Lahore, PACRA has announced its decision to maintain the entity ratings for AGP Limited, a prominent name in the pharmaceutical domain of Pakistan, operating under the AGP group umbrella.
According to a news release by PACRA, AGP, initiated in 1989, is chiefly owned by OBS Group through Aitken Stuart Pakistan (Pvt) Ltd. The company also boasts a strategic and distribution alliance with global partner Muller and Phipps. Although AGP's pharmaceutical product lineup is primarily directed towards acute therapeutic segments, forthcoming brand acquisitions will further bolster its footprint in the chronic therapeutic segments. Driving this growth is AGP's focus on its organic portfolio expansion and the procurement of new brands in the chronic ailment segment.
The enterprise flourishes on strong corporate governance, with established protocols ensuring effective supervision and decision-making by the Board of Directors. With the industry being classified as low-risk due to its consistent demand, AGP has capitalized on CPI-linked pricing, leading to price hikes aligned with inflation. However, the sharp decline in the value of PKR has negatively impacted the sector's profitability in recent times.
AGP's revenue growth is attributed to notable brand acquisitions, including portfolios from Sandoz AG and the recent purchase of 17 brands of Viatris Inc from Pfizer. These acquisitions are projected to contribute an additional PKR 3 billion to AGP's revenue. The company's ratings factor in its impressive gross margins over the past three years, which have been coupled with substantial cash flows enabling debt servicing and fulfilling working capital requirements. Yet, there has been a slight reduction in the net margin, primarily due to increased finance costs stemming from higher interest rates.
A noteworthy point is that 86% of AGP's business is transacted through a sole distributor, Muller and Phipps Pakistan (Pvt) Limited (M and P). While this concentrated business approach might present future challenges, reassurance is derived from M and P's stake in AGP. With a moderately leveraged capital structure, AGP's borrowings are a blend of long-term and short-term loans, aimed at facilitating brand acquisitions and working capital needs. The financial risk profile of AGP is anticipated to further enhance as the company transitions to a consolidation phase after its acquisitions.
The maintenance of AGP's ratings is contingent on its continued profit sustainability and market share dominance. Essential factors include the adequacy of cash flows, the availability of alternate resources for debt settlements, and strict adherence to internally-set leveraging metrics.