Valuation Report on

Renata Limited
DSE: RENATA; BLOOMBERG: RENATA: BD
Publication Date: April 25, 2019 (Thursday)

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 Renata Limited
No# 1 INDUSTRY SNAPSHOT
In Animal Health Business
Total Market Size: BDT 205 Billion
80% Generic & 20% Patented Drugs
Exporting to 145 Countries
17.08% 19.40%

Historical 5 Years Revenue CAGR Historical 5 Years NPAT CAGR

14.73% 21.21% Blockbuster Drug of Renata

Holds 1.37% of
Projected 5 Years Revenue CAGR Projected 5 Years NPAT CAGR Total Market Share

Subsidiary 25
4th largest SMC
in UK and Export Pharmaceutical
Ireland Destination
Company of BD
Contract
Manufacturer

UNICEF
15%

15%
25% 20% 15%

130%

75% 80% 85% 95%

Renata
got approval from
2013-14 2014-15 2015-16 2016-17 2017-18

Consistent Dividend: Cash & Stock

Renata Limited
DSE: RENATA BLOOMBERG: RENATA:BD Analyst:
Target Price: BDT 1147.5, Current Price: 1183.20 Md. Safiul Alam Mukul
Rating: Market Weight mukul@[Link]
Valuation date: 14th February, 2018
Target Price BDT 1147.5 Company Fundamentals
Potential Downside -3.02%
Rating Validity June 2019 Sector Pharmaceuticals &Chemicals
Market Cap (BDT mn) 95,289.8
Renata Limited is the 4th largest pharmaceutical company in Market weight 2.2%
Bangladesh and the market leader in Animal Health products. The Paid-up Capital (BDT mn) 805.3
company is also a contract manufacturer of BRAC, SMC and UNICEF. No. of Share Outstanding (in mn) 80.5
Pharmaceutical products, Animal Health products and Contract Free-float Shares (Inst.+For.+ Public) 48.8%
Manufacturing generate 70%, 20% and 10% of revenue respectively. 52 Week Avg. Daily Turnover (BDT) 10.3mn
Investment Incentives: 12 Months Avg. Daily Volume 8,580.7
Renata Limited showed stable performance over the years. The Current P/E 26.7
CAGR of revenue and net profit was 17% & 19% respectively in last 5 Current P/NAV 5.3
years. The market share of Renata Limited has also been increased in 52-week price range (BDT) 1,090-1,318
2018. 2018-19 2019-20
2016-17 2017-18
The company has been able to minimize its cost structure by retiring Exp. Exp.
its long term debt. The net profit after tax has been increased by 5% Financial Information (BDT mn)
in 2017-18 due to the reduction in debt. Since the long term borrowing Net Sales 14,777 19,050 22,034 25,336
is effectively zero, the company will be less affected by the rise in bank Gross Profit 7,434 9,432 11,164 12,920
interest rates. EBITDA 3,862 5,129 6,331 7,319
In line with the steady business growth, the company has been able Operating Profit 4,174 4,673 5,776 6,733
to maintain stable profit margins over the years. The company has Profit After Tax 2,678 3,106 3,829 4,465
higher gross profit margin, operating profit margin and net profit Total Assets 18,719 21,359 25,186 29,402
Total Debt 2,230 2,505 2,203 2,534
margin compared to its peers. In 2017-2018, the operating profit
Total Equity 12,943 15,508 18,476 21,870
margin of Renata was 26% compared to 8%, 21% and 23% of ACI,
Retained Earnings 12,082 14,550 17,412 20,726
Beximco Pharma and Acme laboratories respectively.
Cash & Equivalents 652 1,084 2,111 4,587
It is expected that the Cost of sales of Renata Limited will be Dividend (C/B)% 130/15 95/15 110/10 120/10
decreased by 5% from 2021 with the commercial operation of API Margin %
Park Gross Profit 50.13% 49.51% 50.67% 51.00%
Investment Concerns: EBITDA 28.67% 26.93% 28.73% 28.89%
The company must focus on large untapped overseas market to Operating Profit 25.08% 24.53% 26.21% 26.57%
maintain its growth. But some major barriers like stringent regulatory Pretax Profit 22.71% 22.29% 24.14% 24.48%
requirements, lack of adequate testing facilities at home and weak Net Profit 16.09% 16.31% 17.38% 17.62%
backward linkage cause the exports to remain sluggish. The export Growth
revenue of Renata Limited was only 4% in the period 2017-18. Sales 12.64% 14.45% 15.67% 14.98%
The animal health business of Renata which comprises almost 10% Gross Profit 12.24% 13.04% 18.37% 15.73%
Operating Profit 11.39% 11.96% 23.60% 16.56%
of total revenue has experienced a lower growth in last two years
Net Profit 17.75% 15.99% 23.28% 16.61%
due to the undesirable condition of country’s poultry business. The Profitability
ongoing recession of poultry market may sustain more than a year. ROA 14.86% 15.50% 16.45% 16.36%
Two subsidiaries of Renata- Renata Agro Industries Limited and ROE 22.43% 21.84% 22.54% 22.14%
Purnava Limited experienced loss in last year. Purnava limited is Payout Ratio 33.99% 21.42% 23.14% 25.79%
PEG ratio 1.70 1.83 1.03 1.36
experiencing loss from 2015.
Leverage
One of the major threats is the TRIPS ending. As Bangladesh moves Debt Ratio 11.91% 11.73% 8.75% 8.62%
from LDC status in 2024, it may not be able to manufacture patented Debt-Equity 17.23% 16.15% 11.93% 11.58%
drugs for free if the imported countries raise question regarding the
Altman Z-Score 18.75 12.17 11.19 11.10
agreement’s validity.
Valuation
We initiate our coverage on RENATA as ‘Market Weight’ rating EPS (BDT) 38.24 44.35 47.55 50.41
based on (3.02%) downside from the current price level. Currently, NAVPS (BDT) 184.82 221.45 229.41 246.87
RENATA is traded at BDT 1183.20. In our valuation, the target price P/E 30.24 29.22 24.01 22.65
P/NAV (x) 6.26 5.85 4.98 4.62
based on DCF and Relative valuation is determined at BDT 1147.5
EV/EBITDA 17.31 17.97 14.54 13.54
per share. EV/Sales 4.96 4.84 4.18 3.91
 Bangladesh Pharmaceutical Industry: the story of an emergent generic drugs hub in Asia

Pharmaceuticals industry of Bangladesh has experienced a CAGR of 15.6% in last 5 years; the industry will
become an industry of $5.11b by 2023
According to Bangladesh Association of Pharmaceutical Market Size of Pharmaceuticals Product of
Industries (BAPI) and Directorate General of Drug Bangladesh and Growth (Amount In US Dollar
Administration (DGDA), approximately 257 licensed $2,5 00
Million) 40. 0%

Local Sales Growth

pharmaceutical manufacturers are operating in Bangladesh 35. 0%

33.5%
and about 150 are functional. These manufacturing $2,0 00

30. 0%

companies meet around 98% of local demand. Specialized

products like vaccines, anti-cancer products and hormone $1,5 00
25. 0%

22.6%
drugs are imported to meet the remaining 2% of the 20. 0%

demand1. 80% of the drugs produced in Bangladesh are $1,0 00

16.3%
15.0% 14.0%
15. 0%

generic drugs, rest 20% are patented drugs. According to

Director General of Drug Administration (DGDA), the 10.1% 10. 0%

$50 0

industryhas 29,351 registered allopathic medicine, 2,400 6.2% 5.0 %

$797 $977 $1,136 $1,206 $1,375 $1,835 $2,020

registered Homeopathic drugs, 6,207 registered Unani $- 0.0 %

Drugs, 524 registered Herbal drugs and 3,998 registered 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Ayurvedic drugs.
Source: Bangladesh Association of Pharmaceutical Industry & EBLSL Research
Domestic market value of Pharmaceutical products in
Bangladesh has shown an increasing trend over the past few years and the market size is BDT 205.12 billion now2. According
to industry experts, market size of pharmaceuticals may reach about $5,110 mn (or BDT 434,350 mn considering $1 = BDT
85) by 20233. According to Bangladesh Bureau of Statistics, the industry has contributed 1.83% to the GDP in 2017-18 at
constant prices.

