IBL HealthCare Limited (PSX: IBLHL) was incorporated in Pakistan as a private limited company in 1997. The company changed its status into a public limited company in 2009. The company is engaged in the marketing, selling, and distribution of healthcare products. IBLHL is a wholly owned subsidiary of The Searle Company Limited (PSX: TSCL).
Pattern of Shareholding
As of June 30, 2023, the company has a total of 71.396 million shares outstanding which are held by 4883 shareholders. The Searle Company Limited (TSCL), which is the holding company of IBLHL holds 72.12 percent of its shares followed by the local general public holding 14.96 percent shares of IBLHL. Modarbas and Mutual funds account for 1.97 percent of shares of the company. The remaining shares are held by other categories of shareholders.
Performance Trail (2018-22)
IBLHL’s topline has been riding an upward trajectory over the period under consideration. Conversely, Its bottom line slid in 2019 and then started building up thereafter. IBLHL’s margins portray an asymmetrical pattern over the period under review. In 2019, the margins plunged followed by a recovery of gross and net margins in 2020 while the operating margin ticked down during the year. In 2021, IBLHL’s margins reached their optimum high values. In the following year, gross margins slightly picked up while operating and net margins slid. In 2023, IBLHL’s margins notably dropped (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, IBLHL’s net revenue posted a 16.69 percent year-on-year rise. During the year, Pak Rupee witnessed drastic depreciation which multiplied the cost of sales of the company as its business is solely based on imports. Increase in duties and other stringent rules imposed on formula milk and nutritional products also took its toll on the GP margin of the company which slid to 28 percent in 2019 from 31.5 percent in the previous year. Gross profit, albeit, posted a marginal uptick of 3.6 percent during the year. Other income slightly grew during the year mainly on the back of rental income from investment property. However, the growth of operating expenses on account of inflationary pressure resulted in operating profit shrinking by 8.45 percent year-on-year in 2019. OP margin also dropped to 13.37 percent in 2019 from 17 percent in 2018. Other expenses provided some breather to the bottom line as it plunged by 56 percent year-on-year in 2019 on the back of lesser exchange losses. Finance cost grew by 264 percent during the year as the company availed a short-term running finance facility during the year coupled with a high discount rate. In absolute terms, finance cost clocked in at Rs.5.056 million in 2019 which was equivalent to 0.32 percent of the company’s topline. IBLHL’s bottom line dropped by 18.73 percent year-on-year in 2019 to clock in at Rs.121.376 million with EPS of Rs.2.24 versus EPS of Rs.2.76 in 2018. NP margin stood at 7.66 percent in 2019 down from 11 percent in the previous year.
In 2020 while many industries were grappling against the outbreak of COVID-19, most of the pharmaceutical companies enjoyed hefty sales and profit during the year. The top line of IBLHL tremendously grew by 68.12 percent year-on-year in 2020. The robust revenue growth was driven by the addition of a new portfolio along with the growth in the existing business of the company. The gross profit of the company registered 82.75 percent year-on-year growth during 2020 with a GP margin of 30.45 percent. This was on account of the addition of local high-margin products to the company’s portfolio. Distribution expenses more than doubled during the year mainly on the back of sales promotion and marketing activities undertaken during the year coupled with the rise in salaries and wages. Administrative expenses also multiplied by 9.5 percent in 2020 due to higher payroll expenses as IBLHL expanded its workforce from 212 employees in 2019 to 262 employees in 2020. Corporate service charges by the ultimate parent company also pushed up administrative expenses in 2020. Other income grew by 13.64 percent year-on-year in 2020 on the back of higher interest income on loans to International Brands Limited. IBLHL’s operating profit was able to muster 66.46 percent year-on-year growth during 2020. However, OP margin slightly ticked down to clock in at 13.24 percent. Finance cost multiplied by 513 percent to clock in at Rs. 31 million during the year owing to the high discount rate in most of the months of FY20 coupled with an increase in short-term running finance. IBLHL’s debt-to-equity ratio increased from 50 percent in 2019 to 58 percent in 2020. The bottom line posted an 81.28 percent year-on-year rise to clock in at Rs.220.03 million in 2020. EPS stood at Rs.4.07 in 2020 while NP margin rested at 8.26 percent.
In 2021, the local as well as global economy hadn’t recovered from the shocks of COVID-19 which provided the pharmaceutical companies another year of robust sales growth. During the year, IBLHL added pharma and consumer products to its product portfolio which coupled with the existing portfolio mustered 12.73 percent year-on-year growth in topline. The sale of high-margin pharma products as well as the exemption of duties on nutrition and medical disposables resulted in a considerable 26 percent year-on-year growth in the gross profit of IBLHL during 2020. GP margin also climbed up to 34 percent during the year. Other income didn’t appear to behave favorably as it slid by 39.8 percent year-on-year in 2020 owing to lesser rental income on investment property and lesser interest income on loan to International Brands Limited. Operating expenses kept growing mainly on the heels of increased sales promotion and marketing drives as well as increases in salaries and wages. The induction of additional human resources drove up IBLHL’s workforce to 281 employees in 2021 from 262 employees in the previous year. The company boasted 26.19 percent year-on-year growth in operating profit in 2021. OP margin grew to 14.8 percent in 2021. The company obtained long-term financing under a refinance scheme initiated by the SBP for the payment of wages and salaries. Moreover, running finances also grew during the period. However, the low discount rate kept finance costs in check which dropped by 3.4 percent year-on-year in 2021. The bottom line improved by 36.57 percent year-on-year in 2021 to clock in at Rs.300.488 million with an EPS of Rs. 4.63. NP margin clocked in at 10 percent in 2021.
