Square Pharmaceuticals Limited

Key Comps
Annualized
EPS
12.18

EPS 16
(Q3)
9.48

EPS 16(Q2)

Annualized
Vs Audited
Growth
31.7%

Quarter
Y-o-Y
38.4%

6.8%

16.4%

27.3x

21.3x

20.7x

5.3x

28.3%

32.3%

8.0%

13.8%

27.7x

23.5x

21.6x

3.6x

Close Price

262.2

Market Cap (BDT in bn)

163.5

Outstanding Shares (in mn)

623.59

Compnay vs
Industry

54%

Company

Audited
Income
Y-o-Y
21.1%

Industry

16.1%

Sponsor holding (%)

Category

6.09

New Export Market, New Production

EPS 16
(Q1)
3.28

Last
Audited EPS'
Dividend
15
30%C,
10.80
12.5%S
Quarter Profit Growth
Q-o-Q (5 Yr CAGR)

Key Financials(In mn BDT)

EPS 15
(Q3)
7.61
Audited
P/E

EPS 15
(Q2)
5.22

EPS 15
(Q1)
2.76

Year
end
March

LTM P/E Annualized

P/E

P/B

2012

2013

2014

2015

19,798.1
7,890.3
5,385.1
4,150.9
3,620.1
24,562.2
3,223.4
19,251.5

20,202.0
8,893.1
5,960.2
4,841.6
4,213.8
27,551.7
2,948.8
22,586.2

23,268.4
10,307.7
7,148.9
5,967.7
4,946.2
31,046.1
1,776.2
26,739.6

26,684.6
11,741.7
8,758.1
7,049.6
5,981.6
35,191.2
916.3
31,093.3

Square Pharmaceuticals Limited (SPL) is the flagship company of Square Group. It is

the largest generic drug producer of Bangladesh with 19.2% of market share. Its
business also ranges from Active pharmaceutical Ingredients (API), AgroVet Products,
Pesticides, Fabrics and Textile to Hospital. SPL offers more than 738 products in
different dosage forms. Total sales turnover of SPL is now more than BDT 26.6
Billion (USD 332.5 mn), growing at 12.0%(CAGR) during last 5 years and 14.6% in
FY 2014-15.

Revenue
Gross Profit
EBITDA
Operating Profit
Net Income
Total Asset
Total Debt
Total Equity

Huge Market

Profitability

2012

2013

2014

2015

Gross Profit Margin

EBITDA margin
EBIT margin
ROE

39.9%
27.2%
21.0%
20.6%

44.0%
29.5%
24.0%
20.1%

44.3%
30.7%
25.6%
20.1%

44.0%
32.8%
26.4%
20.7%

Capacity

According to IMS, Bangladeshs present pharmaceutical market (including institutional sales) size is BDT 132.0 bn. Local pharmaceutical market size is BDT 110.0 bn,
and it is expected to hit BDT 157 bn by 2018 with a CAGR of 9.3%. Pharmaceutical
export market size was USD 69.1 mn (BDT 5.4 bn) in FY 2013-14 against Indias
USD 14.8 bn.

Increasing Demand
With a population growth of 1.3%, life expectancy of general people of Bangladesh has been increased 4 years on an average in last 5 years (Source: BBS).
Health expenditure of Bangladesh was 3.7% against Indias 3.9% of GDP in
2013 (Source: WB). At present SPL is exporting in more than 40 countries
including UK and some EU countries.

Strong Financial Performance with Established Position

SPLs 5 years CAGR of revenue and net profit is respectively 12.0% & 16.4%. Its 4
years average ROE & ROA are respectively 20.8% & 16.3%.The companys financial
leverage is lowering year to year, as it uses less debt financing. The Debt to Capital
ratio is .03x, which reduced in half according to last year.

Value Drivers

TRIPS council approved extension of the transition period for pharmaceutical

products for least developed countries till 2032. The waiver will allow to enjoy
exemptions from patent obligations for pharmaceutical products stipulated in
the TRIPS agreement, which enables Bangladesh to produce these items at
significantly reduced costs during the transition period of 17 years.
SPL got US FDA approval on June15, Which is required to export drugs to
the US, the worlds largest drug market. During the year 2014-15, The export
saw an increase of 34.46% comparing previous year. SPL has given a thrust for
increasing the export volume. If SPL can avail this opportunity properly, the
export revenue is expected to rise in the upcoming years.