Burgeoning Exports of Pharmaceuticals Product from Bangladesh- Currently Being Exported to 145 countries
around the World. Exports of Pharmaceuticals products crossed $100 million benchmark in 2017-18 with a
5-year CAGR of 11.6%; However export contribution is still insignificant
According to Bangladesh Association of Pharmaceutical
Industries (BAPI), approximately 1,200 pharmaceutical products Export Revenue of Pharmaceuticals Product and
received registration for export over the last two years and are Growth (Amount In US Dollar Million)
being exported to more than 145 countries including USA, UK, $12 0.00 30. 00%

Australia and Africa. According to Export Promotion Bureau Export Growth

(EPB), in the fiscal year 2017-18, Bangladesh has exported $10 0.00

24.0%
25. 00%

pharmaceuticals product worth USD 103.46 million as against $80 .00 20. 00%

USD 89.17 million in 2016-17. Over the last 7 years, export

16.0%
revenue CAGR was nearly 12.8%. However, pharmaceutical 15.7%
13.0%
$60 .00 15. 00%

export contributes only 0.4% of total export of Bangladesh. 8.9%

Hence, the contribution of export sales in pharmaceuticals $40 .00 10. 00%

8.1% 8.6%
industry is not significant. $20 .00
4.9% 5.0 0%

Pharmaceuticals Companies of Bangladesh can only sell different

$44.30 $48.25 $59.82 $69.24 $72.64 $82.11 $89.17 $103.46
medicine to other countries when they get approval of the $- 0.0 0%

particular medicine from the drug authority of that particular 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
country. Approval from other countries signifies that the local
medicine has international standard which helps them to build a Source: Bangladesh Export Promotion Bureau & EBLSL Research
strong position in local market.

1
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2
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3
[Link]
*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |2
 Opportunities & Problems in Global Generic Drug Market for Bangladesh

Lower cost of labor, geographical position and higher competitive advantage among LDC countries opens
tremendous opportunity to grow
Pharmaceutical industry of Bangladesh has tremendous opportunity to grow in the future. Bangladesh has a surplus of
pharmaceutical industry-focused human resources and the formulation industry is well-developed and investing heavily
for future growth. Bangladesh offers significant manufacturing cost advantages due to the lower cost of labor. Major
generic hubs India and China are losing cost advantages. Cost of labor in Bangladesh is 3 to 4 time lower than that of China
and India. As a result, Bangladesh has opportunity to export pharmaceutical products more than that of India and China.
At the same time, major producers of pharmaceutical raw materials in India and China won’t be able to produce the
patented raw material due to the restrictions from World Health Organization (WTO). Thus, Bangladesh can export generic
drugs to foreign countries easily.

Major problems in export include lack of backward linkage, lack of modern testing laboratory and non-
existence of bioequivalence test facility

Lack of Backward Linkage: Pharmaceutical sector in Bangladesh has advanced mostly in the production of finished drugs.
At present, we are greatly dependent on other countries for importing raw materials for the production of finished
products. Currently, more than 90% of raw materials are imported. Virtually, we are dependent on our own competitors
for raw materials. The govt. has taken an initiative to establish an API park and the work is going on. However, the country
needs more API parks to strengthen its backward linkage.
Lack of Modern Drug Testing Laboratory: The drug testing laboratory is the central quality monitoring facilities of drug
authority of Bangladesh. It is not modern and well equipped. So, our drug control authority faces problems in monitoring
the quality of drugs manufactured by different companies. Foreign buyers and regulatory authorities also raise question
about the status of our drug testing laboratory.
Lack of Bioequivalence Test Facility: Bioequivalence test of a product is must to be registered in many regulated and
moderately regulated countries. In our country, there is no bioequivalence study center at present. In order to register a
product, a pharmaceutical company has to carry this test in foreign country by spending a huge testing charge. The cost of
Bioequivalence for oral dosage is between USD 100,000 to 300,000 and more in some other countries. 4 For this reason,
many local manufacturers don’t show interest in registering their products in other countries to export.
High Registration Fees of Importing Countries: Regulatory authorities of importing countries charge high registration fees.
It creates obstacles to the small manufacturers to register their drugs for export as the higher registration fees might result
in lower profitability for them. Therefor only big companies are taking the opportunities and market is limited for those
companies only.

Key growth drivers of Pharmaceutical Industry in Bangladesh:

Population growth, increase in income level of people, increase in medical facilities and health awareness
are the key growth drivers for Pharmaceuticals Industry in Bangladesh
Economic Growth of the country- one of the fastest growing economy in the world: In the year 2017-18, Bangladesh has
achieved GDP growth rate of 7.86%. GDP growth rate outperformed the target growth rate of 7.4% and the country
experienced 7%+ GDP growth rate since 2015-16. Considering the positive outcomes for ongoing US-China trade war,
London-based Economic Intelligence Unit (EIU) has predicted that Bangladesh will experience a real GDP growth rate of
7.7% and above starting from 2018-19 to 2022-23 riding on increased private consumption and investment. Bangladesh
has entered the socio-economic classification of Lower Middle Income Group. It is targeted that Bangladesh will become

4
Pinheiro Edos S, Bruning k, Macedo MF, Siani AC (2014) Production of antiretroviral drugs in middle and low income countries.
Antivir Ther 19 (Supple 3): 49-55.
*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |3
 higher Middle Income Group and Higher Income Group by 2021 and 2041 respectively. Better living standard will also
followed by higher health care expenditures from both individual and government.
Population growth rate- steady growth with growing life expectancy: Bangladesh is one of the densely populated
countries in the world. Current population growth is 1.03%, with a birth rate of 18.8 Births/1000 Population and death rate
of 5.4 Deaths/1,000 Population.5 This additional population with increased life expectancy will contribute to the growth of
Pharmaceuticals sector of Bangladesh in days ahead.
Growing income level of people and increasing MAC (Middle & Affluent Class) population may foster its graduation to
mid income status: Average income level of Bangladesh has increased. With the growing GDP growth, per capita income
is likely to rise (currently stands at $1,909 and a target was set to reach it to $2,750 by 2023-24 by current govt.). Increasing
MAC (Middle & Affluent Class) population6 gives indication of rising consumption demand in Bangladesh which will help
the economy of Bangladesh to shift its gear to accelerate further. Thus, people have more money to allocate for medical
expenditure.
Increase in modern healthcare facilities to ensure quality healthcare services: Medical and Pharmaceutical facilities in
Bangladesh is adopting modern technology. This will largely contribute to the growth of Pharmaceuticals industry in
Bangladesh.
Health awareness of mass people: People of Bangladesh is becoming aware of health day by day. Increase health
awareness and high life expectancy will lead to the growth of pharmaceutical sector of Bangladesh.

Market Position of Different Companies- an oligopolistic industry where few key players
dominate the whole industry
Market Share of Top 10 Companies
Pharmaceutical companies in Bangladesh usually provide
branded-generic product as a result of which established Annual Market
brands become able to charge premium for its products. Sales(Cr) Share
According to IQVIA 2018 data, top 10 companies hold 1 Square Pharma 3476.25 16.95%
67.82% of Pharma market share. Companies that secured 2 Incepta Pharma 2272.99 11.08%
position ranging from 11th to 20th on the basis of their
relative market shares hold 18.97% market share. 3 Beximco Pharma 1694.26 8.26%
Summing up, top 20 companies hold 87.01% market share, 4 Renata 1066.43 5.20%
leaving 12.99% market share to other existing companies 5 Healthcare Pharma 1061.07 5.17%
(Source: IMS 2018 Q1). Thus the industry is oligopolistic in
nature. 6 Opsonin 1042.53 5.08%
The Pharmaceuticals market is concentrated among few 7 A.C.I. 898.79 4.38%
local companies only and entry barrier is higher due to 8 Eskayef 895.71 4.37%
large capital investment and legislative bindings. Square
9 Aristo Pharma 842.48 4.11%
Pharmaceutical is the market leader having 16.95%
market share followed by Incepta, Beximco and Renata. 10 Acme 721.66 3.52%
The above table shows the current market share held by Source: IQVIA 2018 (Extracted from New Age)7
leading pharmaceutical companies as per IQVIA 2018 data.

