EUR 3.54 For Business Accounts Only

Intermarket Pulse: Pakistan Pharma: Softer margins keep 1QCY17 profitability in check

• IMS Pharma Universe (GLAXO, ABOT, SEARL, HINOON) posted modest 3%YoY earnings growth for 1QCY17 (incl. FEROZ: -8%YoY). While revenue was up 23%YoY, GMs came off by 3ppt to 33% despite pricing flexibility, and distribution expenses were on higher side as well. FEROZ remained a laggard as its earnings continued to normalize (ex-Sovaldi), alongside weakness in its nutrition & healthcare segments.

• CY16 industry GMs crossed 36% (highest levels since CY07), largely reflective of drug price increases last year (sub-judice price hikes and regulated price hikes). With a controlled mechanism for prices now in place (CPI linked), profit growth going forward should largely be a function of volumes particularly for GLAXO and HINOON.

• For the companies we track, TTM P/E and P/S come to 27.6x and 4.5x. Given that the IMS Pharma Universe has shed 13% from its all-time high, vs. a 6% fall from high for the KSE-100 Index (not incorporating today’s market performance), investors may look to selectively build positions in pharmaceutical names again.