Ferozsons Laboratories Limited

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Highlights - Corporate News

Amongst the earliest pharmaceutical companies, Ferozsons Laboratories Limited was incorporated in 1954.

Being the first local pharmaceutical company to be listed on the Stock Exchange, Ferozsons Laboratories Limited commenced production in 1956 as manufacturers of fine chemicals and as toll-manufacturers for multinational pharmaceutical companies like Boots.

In 2002 the identified oncology and hepatitis as new potential required high investments.

In 2003 the Company started importing from its commercial partner Bago.

This helped Ferozsons Laboratories Limited to become the largest in the cancer drugs category after Rosch and Novartis and the top three in Hepatitis drugs.

The Company's manufacturing facilities are at Nowshera that are fully equipped with state-of-the-art manufacturing and testing equipment.

Brand Portfolio The Company provides branded generics range that consists of products in the four categories: anti-infective; gastrointestinal; cardiovascular and dermatology.

Its core strength lies in gastroenterology where the Company has a large and fast growing portfolio of brands.

The Company also sponsors key gastroenterology conferences countrywide.Besides, the Company is actively seeking licensing opportunities for products in the above segments, and for products related to Oncology.

The Company is also involved in exports to Middle East, Africa and Central Asia.

The Company's sales and marketing efforts are focused on brand creation through the generation of prescriptions with a total field force of more than 180 representatives and supervisors.

Its marketing team consists of 3 independent business units, each with its own portfolio of products, product manager, field supervisors and representatives.

Impressive sales growth Pharmaceutical sales represent 70 percent of the total revenue generated by Ferozsons Laboratories Limited.

The Company has two subsidiaries: Farmacia with 98 percent ownership and BF Biosciences Limited.

The two subsidiary accounts for almost 30 percent of the total revenue inclusive of Farmacia and BF Biosciences Limited while the remainder is attributable to the Company's pharmaceutical operations.Sales from the pharmaceutical operations have been growing steadily on a yearly basis with a 13 percent growth in FY11 from FY10.

The first quarter of FY12 witnessed a massive growth in sales revenue of about 45 percent from the sales revenue of comparable period FY11.This might depicts a rather irregular trend as 1QFY11 showed a falling trend in sales by 9 percent over sales revenue of 1QFY10.

However, the 9 percent decline in the sales revenue was primarily due to the transferring of biotech products completely to the newly created subsidiary, BF Biosciences Limited.The strong sales growth during 1QFY12 is well distributed across the company's operations.

The Pharmaceutical product's range witnessed a growth of 22 percent due to unit growth driven by relatively fixed prices across the portfolio.

Boston Scientific medical device division grew by 171 percent while exports rose by 45 percent.

Profitability catching up Despite the difficult economic conditions prevailing in the country, Ferozsons Laboratories Limited has been able to report increasing profits consecutively since FY06.

Though the company sees a steady increase in the gross profit and the net profit against a stronger sales growth of 45 percent during 1QFY12, weakening rupee and increased cost of inputs tapered the gross profit margin and net profit margin for the quarter.Cost of sales make up majority of the total cost borne by the Company followed by selling and distribution expenses.

Any rise in the cost or prices of raw material is bound to affect the profitability.

Both cost of sales and selling and distribution expenses have increased by more than 50 percent during the quarter ended September 30, FY12 versus 1QFY11.However, 3 months' period is too small for drawing a weaker prognosis about the Company's profitability.

Moreover, the average profit margins for past half decade hover around 22 percent, which provides a cushion to the Company's future prospects.

Low leverage and debt position Historically the company has been a very conservative one with zero debts.

The company had no secured and unsecured long-term debts on its books as of September 30, FY12.

Only the current portion of the long-term loan taken onto the books with BF Biosciences Limited subsidiary remains in the current liabilities.The debt to equity ratio has been on a constant decline and a ratio of 0.19 for 1QFY12 shows that majority of the Company's assets are being financed through equity.Short-term solvency might raise some eyebrows as the current ratio of 3.56 during 1QFY12 and 3.1 during FY11 might suggest that the firm is sitting around with a lot of cash because it lacks the acumen to put these resources to work.

Market dynamics With a falling share price and somewhat stable EPS, the price earning ratio of Ferozsons Laboratories limited has declined over the past couple of years and the same trend is seen for P/E multiple for 1QFY12 versus 1QFY11.This might indicate the investors' beliefs that the future prospects of the firm are dimmer than its current performance.

However, one should bear in mind that this is the story of majority of the companies.

The performance of the overall market and the falling share prices across industries in indicative of the falling performance of the economy.

Future Markets The Company plans to have 3 phases of international operations.

In its initial phase it will tap Central Asia, Philippines, Burma, Nigeria, Sudan as their registration process is shorter.

The second phase involves markets like Indonesia, Malaysia, Australia, that are high-value markets but tough in terms of regulatory requirements.

The last would be EU and US.

Outlook A growing population and high birth rates are fuel for the pharmaceuticals and hence the industry.

A key development for the sector is the registration of various drugs as approved by the Drug Registration Board in August 2011.However, following the devolution of health sector from the federation to the provinces, the pharmaceutical industry is orphaned with no regulator.

With no central regulatory agencies or bodies, the industry has come to a halt.

Besides, quality regulation issues, particularly affecting the Company in the international markets, also are a serious issue of the sector.

Moreover, the ongoing energy crisis, counterfeit drugs, patent expiration, bureaucratic procedures, and transparency in pricing mechanisms continue to tamper with the potential of the industry.

Source: Company accountsAll information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s).

This analysis is not for the benefit of or discredit to any person, scrip or tradable instrument.

The content(s) of this analysis shall not be construed as an advice or recommendation to trade.

No relationship of client will be created between Business Recorder and user of this information.

Professional advice must be taken by the reader before making investment/trading decisions.

BR disclaims any liability for investment(s) made or liability accrued on basis of this analysis.

The content(s) including all opinion(s), statement(s) and information are subject to change without prior notice and/or intimation.

Courtesy: Business Recorder

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