Developing stimulus which may contribute to further growth of pharmaceutical industry in

Bangladesh
After the third revision of API Park
‘API industrial park’ Pharmaceuticals industry of Bangladesh is dependent on imported raw material for
project, with an additional manufacturing drugs. More than 90% of raw materials needed by the pharmaceutical sectors
costs of BDT 800 mn, the
are brought in from abroad. Main suppliers of raw material are India and China. Bangladesh
project is expected to be
Small and Cottage Industries Corporation (BSCIC) has undertaken the work of setting up an
completed by June 2020.
Active Pharmaceuticals Ingredients (API) Park on 200 acres of land at Baushia, Gazaria, and

5
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7
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*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |4
 Munshigonj in 2008. The park is being built under the public-private initiative with the
Bangladesh Association of Pharmaceutical Industries (BAPI). After revising for third times, the
estimated cost of the project was BDT 3,810.0 million and the implementation timeline was
extended up to June 2020. There will be about 42 number of plots to be set up. The cost of
each acre of land is estimated as BDT 31 million. The Companies will get 10 years’ time to pay
for the plot. There are 29 plots in “A” category (3.55 acre each), 4 plots in “B” category (3.00
acre each), and 9 plots in “S” category (2.5 to 5.0 acre). 32 member companies of BAPI has
applied for 57 plots. The govt has handed over 42 plots among 28 pharmaceutical companies.
Square pharma, Beximco pharma, Globe, Opsonin, ACME, Incepta, JMI, Aristopharma got
several plots. All infrastructural facilities including Common Effluent Treatment Plant (CETP)
and Waste Dumping Yard will be available in this project. The cost of the Common Effluent
Treatment Plant (CETP) is estimated as BDT 800 million, to be established by the companies.
With the completion of API Park, Bangladesh will be able to decrease the cost of locally
manufactured drugs and it will add to the cost advantage for exports. API can also be exported
to other countries.

Trade Related Aspect of Intellectual Property Rights (TRIPS)

Being a least-developed country, Bangladesh has been exempted from the obligations to
implement patents and data protection for pharmaceutical products till 2032 by the World
As a least developed Trade Organization. As a result, Bangladesh is allowed to produce any patented medicines
country, Bangladesh is without taking prior permission from innovator. Also, Bangladesh has the opportunity to
enjoying TRIPS waiver up export to any country if the medicine is not under patent. It’s a concern that if Bangladesh
to 2032 potentially leaves the LDC category in 2024, it will no longer has access to a special World
Trade Organization (WTO) waiver which exempts the industry from the agreement on Trade-
Related Aspects of International Property Rights (TRIPS). The end of access to the waiver after
graduation means several things. First, Bangladesh would have to update its patent law,
extending patents to pharmaceutical products and processes, and allowing patent protections
on animal and plant varieties. Some commentators argue that strong protection of intellectual
property under TRIPS will stimulate innovation, attract foreign direct investment and foster
technology transfer, promoting development. 8

Competitive Structure of the Pharmaceuticals Industry in Bangladesh i.e. shape of the industry

Threat of new entrants of the industry: Low

A company that wishes to enter into pharmaceuticals industry requires huge
capital expenditure and regulatory permission from the drug authority, these Threat of New
Entrants
create significant barriers to enter into the industry. Furthermore, customer’s
loyalty towards established brands, access to distribution channel, relationship- Bargaining
Intensity of
based marketing (through marketing representatives create further barriers. All Power of
Competition
Suppliers
these cause threat of new entrants in the industry significantly low.
Bargaining
Threat of substitute products: Moderate Power of
Threat of
Substitution
The retail consumers of pharmaceutical products often switch from one brand to Buyers

another. There are many substitute brands of single generic medicine. The
Customers try to follow the physician’s prescription but if theyr do not find one
brand, he/she switches to another brand. Besides, sometimes people have a tendency to purchase medicines from a
specific dispensary only. Unavailability of any brand to that specific dispensary sometimes cause customers to switch to
another brand. Thus, the threat of substitute product in pharma industry is moderate.
The bargaining power of buyers: Low
The government strictly maintains the retail price of the medicine. Furthermore, the buyers are not concentrated and
possess low bargaining power while fixing price of the pharma products.

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*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |5
The bargaining power of the supplier: High
Currently, Bangladesh imports more than 90% of raw materials of the pharmaceuticals industry; mainly from China and
India. Bangladesh can also import API from European suppliers but it will incur more cost. Concentration of the supplier
and high switching cost create high bargaining power from the supplier.
Rivalry among the exiting competitors: High
The pharmaceuticals market is highly concentrated. Top 20 players dominate the lion share of the market. Every company
has the same medicine in different brands. The companies are competing with each other fiercely in order to grab the
market share. Following the high competition in pharmaceutical market, some of the MNC companies like GlaxoSmithKline
have left the market.

Company Overview: Renata Limited

Renata Limited is primarily engaged in manufacturing, marketing and

 4th largest pharmaceutical
distribution of human pharmaceuticals, animal health medicines, nutritionals
company in Bangladesh
and vaccines. Renata Limited is the 4th largest pharmaceutical company in
 Market leader in Animal
Bangladesh and the market leader in Animal health product. Besides the
Health product
Company serving in pharmaceuticals, has stretched its branches in three more
 Contract manufacturer of
fields, naming- Purnava Limited (Non-medicated healthcare), Renata Agro
BRAC, SMC & UNICEF
Industries Limited (Poultry operations), Renata Oncology Limited
 Sajida Foundation hols 51%
(Manufacturing of oncological medicines). Renata Limited is also a contract
share
manufacturer of BRAC, SMC and UNICEF.
The company started its operation as a subsidiary of Pfizer Limited in 1972. By the late 1990s, the focus of Pfizer had shifted
from formulations to research. In accordance with this transmission, Pfizer divested its interests in many countries including
Bangladesh. In 1993, Pfizer transferred its ownership of Bangladesh operations to local shareholders, and the name of the
company was changed to Renata Limited.
Renata has ten manufacturing facilities on three separate sites. The original 12-acre site is located in Mirpur, Dhaka, while
the 19-acre site is located in Rajendrapur, Gazipur, and the new 13-acre site is located in Bhaluka. The Bhaluka site of
Renata has herbal manufacturing facility, different warehouses and a full capacity power plant. New developments are also
in progress at this site which is scheduled to begin operation in the near future.

Sponsors hold majority of the shares of the company while institutional holding on the rise
Sajida Foundation and Business Research International Corporation hold significant number of the share.
Sajida Foundation: Sajida Foundation holds 41,072,845 shares of Renata Limited which is 51% of total shareholdings. Sajida
Foundation is a non-profit organization dedicated to bring health, happiness and dignity for all. In 1993, when Pfizer
Corporation transferred its ownership to local shareholders, the company, renamed Renata Limited, initially sold and
subsequently donated 51% share to Sajida Foundation.
Foreign Holding:
Business Research International Corporation (BRIC) holds 17,511,638 shares of Renata Limited which is 21.74% of total
shareholdings. BRIC is a company focused on long term, global, public equity investment opportunities. BRIC’s current
portfolio holdings are valued approximately at USD $225 million.

As on Sponsor/Director Govt. Institute Foreign Public

31 Dec-18 51.16% 0.00% 19.09% 22.39% 7.36%
31 Dec- 17 51.16% 0.00% 17.49% 21.78% 9.57%
31 Dec- 16 51.12% 0.00% 15.45% 21.78% 11.65%

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |6
 Breakdown of Sponsor/Director Share Holding:
Name of Shareholder No. of shareholding % of Total
Sajida Foundation 41,072,845 51.00%
Dr. Sarwar Ali 4,452 0.01%
Mr. Syed S. Kaiser Kabir 95,897 0.12%
Mrs. Zahida Fizza Kabir 23,382 0.03%
Mrs. Sajeda Farisa Kabir 11,712 0.01%
Total 41,208,218 51.16%
Blockbuster Drugs:
Renata Limited possesses 7 blockbuster drugs among the top 100 brands sold in Bangladesh which constitutes 2.62% of
total market share. The highest selling drug of Renata Limited is Maxpro. In Bangladesh, top 20 brands constitutes 14.18%
of total market share and Renata has only one brand (Maxpro) in that list.

