Press Release

VIS Assigns Preliminary Rating to Proposed Short Term Sukuk 2 of OBS Pharma (Private) Limited

Karachi, September 23, 2024: VIS Credit Rating Company Limited (VIS) has assigned a preliminary rating of ‘A-1(plim)’ (A one preliminary) to the Short-Term Sukuk issue of Rs. 1,500 million of OBS Pharma (Private) Limited (‘OBS Pharma’ or the ‘Company’). The short-term rating of ‘A-1(plim)’ indicates strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. The entity rating of OBS Pharma is ‘A/A-1’ (‘Single A/A-One’) with a ‘Stable’ outlook.

OBS Pharma was established in 2022 as a Special Purpose Company (SPC) to acquire specific pharmaceutical brands and a manufacturing facility from Bayer AG and its affiliates. The Company is majorly owned by Aitkenstuart Pakistan (Private) Limited. OBS Pharma's activities include the import, marketing, export, dealership, distribution, wholesale, and manufacturing of pharmaceutical and healthcare products. The ultimate parent entity of the OBS Group is West End 16 Pte Limited, based in Singapore.

The proposed Sukuk will be an unlisted and privately placed instrument. It will have a tenor of six months from the date of the first drawdown, with a proposed markup rate of 6-month KIBOR plus 1.15% per annum, subject to a defined floor and cap approved by the Shariah Advisor. The instrument will be issued at a face value of Rs. 1,000,000 each, or in multiples thereof, in the form of scripless securities. In addition, the proposed instrument will be backed via a corporate guarantee provided by the parent company, Aitkenstuart Pakistan (Private) Limited. The redemption will occur in two equal installments in the last two months of the issue with the profit being paid at maturity.

The assigned rating reflects the low business risk profile of Pakistan's pharmaceutical sector, marked by stable demand and low economic sensitivity, which supports steady revenue and profitability. Key factors such as population growth, disease prevalence, emerging illnesses, and hygiene conditions sustain the demand for pharmaceutical products. Profitability, however, remains under pressure due to price caps, enforced by the Drug Regulatory Authority of Pakistan (DRAP). Additionally, 70-80% of raw materials are imported, exposing companies to exchange rate risks. Nevertheless, the recent deregulation of drug prices for Non-Essential Medicines allows companies to independently raise prices, further supporting the sector's business risk profile.

Rating incorporates OBS Pharma’s strong product line positioning, cost-efficiency measures through alternate sourcing, and broader market coverage following the acquisition of brands from Bayer Pakistan. The Company’s portfolio, focused on women’s healthcare and dermatology, includes key brands such as Ciproxin, Gravibinan, Travocort, and Primolut N.

Assigned rating also takes into account the Company’s financial risk profile. OBS Pharma reported favorable topline performance during CY23, alongside a higher-than-projected gross margin owing to a one-time discount on the purchase of finished goods inventory from Bayer Pakistan. Margins, however, remained subdued in HYCY24 as a result of lower production capacity utilization as well as continuation of third party outsourcing of certain products. Going forward, the Company plans to internalize the manufacturing of these products to support future margins. The capitalization profile was impacted due to increase in working capital financing to fund upfront inventory purchases from Bayer Pakistan at the time of acquisition. With increase in the projected profitability, both gearing and leverage ratios are expected to improve overtime. The liquidity profile is supported by a positive working capital cycle and sound cashflow coverages. The rating remains underpinned on successful execution and achievement of the projected plan as well as retention of profitability.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.

Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .