Abbott Laboratories (Pakistan) Limited – BR Research

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Abbott Laboratories (Pakistan) Limited (PSX: ABOT) was established as a limited company in 1948. The company specializes in the manufacture and import of generic pharmaceutical, nutritional, diagnostic, diabetes care, molecular devices, hospital and consumer products. .

Ownership model

As of December 31, 2021, nearly 79% of the shares are held in associated companies, companies and related parties. In this context, a major shareholder is M/S. Abbott Asia Investments Limited. The local general public owns almost 10% of the shares, followed by more than 3% in each of the following: modarabas and mutual funds, and insurance companies. The directors, the CEO, their spouses and their minor children hold less than 1% of the shares. The remaining 4% of shares belong to the rest of the shareholder classes.

Historical operating performance

The company has seen its revenue grow since CY12. Profit margins, on the other hand, declined between CY16 and CY19, before rising again in CY20 and beyond.

In fiscal year 2018, revenue showed an early 14% growth to reach Rs 29.7 billion in value. Local sales and export sales grew by 14% and over 11%, respectively. By segment, nutritional sales grew by more than 22%, the “other” division increased by 14% and the pharmaceutical division increased by almost 12%. Due to currency devaluation and inflationary pressures, the cost of production consumed 67% of revenue, compared to 61.3% in calendar year 2017. Note that the pharmaceutical industry is highly dependent on imported raw materials whose cost is affected by currency devaluation. As a result, gross margin fell to nearly 33% from nearly 39% in CY17. Operating expenses also absorbed a larger share of revenue, while other expenses increased due to the foreign exchange loss. Thus, the net margin fell to 9%, the lowest ever seen so far.

Revenue growth was marginal in the year 2019 at 1.5% with turnover exceeding Rs 30 billion. Export sales, which are not a major contributor to total revenue, posted growth of 41%, while local sales fell slightly by 1%. Between the divisions, nutritional sales increased by 16% and the “other” category posted growth of 8.6%. In contrast, pharmaceutical sales were down nearly 3% due to the general economic and regulatory environment. Cost of production continued to rise, claiming nearly 72% of revenue, reducing gross margin for the third consecutive year to over 28%. Operating expenses also consumed a larger share of revenue year-over-year, resulting in net margin falling to an all-time low of 4%.

At 17%, revenue growth in CY20 was the highest to date, with revenue exceeding Rs 35 billion in value. Export sales decreased by 27% while local sales increased by almost 22%. The decline in export sales can be attributed to trade halts related to the outbreak of the Covid-19 pandemic. On the other hand, all business segments recorded growth, as evidenced by increases of 12.7% in pharmaceutical sales, 39% in nutritional sales, 4% in diagnostics and 5% in “others”. Revenue growth drove the gross margin to over 33%. This was also reflected in the net margin which was recorded at nearly 13% with a net profit of Rs 4.5 billion. Besides the increase in revenues, profitability was also supported by other revenues which increased significantly due to a one-time liability assumption event.

CY21’s revenue showed record growth of almost 21% to cross Rs 42 billion in value. This was largely attributed to a growth in volumes. Export sales and local sales increased by nearly 17% and 20.4%, respectively. By segment, pharmaceutical sales increased by 15.5%, the nutritional segment increased by 17.7%, diagnostics sales increased by nearly 76% due to Covid testing and higher OPD activities, and the general healthcare and diabetes care grew by almost 61%. This increased the gross margin by nearly 38%. Although net margin was also higher year-over-year at 14%, the improvement was relatively marginal due to increased distribution and other expenses, coupled with lower other income. The increase in distribution expenses was due to increased travel and sales promotions, while other expenses were driven by the Workers’ Profit Sharing Fund (WPPF), the Workers’ Welfare Fund ( WWF) and the Central Research Fund (CRF).

Quarterly results and future outlook

CY22 Q1 revenue increased 19% year-on-year. Pharmaceutical sales increased by 17%, nutritional sales by 19% while the diagnostics segment continued to benefit from Covid tests, registering a growth of 36%. However, this did not translate to a higher gross margin as production costs increased to consume 65% of revenue from 61.6% at 1QCY21 due to currency devaluation and inflation. . This also caused other expenses to increase as foreign exchange losses increased. Thus, the net margin was also year-on-year at more than 12% for the period against 14.6% in the same period last year.

On the sales front, the company is facing a positive trend, but production costs, especially due to the devaluation of the currency as the sector depends on imports, threaten its future profitability.

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