Drugs Brand of Market Value Market Share

Renata (BDT mn)
Maxpro 2725 1.37%
Rolac 586 0.29%
Furocef 450 0.23%
Algin 423 0.21%
Orcef 401 0.20%
Zithrin 320 0.16%
Fenadin 312 0.16%
Total 5217 2.62%
Source: IMS Report 2018 Q1

Product Quality & Foreign Accreditation:

Medicines & Healthcare Products Regulatory Agency (MHRA), UK has issued a certificate of Good Manufacturing Practice
(GMP) compliance as a manufacturer to Renata Limited for their Potent Products Facility at section 7, Mirpur, Dhaka &
Rajendrapur General Facility, Rajendrapur, Gazipur.

Production Capacity:
Renata Limited produces medicines in different forms like capsule, tablet, liquid, powder, sterile fry fill etc. Product
groups/units are being used efficiently in Renata Limited. Most of the product group of Renata Limited is utilizing more
than the actual capacity. Total 8 out of 10 major product groups are utilizing more than 100% of their capacities. Average
utilization of these ten major product groups is 145%. However, the company claimed that they operate multipurpose
plants. As a result plant utilization is not comparable with capacity due to variation of product mix. In following table, we
demonstrate last year’s production capacities, actual productions and utilization of their major product groups or units.
Major Product Group/Unit Capacity Actual Utilization Capacity & Utilization
Production
Sterile dry fill/Vials 6,500 6,400 98.46% Potent Products/Tablet

Sterile liquid/Vials 11,635 17,084 146.83% Oral Saline

Ointments/Tubes 1,500 480 32.00% Premix feed supplement/Sachets

Capsules & Tablets/Cap/Tab 1,595,000 2,068,380 129.68% Premix feed supplement/kg

Oral liquid & dry 15,725 23,925 152.15% Water for Injection
syrup/Bottles Oral liquid & dry syrup
Water for 6,000 7,828 130.47%
Capsules & Tablets
Injection/Ampoules
Premix feed supplement/kg 4,850 6,612 136.33% Ointments

Premix feed 3,350 6,759 201.76% Sterile liquid

supplement/Sachets Sterile dry fill

Oral Saline/Sachets 355,000 580,193 163.43%
Potent Products/Tablet 2,460,000 2,503,323 101.76% Capacity(In '000) Actual Production(In '000)

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |7
 Production Units:
Renata Limited has ten manufacturing facilities in three different sites.
Mirpur Site:
Renata has three manufacturing facilities in Mirpur, Dhaka which a 12-acre site. This site also has different warehouses,
power plants and the corporate headquarters. This site is certified by Medicines & Healthcare Regulatory Agency (MHRA),
UK for its good manufacturing practices.
a) Mirpur General Facility: The area of this site has 196,730 SFT. It has manufacturing facilities of tablet, capsule, soft gel
capsules, Effervescent tablet, dry syrup, sterile dry fill, sterile liquid fill, large volume parenteral, and premix. The plant
has also packaging capabilities of blister pack, bottle dry fill, pot fill and strip packaging.
b) Mirpur Potent Production Facility: The area of this site is 22,500 SFT. This site is used for manufacturing of tablets and
it has blister pack and pot fill packaging capabilities.
c) Sachet Filling Facility: The area of this site is 52,000 SFT. It has powder manufacturing capability and Sachet (Dry fill)
packaging capability.

Rajendrapur Site
The Rajendrapur site of Renata Limited started its operation in 2009, which homes six manufacturing facilities, different
warehouses and a self-sufficient power plant that has strict emission control. New developments are also in progress at
this site which is scheduled to begin operation in the near future.
a) Rajendrapur General Facility: The area of this site is 108458 SFT. It has tablet and capsule manufacturing capabilities.
The unit has also pot filling, blister and strip packaging capabilities.
b) Rajendrapur Potent Product Facility: Total area of this facility is 168,000 SFT. Tablet and Capsules are the outputs of
this site. The packaging capability of this unit is blister packaging.
c) Penicillin Facility: The area of this site is 24,270 SFT. The site is being used to manufacture tablet, capsule, dry powder
for suspension and sterile dry fill and has blister packaging capability.
d) Cephalosporin Facility: The area of this site is 45,495 SFT. The site is being used to manufacture tablet, capsule, dry
powder for suspension and sterile dry fill and it also has blister packaging capability.
e) Renata Oncology Facility: The area of this site is 13,455 SFT. The production capabilities of this site is tablet and capsule
along with blister packaging capability.
f) Oncology API Facility: The area of this site is 18,090 SFT. It manufactures dry powder. The packaging capability of this
site is double layer poly bag packaging inside HDPE container.

Bhaluka Site
The Bhaluka site of Renata Limited has herbal manufacturing facility, different warehouses and a full capacity power plant
with sound attenuation system. New developments are also in progress at this site to make this plant more productive.
a) Kashor Herbal facility: The area of this site is 35,431 SFT. Production capabilities of this site include tablet, capsules,
sachet (dry fill), and oral liquid. The packaging capabilities include blister, sachet, and bottle filling.

Subsidiary Companies:
Renata Agro Industries Limited
Renata Agro Industries Limited was incorporated on 07 September 1997. Renata Limited has 99.99% shareholding in Renata
Agro Industries Limited. The company commenced its commercial operation since October 1998. The principal activities of
the company are carrying out business for production and sale of various agro based products and poultry breeding &
hatching and sale of poultry products. In last year, Renata Agro saw the continuation of the cautious but steady progress
towards gradual diversification of its agro business. Two new sheds were built last year and the total number of sheds are
19 now to use for both breeder and commercial layer egg production. The company incurred a loss of BDT 33 million last
year because the average sales price of per DOC (Day Old Chicks) in the market was decreased from BDT 59 to BDT 38.
Renata Agro plans to build new hatchery building and double the existing hatchery capacity to 360,000 DOCs per week.
Increased DOC production will results in decreased unit cost production and it will help to lead to modest profit in good
years and decrease losses in bad years.

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |8
Purnava Limited
Purnava Limited was incorporated on 17 August 2004. Renata Limited has 99.99% shareholding in Purnava Limited. The
principal activities of the company include the business of marketing and distribution of all kinds of consumer goods,
consumer durables, food items, sugar confectionaries, edible oils, beverages, raw materials, semi-finished items and
various other products of local and foreign origins. The company is also engaged in the business as traders, importers,
exporters, commission agents of all kinds of goods and services including pharmaceutical drugs and medicines. The
company is incurring loss from 2015, much of this loss is due to low capacity utilization of the new herbal factory at Bhaluka.

Renata Oncology Limited

Renata Oncology Limited was incorporated on 12 August 2012. The principal activities of the company are manufacturing,
marketing and distribution of various oncology based products. Presently, the market size of this category of products is
small, and hence high manufacturing overheads cannot be fully absorbed by the low volumes. Though the subsidiary is
incurring loss now, they expect that they will cover the loss soon as several products are in the pipeline and the subsidiary
remains a critical component of their export strategy.

Renata (UK) Limited

Renata Limited established a subsidiary company in the name of Renata (UK) Limited to fulfill the regulatory requirement
to export in UK. The company has not made yet any financial transaction. The company will also establish a subsidiary in
Ireland to export in EU countries.

Export Revenue is insignificant though the potentiality is higher

Currently Renata Limited is exporting human medicines to Export Revenue (mn BDT)
more than 25 countries and veterinary medicines to United
Export Revenue % of Total Revenue
Kingdom. Other exporting destinations of Renata Limited are
Afghanistan, Belize, Cambodia, Ethiopia, Guyana, Honduras,
5.95%
Hong Kong, Kenya, Malaysia, Myanmar, Nepal, Sri Lanka,
Thailand, United Kingdom, and Vietnam. However the 4.71%
average export sales of Renata Limited is only 3-5% of their
3.19%
total sales. In recent years, the export of Renata witnessed a
downward trend compared to last two financial years. 2.05% 2.09%

However the Company got approval from its board members

to establish a subsidiary company in Ireland and thus the 207.36 248.52 695.42 990.11 608.25
Company will be able to export in European Union countries.
2013-14 2014-15 2015-16 2016-17 2017-18
The Company also registered two more products to export in
UK. Export to USA is expected to commence in this year.