In 2022, the company attained 21.55 percent year-on-year growth in topline which is mainly driven by the disposable business and nutrition portfolio. Despite sharp currency depreciation which increased the cost of sales for the company, better sales mix and revised pricing pushed its GP margin slightly up to clock in at 34.41 percent in 2022. Gross profit multiplied by 22.86 percent in 2022. The company made “other loss” worth Rs.60.11 million in 2022 as against “other income” in the previous year. This was mainly on account of exchange losses made during the year on the back of the Pak Rupee depreciation. Inflationary pressure also pushed up the operating expenses in 2022. A bigger workforce of 304 employees also resulted in higher payroll expenses. Operating profit managed to post 16.62 percent year-on-year growth in 2022, however, OP margin marginally slid to 14.2 percent. Finance costs shrank during the year despite a soaring discount rate as the company repaid the long-term loan obtained in 2021 under the refinance scheme. The imposition of super tax enormously increased the income tax expense for IBLHL and resulted in a paltry 0.79 percent growth in its bottom line in 2022. The net profit of the company stood at Rs.302.859 million in 2022 with NP margin slipping to 8.3 percent. EPS clocked in at Rs.4.24 in 2022.
IBLHL’s topline grew by 10.32 percent year-on-year in 2023 on the back of improved performance of medical devices and nutritional business. High cost of sales on the back of an increase in supplier prices, Pak Rupee depreciation, elevated energy charges, and high inflation pushed up the cost of sales by 12.22 percent in 2023. Gross profit inched up by 6.7 percent in 2023, however, GP margin ticked down to 33.28 percent. The company’s other loss multiplied by 41.6 percent in 2023 due to higher exchange loss. Marketing expenses grew by 8.43 percent year-on-year in 2023 on the back of higher payroll expenses. The company didn’t enhance its sales promotion and marketing budget during the year. No provisioning made for doubtful debts during the year resulted in slightly lower administrative expenses in 2023. Operating profit ticked up by 1 percent in 2023 with OP margin falling down to 13 percent. Finance cost surged by 140.66 percent in 2023 due to the unprecedented level of discount rate coupled with increased short-term borrowings obtained during the year. IBLHL’s bet-to-equity ratio surged to 69 percent in 2023 from 57 percent in 2022. Net profit grew by 2 percent year-on-year in 2023 to clock in at Rs.308.963 million with EPS of Rs.4.33 and NP margin of 7.67 percent.
Recent Performance (1HFY24)
During 1HFY24, IBLHL’s net sales grew by 2.61 percent on the back of increased medical devices business. The high cost of sales on the back of elevated raw material as well as conversion cost drove up the cost of sales by 2.56 percent in 1HFY24. However, the company’s ability to optimize its operations and invest in a high-yielding portfolio enabled it to keep its GP margin intact at 33 percent in 1HFY24 with a 2.71 percent rise in gross profit. IBLHL recorded another income of Rs.26.838 million in 1HFY24 versus another loss of Rs.47.864 million in 1HFY23 on the back of net foreign exchange gain owing to stability observed in the value of local currency of late. Selling & distribution expenses multiplied by 45.33 percent in 1HFY24 due to enhancement in the company’s sales force. Marketing and promotion-related expenses also form a major chunk of IBLHL’s selling & distribution expenses. Inflationary pressure drove up administrative expenses by 7.88 percent in 1HFY24. As a consequence, operating profit slumped by 16.25 percent year-on-year in 1HFY24 with OP margin falling down to 11.16 percent from 13.68 percent in 1HFY23. Finance cost escalated by 23.64 in 1HFY24 due to a higher discount rate coupled with increased short-term borrowings to meet working capital requirements. Net profit diminished by 23.49 percent year-on-year in 1HFY24 to clock in at Rs.131.031 million with EPS of Rs.1.53 versus EPS of Rs.2 during the same period last year. NP margin dropped from 8.45 percent in 1HFY23 to 6.3 percent in 1HFY24.
Future Outlook
Soaring inflation has considerably reduced the purchasing power of consumers which has severely affected the sales of IBLHL’s nutrition and health & wellness products. To make up for the curtailed contribution from the aforementioned segments, the company has been actively focusing on its pharmaceutical and medical disposables segments. The company is also undertaking localization of product sourcing to reduce its cost. The recent deregulation of prices of non-essential drugs will also prove to be a good omen for pharmaceutical companies and have a positive impact on their margins.
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