270 5.269 723 226 949 16.872 19.959 7 10.406 2011E 3.409 (2.097 264 (3) 3.058 3.846) (824) 88 226 314 2010 2.546) 4.813 (171) 6.526 2009 11.998 420 (5) 5.930) 3. Bloomberg: SQUARE:BD) Table 8: Income Statement MM BDT Net Sales COGS Gross Profit Operating Expenses Profit from Operations Other Income Allocation for WPPF EBIT Financial Expenses PBT Income Tax PAT P/L from Associate Undertaking Minority Interest NPAT 2008 10.979 786 211 998 10.Square Pharmaceuticals (DSE: SQURPHARMA.077 2.217 1.787 (2.651 7.406 880 502 103 61 547 2.251 2013E 24.796 23.541 (12) (3) 1.774 14. BRAC EPL Research.406 478 304 20 609 314 4.847 8.201 145 3.132) 608 69 157 226 2009 2.798 1.490 (443) 2.961 17 29.Long Term (At cost) Investment-Associate Undertakings Pre-operating/Preliminary Expenses Non-Current Assets Total Assets Short Term Bank Loans Long Term Loans.047 (506) 1.417 (215) 5.913 1.189 608 1.350 506 226 732 20.082 Source: Company Data. Deposits & Prepayments Investment in Marketable Securities Short Term Loan Cash and cash equivalents Current Assets Property.175 185 4.568) 4.492 757 221 1.003 9. Plant & Equipment Capital WIP Investment.554 (6.642 (1.733 1.644) 4.575 512 371 221 1.926 2 14.759) 2.143 226 1.116 (1.462 1.797 8.712 431 128 94 615 2. February 2011 Table 10: Balance Sheet MM BDT Inventories Trade Debtors Advances.188 610 221 1.505 0 14.506 5.215) 1.923) (1. February 2011 Table 9: Cash Flow Statement MM BDT Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities Net Cash Flow Opening Cash Balance Closing Cash Balance 2008 1.332 (3.068 958 500 221 1.709 Source: Company Data.709 12.168) (1.797 2013E 5.642 2013E 4.507 16 15.039 3 9.549 12 23.813 (1.058 2009 2.471) (1.940 4 16.905 1.826 (7.758 (1.746 (630) 2.905 2010 2.642 1.368 12.298 7 19. BRAC EPL Research.148 145 3.093 1.764 899 (246) 5.663 (8.008 (1.132 (310) 6.783 (1.335) (45) 314 270 2011E 3.397 226 5.067 (13.141 (10.412 Source: Company Data.005 6.131 5.328) 1.118 10.476 (4.106 (737) 2.533 778 225 1.288) 3.991 1.249 346 (104) 2.964 29.358 2012E 19.809) 8.552 15.013) 4.426 (320) 3.884) 2.Current Portion Trade Creditors Liabilities for Expenses Liabilities for Other Finance Current Liabilities Long Term Loans.523 783 310 395 77 705 2.352) 5. BRAC EPL Research.328 (1.307 185 4.

981 -1.2x 2.043 24.06 26% 27% 28% 2% 14% 49% 51% 16% 21% 19% 21% 19% 25% 6.29 0.Square Pharmaceuticals (DSE: SQURPHARMA.041 24% 20 217 53 1047 1427 0.15 0.23 11% 21% 9% 1% 14% 49% 51% 15% 22% 17% 19% 15% 24% 4.31 13% 35% 35% 1% 13% 52% 48% 14% 22% 15% 19% 14% 23% 2. February 2011 11 .5x 5.024 1.09 22% 27% 26% 2% 14% 49% 51% 16% 21% 19% 21% 18% 25% 5.671 1.04 0.7x 2012E 1.1x 3.8x 6.09 0.621 755 14.53 21% 5% 20% 1% 12% 54% 46% 15% 19% 13% 16% 10% 25% 4.7x 2011E 827 25% 20 171 42 831 1815 0.6x 2010A 528 21% 15 127 35 660 2524 0.06 0.0x 2013E 1. Bloomberg: SQUARE:BD) Table 11: Indicators and Ratios 2008A Dividend (BDT mn) Payout ratio Number of shares (mn) Diluted Earning Per Share (BDT) Dividend per share (BDT) Diluted Book Value Per Share (BDT) Total Debt (BDT mn) Debt/Total Assets Debt/Total Equity Sales Growth Earning Growth Dividend Growth Dividend Yield Duty and VAT/Gross Turnover Cost of Sales/Sales Gross Profit Margin Operating Costs/Sales Operating Margin Net Margin Return on Equity Return on Assets Effective Tax Rate NC Working Capital (BDT mn) Increase in NC Working Capital (BDT mn) P/E P/B 358 23% 15 78 24 485 4398 0.20 0.4x 2009A 483 23% 15 105 32 557 2929 0.867 843 18.050 11.14 21% 34% 57% 1% 14% 49% 51% 16% 21% 18% 21% 17% 25% 4.3x 3.387 29.3x Source: Company Data.332 25% 20 276 68 1323 1140 0.367 926 39.3x 4. BRAC EPL Research.

Monirul Islam Parvez Morshed Chowdhury Ali Imam Asif Khan Md.Square Pharmaceuticals (DSE: SQURPHARMA. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. BRAC EPL Stock Brokerage Capital Markets Group Aminul Haque Md.com 01730727913 BRAC EPL Research www. Information presented herein.com WW Tower (7th Floor) 68 Motijheel C/A.com ashfaque@bracepl. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. currency or major segments of the economy could alter investor confidence and investment prospects.com asif@bracepl. Ashfaque Alam Khandakar Safwan Saad Aasim Tajwaar Matin Head of Capital Markets Research Analyst Research Analyst Investment Analyst Investment Analyst Research Associate Research Associate Research Associate amin@bracepl. As it acts for public companies from time to time. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes. which may include revenues from corporate finance activities of the firm's Corporate Finance department.com imam@bracepl.com monirul@bracepl. BRAC-EPL may have a relationship with the above mentioned company(s). is not guaranteed either as to accuracy or completeness. or (4) Interest rates. However.matin@bracepl. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security.com 01730317802 01730357150 01730357154 01730357153 01730357158 01730357786 01730357779 tajwaar. Bloomberg: SQUARE:BD) IMPORTANT DISCLOSURES Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. (3) Unforeseen developments with respect to the management. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings.com parvez@bracepl. the compensation of research analysts is impacted by the overall profitability of the firm. This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. financial condition or accounting policies alter the prospective valuation.com safwan@bracepl. Research analysts' compensation is not directly related to specific corporate finance transaction.com . As with most other employees. Dhaka-1000 Tel: +88 02 951 4721-30 Fax: +88 02 955 3306 E-Mail: research@bracepl.bracepl. while obtained from sources we believe to be reliable.