Corporate Governance Assessment

Corporate governance of Renata Limited is reasonably good with experienced management team guided by board of
directors having diversified background and backed by Renata Limited’s 25 years experience. Overall the quality of financial
reporting appears to be transparent and fair enough having necessary disclosure of relevant facts.
The overall corporate governance practices of the Company can be summarized as;
The company has two independent directors who haven’t owned any shares of the company Neutral
Regular attendance in board meetings and other committee meetings by the board member Neutral
Highly qualified management team Positive
Most of the family members comprise the board Negative
No disclosure of the fee for auditors and executives Negative
At least one independent director of the board of the holding company is a director on the Neutral
board of the subsidiary company
The company has an audit committee composing of 3 members Neutral
Regularly disburses handsome cash dividend from its earnings to the shareholders Positive
*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P age |9
 Financial Performance:
Liquidity Position
Renata Limited’s liquidity position was not strong in earlier years. The cash ratio of the Company is lower than the standard
level. However, from the period 2013-14 to 2017-2018, current ratio, quick ratio and cash ratio have been increased. This
improvement is attributed by the increase in current assets, specially increase in cash & cash equivalents in large amount.
In the period of 2016-17 and 2017-18, the investment in shares and others has also been increased a lot. Despite increasing
the short term loan, the liquidity positions have been maintained in standard level, so we expect that the ratios will be
maintained accordingly in forecasted years.
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19E 2019-20E 2020-21E
Current Ratio 0.86 1.06 1.33 1.70 2.12 2.42 2.69 2.92
Quick Ratio 0.38 0.42 0.58 0.87 1.16 1.45 1.73 1.97
Cash Ratio 0.11 0.05 0.09 0.14 0.24 0.39 0.73 1.03

Operating Efficiency
Operating efficiency of the Company has been improved over the years though it is below than the industry competitors.
From the period 2013-14 to 2017-18, average collection period of the Company has decreased. It was 62.7 in 2013-14 but
it decreased to 46.7 in 2017-2018. The improved average collection period means that the company can collect their
accounts receivables efficiently than earlier years. Inventory conversion period of the company has also decreased over
the period. It is 137 days now where it was 197 days in 2013-14 period. Payables payment period of the company has
decreased which means that the Company is getting less time to pay its debt. Cash conversion cycle of the Company has
shown a volatile trend. The working capital requirement is dependable on the collection and payment periods. However
the Company’s asset turnover ratio was almost static in earlier years but it increased slightly in recent year. We assume
that the ratio will be stable in coming years.
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19E 2019-20E 2020-21E
Avg. Collection Period 62.69 56.42 52.96 50.92 46.69 46.56 47.12 47.07
Inventory Conversion 197.11 187.58 166.02 150.43 137.04 144.22 148.54 148.36
Period
Payables Payment Period 158.89 77.88 12.74 10.95 8.35 9.79 10.80 10.78
Cash Conversion Cycle 100.91 166.12 206.25 190.40 175.38 180.99 184.86 184.65
Asset Turnover Ratio 0.68 0.78 0.90 0.92 0.95 0.95 0.93 0.92

Profitability
The gross profit margin, operating profit margin and net profit margin showed stable trend over last 5 years. The company
achieved higher margins than its peer companies in recent quarter also. The net profit margin has increased slightly due to
the company’s reduction in utility expenses and fully wiping out the long term debt which results a lower interest expense.
In coming years, we hope that the company will be able to decrease its operating expenses further and the operating profit
and net profit margin will increase slightly.
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19E 2019-20E 2020-21E
Gross Profit 48.16% 50.76% 50.31% 50.13% 49.51% 50.67% 51.00% 51.31%
Operating Profit 27.00% 25.00% 25.36% 25.08% 24.53% 26.21% 26.57% 26.91%
Net Profit 15.07% 15.15% 15.39% 16.09% 16.31% 17.38% 17.62% 17.85%

Leverage Ratio
Renata Limited depends less on debt. Long term borrowing of Renata Limited is effectively zero. Besides, the company
completely ceased using overdraft facilities, relying exclusively on Usance Payable at Sight (UPAS) for financing exports.
Thus the leverage ratio decreased and we hope that it will decrease further in coming years due to less dependability on
debt.
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19E 2019-20E 2020-21E
Debt to Equity 65.32% 38.78% 27.79% 17.23% 16.15% 11.93% 11.18% 11.31%
Debt to Asset 31.04% 21.44% 17.55% 11.91% 11.73% 8.75% 8.62% 8.51%

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 10
 Investment Insight
Investment Positive:
Historical Stable  The company showed stable performance over the years. The cumulative average growth rate
Performance of revenue and net profit was 17% & 19% respectively in last 5 years.
Zero Long Term  The company has paid all of its long term debts. It has reduced the interest expense by 81%
Borrowing; Less Interest in last 5 years. The net profit after tax has been increased by 5% in 2017-2018 due to the
Expense reduction in debt. The reduction in debt would positively affect the earnings of the company
and the company will be unaffected by the raise in bank interest rates.
Market Leader in Animal  Renata Limited is the market leader in Animal Health business for the last 20 years. The
Health Products company’s 20% of the total revenue is generated from animal health products. The company
has shown continuous effort to lead in this market. In 2017-2018, the company introduced 17
new formulations out of which 14 are animal health products
Subsidiary Company in  Renata Limited has got the approval to establish a subsidiary company in Ireland to export in
Ireland European Union countries. It is expected that it will increase the export sales by at least 15%
and total sales will be increased by 1.5% in coming years.
License of Export  The factories of Renata got approvals from the medicines & Healthcare products Agency
(MHRA) of the UK. The company has received registration of two products in the UK and one
product has already been shipped to the UK. The company also expects to receive approvals
for six more products. Thus the export earning is expected to grow at a higher rate in future.
Export Potential  The company is expecting to begin its US business in this year and a contract manufacturing
has also been identified in New Jersey, the production will start soon for this.
API Park will help to cut  Currently pharmaceutical companies import 90% of their raw materials from foreign
imports and raw material countries. Once the API Park, is being established in Munshiganj, starts supplying raw
cost will be decreased materials locally, the imports will be reduced by almost 70% and raw material import cost will
be reduced by 20%. It is expected that the cost of sales of Renata Limited will also be reduced
by at least 5% in 2021-22 financial year.

Stable Profit Margins over  In line with the steady business growth, the company has been able to maintain stable profit
the Years margins over the years. The company has higher gross profit margin, operating profit margin
and net profit margin compared to its peers.
Margin ACMELAB BXPAHARMA ACI(solo) RENATA
(Solo) (Solo)
GPM 40% 47% 43% 50%
OPM 21% 23% 8% 26%
NPM 10% 15% 6% 17%
*Based on last audited financial statement

Investment Concern:
Higher Import; Higher  The company is highly dependent on the imported raw materials. Around 58% of total raw
Foreign Exchange Risk material is imported. So the foreign exchange risk of Renata is very high. In 2017-2018, the
foreign exchange loss of Renata was BDT 107.86 million. Moreover, the currency of
Bangladesh is continuously depreciating against US Dollar.
Bearish Animal Health  The animal health industry in Bangladesh is closely linked with poultry business which exhibits
Business a down trend in demand. So Company’s animal health business which was growing at 15%-
20% shall deliver a below par performance.
Excess utilization of  The Company’s 8 out of 10 major product groups are utilizing more than 100% of their
product units capacities. The average utilization of these 8 product groups is 145%. So the company may fail
to maintain the existing growth and keep pace with the local and export demand.
Higher Contingent  The contingent liabilities of Renata Limited is BDT 139.9 million which may badly affect the
Liabilities future profitability of the company.

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 11
 Subsidiary Companies  Purnava Limited has incurred a loss of BDT 59.2 mm and 49.5 mm respectively in 2016-2017
are incurring loss and 2017-2018 financial year. The company has been incurring loss since 2015.
 In 2017-2018, Renata Agro Industries Limited has also incurred a loss of BDT 29.90 million due
to fall in products’ price.
Threats of TRIPS Ending  One of the major threats is the TRIPS ending. As Bangladesh moves from LDC status in 2024,
it may not be able to manufacture patented drugs for free if the imported countries raise
question regarding the agreement’s validity.

