Topline Picks AGP and SEARL as Preferred Picks
Staff Report
Islamabad: Topline has picked AGP Limited (AGP) and The Searle Company (SEARL) as preferred picks in the pharmaceutical sector due to strong gross margins and attractive valuations.
We prefer high-quality stocks with a higher non-essential product mix, low leverage, strong gross margins, and attractive valuations. AGP Limited (AGP) and The Searle Company (SEARL) are our preferred picks in the pharmaceutical sector,” Topline said.
Pakistan listed pharmaceuticals sector’s earnings were up by 83% YoY to Rs8.0bn in 3QFY25. This jump in profitability is primarily attributed to higher net sales, improved gross margins, and a decline in finance cost.
Net sales increased by 12% YoY to Rs85.5bn in 3QFY25, primarily driven by an increase in drug prices following the deregulation of non-essential drugs in Feb-2024. Haleon, ABOT, FEROZ, HPL, and AGP led the sector, showing strong sales growth in absolute terms.Topline Projects OGDCL Earning in 3QE FY25
This price increase led to an improvement in gross margins, rising to 39% in 3QFY25 from 31% in 3QFY24. Additionally, the recent decline in raw material prices for many drugs and the stable currency further contributed to the increase in gross margins. AGP recorded highest gross margins of 58% in 3QFY25.
Sector’s finance cost also declined by 41% YoY to Rs1.2bn in 3QFY25, amid a drop in the average KIBOR (benchmark lending rate) from 21.3% in 3QFY24 to 11.9% in 3QFY25, along with lower borrowings.
On a sequential basis, earnings declined by 14% QoQ, mainly due to a drop in net sales amid seasonal impact.
This takes 9MFY25 earnings to Rs25.2bn, up 2.2x, primarily driven by an increase in net sales due to higher drug prices.
Outlook: We believe that the deregulation of non-essential drugs will further enhance the margins of pharmaceutical companies, particularly those with a high proportion of non-essential products. Furthermore, the decline in API prices following the drop in crude oil prices will further support the gross margins of pharma companies,” Topline said in its report.
Additionally, the recent reduction in interest rates, along with the expected decrease in borrowings by a few companies, is likely to further support profitability in FY25 and FY26.
