Pharma Sector Booms as Deregulation Boosts Profits

Staff Report:
Pakistan’s listed pharmaceutical sector saw a significant earnings surge, rising 3.1 times to Rs24.8 billion in 2024. This profitability boost stemmed mainly from increased net sales and improved gross margins.

Net sales grew by 15% year-on-year to Rs318 billion, driven by rising drug prices. In February 2024, the government deregulated non-essential drug prices, allowing companies to set their own rates. Previously, price hikes were capped at the Consumer Price Index (CPI) increase, with limits of 10% for non-essential drugs and 7% for essential medicines. Additionally, on February 6, 2024, the Ministry of National Health Services, Regulations, and Coordination approved price increases for 146 essential drugs.

These changes led to a jump in gross margins from 26% in 2023 to 36% in 2024. The sector also benefited from declining raw material costs and Pakistani Rupee (PKR) appreciation.

Selling and administrative expenses rose in line with inflation, increasing by 14% and 15%, respectively. Meanwhile, finance costs edged up 1% to Rs8.0 billion, despite a drop in average KIBOR from 21.6% in 2023 to 18.5% in 2024, due to higher borrowings.

Outlook Deregulation is expected to further strengthen margins, especially for companies with a higher share of non-essential drugs. Lower interest rates and reduced borrowing should also support profitability in 2025.

We favor high-quality stocks with strong margins, attractive valuations, and a significant non-essential product mix. AGP Limited (AGP) and Searle Company (SEARL) remain our top picks. For detailed analysis, refer to our reports on these stocks from December 28, 2024, and March 15, 2025,” Topline said.