Assumptions
Revenue:
Renata Limited earns majority portion of its consolidated
REVENUE CONTRIBUTION-RENATA(SOLO)
revenue from the parent company, Renata Limited. In last five (BDT MILLION)

13287.9
years, on an average 96% of total revenue came from this

11283.7
10381.9
parent company. Renata Agro Limited contributed 3% and

9604.8
Purnava Limited contributed the rest 1% of total revenue. In

7987.8
parent company’s revenue, around 70% comes from
pharmaceutical products, 20% from Animal Health products

3463.7
3175.2
2899.4
2409.2

1852.1
1832.0

1584.5
1287.5
and 10% from contract manufacturing.

919.5
867.0
The average year on year sales growth of pharmaceutical
products from 2013-2014 to 2017-2018 is 13.7%. Last year 2013-14 2014-15 2015-16 2016- 17 2017-18
sales growth of this segment was 17.8%. Considering the fact
that the company will grab the growth section of pharma Pharmaceuticals Products Animal Health Products

industry in Bangladesh as well as export market, we assume Contract Manufacturing

that the revenue growth of this segment will be 15% in next 3
years and it will slightly decrease to 14% in later 3 years. The year on year sales growth of Animal health products is 17.6%
from the period 2013-2014 to 2017-2018. But the growth rate of this segment was lower in recent two years, only 9%, due
to the declining trend of poultry business. So we assume that the company’s growth rate on this segment will be 9% for
next 5 years. The contract manufacturing business of Renata Limited is highly volatile as it depends on the tender
acquisition. However we assume that the revenue in this segment will grow at a rate of 20% as a tender of govt. is yet to
come and the company has experience of manufacturing medicines for SMC and UNICEF.
The revenue of Renata Agro Limited is decreasing as the price of its products is falling. However, the company is focusing
to increase its capacity so we assume that the revenue growth of this segment will be 10% in each year for next five years.
Purnava Limited’s year on year sales growth is 51%. The Company also established a new herbal plant and will introduce
five new exciting herbal products. So we assume that the company will sustain this growth for next 3 years and then the
sales growth will be decreased to 30%.
Revenue & Growth Rate of Revenue of Renata (Consolidated) in BDT mn

Revenue Growth rate of revenue

24.14%

17.42%
14.45% 15.67% 14.98% 15.24% 14.29% 14.42% 14.56%
12.64%

11904 14777 16645 19050 22034 25336 29197 33368 38180 43740

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

Cost of Sales:
The average cost of sales of Renata Limited is 49.26% which comprises raw material costs,
packaging costs and factory overheads. We assume that the cost of sales of Renata Limited
will follow its historical trend until the API Park has been established. Once the API Park starts

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 12
 supplying raw materials to the local pharmaceutical companies, it is assumed the raw material
costs will be decreased by 20%. Currently pharmaceutical companies import 90% of their raw
Assumed cost of sale is materials from foreign countries. Renata Limited’s imported raw materials cost 58% of its total
49.95% for the period 2018- COGS. Thus the commencement of API Park and meeting active pharmaceutical ingredients
19 to 2020-2021 and 44.69% demand locally can reduce the Company’s cost of sales by 5.48%. Assuming the API Park will
from 2021-2022 start supplying raw materials from 2021, the cost of sales of Renata Limited is assumed 43.78%
from the period 2021-22 and onwards. On the other hand, the average cost of sales of Renata
agro is 79.34% where last year cost of sales was 100.2%. The company is planning to increase
its production and decrease its cost of sales. So we assume that the cost of sales of this
segment will be 90% in next five years. Purnava Limited’s average cost of sales is 28.2%. The
company is continuously utilizing its unused capacity and the cost of sales is decreasing. So we
assume that the cost of sales of this segment will be 16% in next 5 years.

Administrative, Selling & Distribution Expense:

Assumed Rate: Average historical administrative, selling and distribution expense excluding depreciation has
been accounted for 24.24% of total sales. From 2013-14 to 2017-18 period, the rate had a
24.77% of total sales
range of 21.27% to 25.63%. Renata Limited has recently connected its Rajendrapur site to the
national grid and it is expected that the utility expense will be decreased. Considering that
the efficiency and innovation will prevail in administrative, selling and distributing of product,
the expense has been set as 24.24% of total sales plus the expected depreciation expense in
each year.

Other Income:
Assumed Rate:
Other income includes gain/ (loss) from sale of quoted shares, dividend income, interest
0.39% of total sales income, scrap sales etc. Average other income has been 0.39% of total sales in last 5 years.
Considering the fact that historical trend will continue in the future, other income has been
set as 0.39% of total sales.

Financial Expense:
Assumed Rate: Financial expenses of Renata Limited consists of interest expense, exchange loss and bank
charges. Average historical financial expense has been accounted for 8.59% of total
8.59% of total outstanding
debt
outstanding debt in last 5 years. It is expected that the lower rate of interest will prevail in
future and thus the historical average rate has been accounted as financial expense of Renata
Limited.

Assumed Rate:
Provision for WPPF:
From 2013-14 to 2017-18 period, Average provision for WPPF was 4.81% of profit before
4.81% of profit before WPPF & taxes. This rate will prevail in the forecasted years.
WPPF &Taxes
Effective Tax Rate:
Assumed Rate: Average effective tax rate of Renata Limited from 2013-2014 to 2017-2018 is 28.17%. The
effective tax rate was in higher range in last two years. This is because the higher deferred tax
Effective tax rate 28% expense which we think will come down in coming years. So the tax rate of 28% has been
counted for valuation purpose.

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 13
 Capital Expenditure(mn BDT) Capital Expenditure:
Renata Limited has the highest capital expenditure in 2013 where they invested aggressively
2017-18 1093 to increase production and distribution capacities. Average capital expenditure of last three
2016-17 943 years was BDT 947.4 million, 5.62% of total turnover. The company is establishing a new herbal
2015-16 806 plant and two more sheds for agro business. However most of the medicines are utilizing more
2014-15 1166 than their capacities. So it is assumed that the company will maintain at least the same amount
2588
of capital expenditure in the forecasted periods.
2013-14

Dividends:
Historical and projected dividends of the company is presented in the graph. It is observed
that Renata Limited has declared a mix of cash dividend and stock dividend in every year.
Considering the fact, we assume that the company will declare 10% stock dividend in the
forecasted years. The historical payout ratio of Renata Limited was mostly concentrated
between 21%-25%. We assume that the paid up capital of Renata Limited is BDT 805.3 million
now where the authorized capital is BDT 1000 million. We assume that the company will
declare 10% stock dividend in coming years and then it will declare only cash dividend as it is
expected that the company will have sufficient amount of cash in hand.
Dividend History
Cash Dividend Stock Dividend

130%
80% 85% 95%
75%
25% 20% 15% 15% 15%

2013-14 2014-15 2015-16 2016-17 2017-18

Weighted Average Cost of Capital (WACC):

Weighted Average Cost Cost of equity is calculated by using the buildup approach. We considered the cut off yield of
of capital is 11.36% 5 years Treasury bond rate as risk free rate. Renata Limited’s operating risk and financial risk
are also being considered to estimate a risk premium and then added inflation with risk free
rate and risk premium. The effective cost of debt is 8.59%.

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 14
Valuation
Free Cash Flow to Firm Valuation:
With discount rate of 11.36% and terminal growth rate of 4%, DCF analysis gives a Net Present Value
of free cash flow to firm of BDT 84.06 billion as of June 2019. The fair value using DCF method stands
at BDT 1042.6 per share for the company, which implies a downside of -11.9% from current market
price.

