Press Release

JCR-VIS Assigns Ratings to Macter International Limited

Karachi, June 1, 2018: JCR-VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A/A-1’ (Single A/A-One) to Macter International Limited (Macter). Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to Macter are underpinned by low business risk of pharma sector, adequate governance infrastructure and satisfactory financial profile as reflected by healthy turnover growth & margins and moderate leverage metrics. Ratings also incorporate existing low market share in pharma business, modest therapeutic area diversity and risk of margin attrition in case of significant rupee depreciation. Macter’s business is categorized in two segments - branded generics and contract manufacturing. Since inception, Macter has been operated by Misbah Family which owns majority stake in the organization. Remaining shareholding is vested with a financial services group, other institutions and general public.

The company has a portfolio of over 50 products across more than 40 therapy segments. Top four revenue generating drugs include Sofomac, Salmicort, Cobolmin and Titan and contribute around one-fourth of total revenues indicating low product concentration risk. We have been given to understand that Macter’s sales outpaced Pakistani pharmaceutical market growth while the company was also the fastest growing company in terms of revenues from new products launched amongst all pharmaceutical firms in the country. Management intends to strengthen Macter’s marketing portfolio through new product launches in respiratory, oncology and nutraceutical areas. Accordingly, product mix is expected to improve over the medium term. Ability of the firm to compete in its existing product segments, achieve budgeted sales targets and consistently develop new products will remain important growth drivers.

Increase in volumetric sales and focus on high margin products translated into enhanced gross margins and earnings. Any adverse movement in raw material prices could have an adverse impact on margins. Over the medium term, rupee depreciation and limited room to increase product prices are expected to result in slight margin attrition. However, overall profitability is expected to grow further on account of volumetric increase in sales. Growth momentum has been sustained in the ongoing year with significant increase in sales during 9MFY18 vis-à-vis corresponding period last year.

Over past half-decade, equity base of the company has increased at a compounded annual growth rate of ~8% while fund flow from operations has increased on the back of earnings growth. For ongoing fiscal year, management has budgeted sizeable capex which will be financed through a mix of Ijarah and Diminishing Musharakah financing along with internally generated capital. Despite projected increase in debt, gearing is expected to remain around current levels due to profit retention. Debt servicing is projected to remain strong over the rating horizon. Ratings will remain dependent on maintaining leveraging profile and cash flow coverage within benchmarks for the assigned ratings.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) at 021-35311861-70 or fax to 021-35311873.


Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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