The expiration of patent of some Blockbuster Drugs (specially for Arthritis &
cholesterol, eg Adalimumab, rosuvastatin calcium) within 2016 will create a big
opportunity for SPL. Around 6 of the top 20 prescribed drugs will face patent
expiration within next 5 year. (SPL is already producing rosuvastatin calcium in
the brand name of Rosuva & after patent expiration, it will be easy to get
raw materials at a cheap price from different sources.)
Top 10 prescribed drugs in Bangladesh covers around 8.8% of total market
share, among them 4 drugs are SPLs which covers around 4.1% of total market share. By introducing new drugs for heart disease, diabetes mellitus, hypertension etc. SPL will be able to acquire more market share.
Square Formulations Limited, one of SPLs subsidiary company going to start
its operation with annual capacity of 8000 million tablets and 2000 million
capsules. After full capacity utilization, it is expected that it will have a positive
change in the net profit of SPL.

ROE Decomposition

2012

2013

2014

2015

Net Profit Margin

Asset Turnover
Financial Leverage

18.3%
0.8x
1.3x

20.9%
0.8x
1.2x

21.3%
0.8x
1.2x

22.4%
0.8x
1.1x

Growth

2012

2013

2014

2015

Sales Growth
Gross Profit Growth
Operating Profit Growth
Net Profit Growth

16.6%
17.9%
18.3%
11.1%

2.0%
12.7%
16.6%
16.4%

15.2%
15.9%
23.3%
17.4%

14.7%
13.9%
18.1%
20.9%

2012

2013

2014

2015

0.1x
8.9x

0.1x
13.6x

0.06x
33.7x

0.03x
44.4x

Valuation Metrics

2012

2013

2014

2015

P/CF
PEG
Price/Sales
Dividend Yield
EV/EBITDA

17.2x
1.6x
3.2x
1.1%
12.0x

12.5x
1.0x
3.3x
1.4%
11.3x

20.1x
1.5x
5.5x
1.1%
17.8x

21.2x
1.1x
5.1x
1.2%
15.2x

Stock

DSEX

Last
Week

0.2%

1.2%

Last
Month

0.9%

2.0%

Last
Year

11.7%

-5.8%

Velocity

11.5%

20.2%

(6 Months)

Risk
Debt to Capital
Interest Coverage

Square Hospitals Ltd. one of the subsidiaries of SPL provides the highest
possible level of treatment in Bangladesh. Newly formed Pesticide Unit is
trying to become the market leader in agrochemicals sector in Bangladesh.

Risks & Challenges

The cost controlling will be eminent if any drug is listed as essential drug
by the authority.

India has its own API Park and as a result, it can offer competitive prices
in global markets compared to Bangladesh. The API Park of Bangladesh
has already been delayed by years.

Page 1

Disclaimer
This document (the Report) is published by Sheltech Brokerage Limited (SBL) for information only of its clients. All information and analysis in this Report have been compiled from and analyzed on the basis of SBL's own research of publicly available documentation and information. SBL has prepared the
Report solely for informational purposes and consistent with Rules and regulations of SEC. The information provided in the Report is not intended to, and
does not encompass all the factors to be considered in a best execution analysis and related order routing determinations. SBL does not represent, warrant,
or guarantee that the Report is accurate. SBL disclaims liability for any direct, indirect, punitive, special, consequential, or incidental damages related to the
Reports or the use of the Report. The information and analysis provided in the Report may be impacted by market data system outages or errors, both internal and external, and affected by frequent movement of market and events. Certain assumptions have been made in preparing the Report, and changes to the
assumptions may have a material impact on results. The Report does not endorse or recommend any particular security or market participant. SBL, its analysts and officers confirm that they have not received and will not receive any direct or indirect compensation in exchange for expressing any specific recommendation, opinion or views in its Report. The information and data provided herein is the exclusive property of SBL and cannot be redistributed in any
form or manner without the prior written consent of SBL. This disclaimer applies to the Report in their entirety, irrespective of whether the Report is used or
viewed in whole or in part.

Contact Us
Research Team
Moin Uddin
Chief Executive Officer
Email: moin@sheltechbrokerage.com
Phone: +8801730320894

N.M. Al-Hossain

Md. Aslam Hossain

Mostafa Noman

Head of Research & Investment

Email: hossain@sheltechbrokerage.com
Phone: +8801777764942

Research Trainee
Email: aslam@sheltechbrokerage.com
Phone: +8801777764949

Research Trainee
Email: noman@sheltechbrokearge.com
Phone: +8801777764900

Sales Team
M.D. Rakibul Hasan
Head of Sales & Trading
Email: hasan@sheltechbrokerage.com
Phone: +8801777764916

About Sheltech Brokerage

Sheltech Brokerage Limited is a full service broker operating in Dhaka Stock Exchange. Founded in 2014, the company has
already joined the ranks of the top brokers of the industry. The company has a heavy focus on high net worth and institutional
client servicing with its fundamental and quantitative research offerings.

Page 2