(Figures in BDT million) 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Terminal
Profit for the Year 3,829 4,465 5,213 7,189 8,265 9,547
Add: After Tax Interest Expenses 136 157 180 206 236 270
Add: Depreciation & Amortization 824 900 998 1,110 1,238 1,253
Less: Investment in NWC 1,343 724 845 86 950 1,076
Less: Capital Expenditures 1,238 1,424 1,641 1,875 2,146 2,458
Free Cash Flow to the Firm 2,208 3,374 3,905 6,544 6,644 7,536 106,530
Enterprise Value 84,063
Plus: Cash & cash equivalent 2,111
Less: Interest Debt 2,203
Equity Value 83,970
No. of Share Outstanding 81
Value per Share (BDT) 1,042.6

Sensitivity Analysis:
We have also checked the sensitivity analysis of FCFF value per share on discount rate and terminal
growth rate. We considered a discount with a range from 9.5% to 13.0% and terminal rate with a range
from 2.5% to 5.0%. As a result, we got values range from BDT 755 to 1,671.
Sensitivity Analysis
Discount Rates
9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%
Terminal Growth

2.50% 1,154 1,074 1,004 942 887 839 795 755

3.00% 1,226 1,135 1,056 988 927 873 825 782
3.50% 1,309 1,205 1,116 1,039 972 912 859 812
4.00% 1,408 1,287 1,185 1,098 1,022 956 898 846
4.50% 1,526 1,384 1,265 1,165 1,080 1,005 941 883
5.00% 1,671 1,500 1,361 1,244 1,146 1,062 989 926

Exit Multiple Model Valuation:

With discount rate of 11.36% and terminal growth rate of 4%, Exit multiple model analysis gives a Net
Present Value of free cash flow to firm of BDT 128.5 billion as of June 2019. The fair value using exit
multiple method stands at BDT 1598.2 per share for the company, which implies an upside of 35% from
current market price.
(Figures in BDT million) 2018-2019 2019-20 2020-21 2021-22 2022-23 2023-24 Terminal
Exit Value 119,102
Valuation:
Present Value of Explicit FCFF 21,848
Present Value of Terminal 106,956
Value
Total Enterprise Value 128,804
Less: Debt & Lease 2,203
Add: Cash 2,111
Equity Value 128,711
# of Shares 81
Value Per Share 1598.2

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 15
 Sensitivity Analysis:
We have also checked the sensitivity analysis of FCFF value per share on discount rate and terminal
growth rate. We considered a discount with a range from 9.5% to 13.0% and terminal EV/EBITDA rate
with a range from 5% to 10.0%. As a result, we got values range from BDT 1,077 to 1,972.
Discount Rates
9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%
Terminal EV/EBITDA

5.00 1,128 1,120 1,113 1,105 1,098 1,091 1,084 1,077

6.00 1,297 1,288 1,280 1,272 1,264 1,256 1,248 1,241
7.00 1,465 1,456 1,447 1,438 1,430 1,421 1,413 1,404
8.00 1,634 1,624 1,615 1,605 1,595 1,586 1,577 1,568
9.00 1,803 1,792 1,782 1,772 1,761 1,751 1,741 1,731
10.00 1,972 1,960 1,949 1,938 1,927 1,916 1,906 1,895

Relative Valuation:
For relative valuation, we used peer companies’ price/earnings, price/sales. EV/EBITDA, EV/Sales
multiple and historical Price/Earnings multiple of the company. We consider four pharmaceutical
companies as peer. They are Square Pharmaceuticals, Beximco Pharmaceuticals, ACME Laboratories
and IBN Sina.
Relative Valuations
Multiple Expected EPS Valuations
Peers P/E 15.38 47.08 724.11
Average Historical P/E multiple 29.35 47.08 1382.06

Multiple Expected Sales per share Valuations

Peers P/NAV 3.17 229.41 727.31
Multiple Expected EBITDA Enterprise Value
Peers EV/EBITDA 11.96 6,355.70 75,987.08
(-) Total Debt 2,715.63
(+) Cash & Cash Equiv. 3,631.16
(a) Equity Value 47,589.34
(b) No. of Share outstanding 80.5
(a/b) Valuations 784.74

Average:
Fair Value Weighted Share
(BDT) Price
Peers P/E 724.11 181.0
Historical P/E 727.31 181.8
Peers P/S 784.74 196.2
Peers EV/EBITDA 1382.06 345.6
Average 906.6

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 16
Determination of Target Price:

We recommend a higher weight of 75% on values that we derived from Discounted Cash Flow
valuation and 25% on relative valuation method. Among two DCF valuation method, we put 50%
weight on free cash flow to firm, 25% on Exit Multiple model. Based on the weighted average DCF
and Relative valuation method, we get a target price of BDT 1147.5 for the company.

Valuation Methods Estimated Value Weights

Discounted Cash Flow (FCFF) 1,042.6 50%
Exit Multiple Model 1598.2 25%
Relative Valuation 906.6 25%
Target Price 1147.5 100%

Current Price (BDT) 1,183.2

Target Price (BDT) 1147.5
Expected Capital Loss -3.02%
Expected Dividend Yield 0.00%
Rating Validity June 2019

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 17
Terminologies:
1. Free Float Share= Total shareholding- Sponsor or directors holding
2. CAGR= Compound Annual Growth Rate
3. DCF= Discounted Cash Flow Valuation
4. FCFF= Free Cash Flow to Firm
5. EBIT= Earnings before Interest and Tax
6. EBITDA= Earnings before Interest, Tax, Depreciation & Amortization
7. EV=Enterprise Value
8. ROA= Return on Average Assets
9. ROE= Return on Average Equity
10. NAVPS= Net Asset Value Per Share
11. EPS= Earnings per Share.
12. OPEX= Operating Expenditure
13. LDC= Least Developed Countries
14. Others: Q = Quarter, mn= Million, bn=Billion
Act. = Actual, Exp. = Expected,

Formulas:
1. 𝐸𝑃𝑆 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥 ÷ 𝑁𝑜. 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
2. 𝐸𝐵𝐼𝑇 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 + 𝑇𝑎𝑥
3. 𝐸𝐵𝐼𝑇𝐷𝐴 = 𝐸𝐵𝐼𝑇 + 𝐷𝑒𝑝𝑟𝑖𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
4. 𝑁𝐴𝑉𝑃𝑆 = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 ÷ 𝑁𝑜. 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
5. 𝑅𝑂𝐴 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
6. 𝑅𝑂𝐸 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
7. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
8. 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
9. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑 (𝐷𝑎𝑦𝑠) = 360 ÷ 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜
10. 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑(𝐷𝑎𝑦𝑠) = 360 ÷ 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜
11. 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑
12. 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠
13. 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 𝑃𝑒𝑟𝑖𝑜𝑑 (𝐷𝑎𝑦𝑠) = 360 ÷ 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜
14. 𝐶𝑎𝑠ℎ 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 𝐶𝑦𝑐𝑙𝑒 (𝐷𝑎𝑦𝑠) = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒 − 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡 𝑃𝑒𝑟𝑖𝑜𝑑
15. 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
16. 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡
17. 𝑇𝑖𝑚𝑒𝑠 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑎𝑟𝑛𝑒𝑑 = 𝐸𝐵𝐼𝑇 ÷ 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
18. 𝑃𝐸𝐺 𝑟𝑎𝑡𝑖𝑜 = 𝑃/𝐸 𝑅𝑎𝑡𝑖𝑜 / 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐺𝑟𝑜𝑤𝑡ℎ 𝑅𝑎𝑡𝑒

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 18
 STATEMENT OF CONSOLIDATED INCOME
Particulars ('000) 2016- 17A 2017-18A 2018-19E 2019-20E 2020-21E 2021-22E
Gross Turnover 16,644,966 19,050,008 22,034,430 25,335,661 29,197,291 33,368,467
Cost of Goods Sold 8,301,255 9,618,291 10,870,261 12,415,274 14,216,633 14,455,690
GROSS PROFIT 8,343,711 9,431,717 11,164,169 12,920,387 14,980,658 18,912,778
Other Income 45,292 138,166 85,086 97,833 112,745 128,852
Total Operating Income 8,389,003 9,569,882 11,249,255 13,018,220 15,093,403 19,041,630
Operating Expenses: 4,215,040 4,896,772 5,473,240 6,285,658 7,237,463 8,266,521
Administrative, Selling and Distribution Expenses 4,215,040 4,896,772 5,473,240 6,285,658 7,237,463 8,266,521
PROFIT FROM OPERATIONS 4,173,963 4,673,110 5,776,015 6,732,562 7,855,941 10,775,109
Financial Expenses 201,950 210,012 189,187 217,532 250,688 286,501
PROFIT BEFORE WPPF 3,972,012 4,463,098 5,586,827 6,515,030 7,605,253 10,488,607
Allocation for WPPF 192,018 216,653 268,536 313,151 365,553 504,144
PROFIT BEFORE TAX 3,779,994 4,246,445 5,318,291 6,201,879 7,239,700 9,984,463
Current Tax 907,245 1,066,655 1,489,122 1,736,526 2,027,116 2,795,650
Deffered Tax 194,675 73,609
PROFIT AFTER TAX FOR THE YEAR 2,678,074 3,106,181 3,829,170 4,465,353 5,212,584 7,188,813
Restated EPS 38.24 44.35 47.55 50.41 53.49 67.06

STATEMENT OF FINANCIAL POSITION

Particulars ('000) 2016- 17A 2017-18A 2018-19E 2019-20E 2020-21E 2021-22E
Non-Current Assets: 11,069,997 11,590,444 12,004,853 12,528,791 13,171,637 13,936,934
Property, Plant and Equipment-Carrying Value 9,799,446 10,202,591 10,661,987 11,114,358 11,610,244 12,181,328
Long Term Investment 11,795 11,222 11,222 11,222 11,222 11,222
Asset Under Construction 1,258,756 1,376,630 1,331,643 1,403,210 1,550,171 1,744,383
Current Assets: 7,649,328 9,768,416 13,181,169 16,873,044 21,128,079 27,155,024
Inventories 3,396,071 3,926,676 4,782,915 5,462,720 6,255,318 6,360,503
Trade Debtors 2,326,869 2,614,279 3,084,820 3,546,992 4,087,621 4,671,585
Investment in Shares and Others 934,670 1,642,611 2,709,331 2,709,331 2,709,331 2,709,331
Advances, Deposits and Prepayments 339,784 501,118 493,425 567,350 653,825 747,232
Cash and Cash Equivalents 651,934 1,083,732 2,110,678 4,586,650 7,421,983 12,666,372
TOTAL ASSETS 18,719,325 21,358,860 25,186,022 29,401,834 34,299,715 41,091,958
SHAREHOLDERS' EQUITY AND LIABILITIES:
Shareholders' Equity: 12,943,041 15,508,197 18,475,916 21,870,145 25,807,044 31,485,410
Share Capital 608,965 700,310 805,357 885,892 974,482 1,071,930
Revaluation Surplus 155,285 154,808 154,808 154,808 154,808 154,808
Tax Holiday Reserve 46,638 46,638 46,638 46,638 46,638 46,638
Available for Sale Reserve 49,859 56,743 56,743 56,743 56,743 56,743
Retained Earnings/ Revenue Reserve 12,082,219 14,549,629 17,412,370 20,726,063 24,574,373 30,155,291
Non Controlling Interest 75 69
Non-Current Liabilities: 1,266,381 1,244,685 1,262,699 1,262,699 1,262,699 1,262,699
Long Term Loan- Net Off Current Assets 95,911 - - - - -
Deferred Tax Liability 970,413 1,170,470 1,244,685 1,262,699 1,262,699 1,262,699
Current Liabilities: 4,509,903 4,605,978 5,447,407 6,268,991 7,229,973 8,343,848
Bank Overdraft 297,934 11,712 - - - -
Short Term Bank Loan 1,674,520 2,393,530 2,203,443 2,533,566 2,919,729 3,336,847
Long Term Loan- Current Portion 161,200 99,662 - - - -
Trade Creditors 202,413 243,664 347,671 397,086 454,700 462,346
Other Creditors 1,414,744 1,047,598 1,630,539 1,862,291 2,132,495 2,168,353
Provision for Tax 759,092 809,811 1,265,753 1,476,047 1,723,049 2,376,302
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 18,719,325 21,358,860 25,186,022 29,401,834 34,299,715 41,091,958
Net Asset Value (NAV) per share 184.82 221.45 229.41 246.87 264.83 293.73

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 19
 KEY FINANCIAL INDICATORS
2016- 17A 2017-18A 2018-19E 2019-20E 2020-21E 2021-22E
Liquidity Ratios:
Current Ratio 1.70 2.12 2.42 2.69 2.92 3.25
Quick Ratio 0.87 1.16 1.45 1.73 1.97 2.40
Cash Ratio 0.14 0.24 0.39 0.73 1.03 1.52
Operating Efficiency Ratios
Inventory Turnover Ratio 2.39 2.63 2.50 2.42 2.43 2.29
Receivable Turnover Ratio 7.07 7.71 7.73 7.64 7.65 7.62
Average Collection Period (Days) 50.92 46.69 46.56 47.12 47.07 47.25
Inventory Conversion Period(Days) 150.43 137.04 144.22 148.54 148.36 157.09
Operating Cycle (Days) 201.35 183.73 190.78 195.66 195.43 204.34
A/C Payable Turnover Ratio 32.87 43.12 36.77 33.34 33.38 31.53
Payables Payment Period (Days) 10.95 8.35 9.79 10.80 10.78 11.42
Cash Conversion Cycle (Days) 190.40 175.38 180.99 184.86 184.65 192.92
Total Asset Turnover 0.92 0.95 0.95 0.93 0.92 0.89
Fixed Asset Turnover 1.72 1.90 2.11 2.33 2.57 2.81
Operating Profitability Ratios
Gross Profit Margin (GPM) 50.13% 49.51% 50.67% 51.00% 51.31% 56.68%
Operating Profit Margin (OPM) 25.08% 24.53% 26.21% 26.57% 26.91% 32.29%
Pre Tax Profit Margin 22.71% 22.29% 24.14% 24.48% 24.80% 29.92%
Net Profit Margin (NPM) 16.09% 16.31% 17.38% 17.62% 17.85% 21.54%
Return on Total Assets (ROA) 14.86% 15.50% 16.45% 16.36% 16.37% 19.07%
Return on Equity (ROE) 22.43% 21.84% 22.54% 22.14% 21.87% 25.10%
Leverage & Coverage Ratios
Total Debt to Equity 0.17 0.16 0.12 0.12 0.11 0.11
Debt to Total Assets 0.12 0.12 0.09 0.09 0.09 0.08
Times Interest Earned (TIE) 18.75 20.87 29.11 29.51 29.88 35.85
Growth Rates
Sales Growth Rate 12.64% 14.45% 15.67% 14.98% 15.24% 14.29%
Gross Profit Growth Rate 12.24% 13.04% 18.37% 15.73% 15.95% 26.25%
Operating Profit Growth Rate 11.39% 11.96% 23.60% 16.56% 16.69% 37.16%
Net Income Growth Rate 17.75% 15.99% 23.28% 16.61% 16.73% 37.91%
Total Asset Growth Rate 8.03% 14.10% 17.92% 16.74% 16.66% 19.80%
DUPONT ANALYSIS
Net Profit AT/Sales 16.09% 16.31% 17.38% 17.62% 17.85% 21.54%
Sales/Total Assets 92.35% 95.06% 94.68% 92.83% 91.67% 88.52%
ROA 14.86% 15.50% 16.5% 16.4% 16.4% 19.1%
Net Profit AT/Total Assets 14.86% 15.50% 16.45% 16.36% 16.37% 19.07%
Total Assets/Stockholders. Equity 1.51 1.41 1.37 1.35 1.34 1.32
ROE 22.43% 21.84% 22.54% 22.14% 21.87% 25.10%

*Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report P a g e | 20
 Important Disclosures
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Head Office: HO Extension-1: HO Extension-2:

Jiban Bima Bhaban, Modhumita Building Bangladesh Sipping Corporation

10 Dilkusha C/A, Dhaka-1000 160 Motijheel C/A (2nd (BSC) Tower
Floor) 2-3, Rajuk Avenue (4th floor),
+8802 9553247, 9556845
Dhaka-1000. Motijheel,
+8802 47111935; +88 02 9569480, 9564393, Dhaka-1000
FAX: +8802 47112944 +88 02 8825236 +880257160801-4
info@[Link]

Dhanmondi Branch: Chattogram Branch:

Sima Blossom (4th Floor) House # 390 (Old), 3 (New), Suraiya Mansion (6th Floor);
Road # 27 (Old), 16 (New), 30, Agrabad C/A
Dhanmondi R/A, Dhaka-1209. Chattogram-4100
+8802-9130268, +031 2522041-43
+8802-9130294