The company leads in terms of therapeutics and boasts a wide portfolio of cardiovascular, respiratory, alimentary tract, metabolism and diabetes products. Its star products include Kestine, Tres Orix Forte, Combivair, and Uslanic, to name a few.
Despite a predominantly pharmaceutical product mix, Highnoon Laboratories has managed to maintain robust growth in a highly troubled pharmaceutical industry.
CY14 Performance
Last month, Highnoon Laboratories posted its full-year financials for CY14; top line growth was a superb 23 percent year-over-year, while costs were largely kept in check and increased by a lesser 15 percent. This resulted in a handsome 34 percent increase in gross profit for the year ended 2014, and a gross margin improvement of 4bps to 45 percent.
Distribution, selling and promotional expenses grew by 29 percent year-on-year, but stayed more or less flat as a percentage of sales, thereby not impacting the bottom line. However, taxes hiked disproportionately by 86 percent year-on-year. Nevertheless, Highnoon's bottom line growth was a jaw-dropping 74 percent year-over-year - its best result in decades.
The company cited productivity improvement and the favourable impact of exchange rate parity as the main reasons for keeping costs in check and improving margins. It added that production volume increased by 15 percent year-over-year.
Highnoon maintains market leadership in respiratory, cardiology, and alimentary tract segments, which grew by 47 percent, 22 percent, and 21 percent year-over-year. Collectively, the revenues from these form 78 percent of Highnoon's portfolio.
Local sales improved by 22 percent year-over-year, while export sales increased by 12 percent. The company said Afghanistan is becoming an important market and it is undertaking initiatives in the region to strengthen its presence there.
Prior Performance
For the past five fiscal years, Highnoon Laboratories has managed to maintain growth in both gross profit and net profit. This is no small feat, given the Pakistani pharmaceutical industry's gloomy zeitgeist.
One cause of concern, however, is the company's net margins; growth has been far slower on this front, with a mere movement of 2 bps from 3 percent in 2010 to 5 percent in 2013. It was only recently that net margins broke the past with 7 percent mark in 2014. In comparison, the average net profit margin in the pharma industry (GSK, Abbott, Ferozsons, Searle) for the quarter ended December 2014 was 11 percent.
Another interesting trend is Highnoon's export growth. While local sales no doubt account for the lion's share of revenues (92 percent as of 2014), exports have been on the uptrend, exhibiting a growth of 12 percent year-over-year for the recent quarter. However, exports as a percentage of sales fell by 6 percent over the year. This should concern a company which declares "Enhance export business" as one of its corporate objectives.
All that being said, there isn't a whole lot that can be said to discredit Highnoon Laboratories of its stellar achievements; the company has been on an unabated growth trajectory and has done so using a portfolio that comprises mostly of pharmaceutical products.
Industry Outlook
Pakistan's pharma sector continues to be troubled by regulatory drug pricing, which has plagued the industry since 2001. There have been no price increases since then, whereas input costs have skyrocketed. Many players have called it quits while others have diversified their product mixes to focus more on consumer healthcare.
However, things are set to change next year; the Economic Co-ordination Committee has approved a new drug pricing policy, which will take effect from June 2016. This policy gives pharma companies a little more leeway and allows the threshold of lower-priced drugs to increase by 50 percent of CPI each year.
As far as Highnoon Laboratories is concerned, the company is taking all the right steps to keep it on the right track; it is pursuing registration of more products to strengthen its portfolio in the export markets. Moreover, it has added Metered Dosage Inhalers to its respiratory portfolio. It is also making substantial investments to upgrade its manufacturing facilities.
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Highnoon Laboratories Ltd
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Rs (mn) CY14 CY13 YoY
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Sales 3696 3008 23%
Cost of sales 2041 1777 15%
Gross profit 1655 1231 34%
Distribution, selling &
promotional expenses 969 751 29%
Administrative & general expenses 220 206 7%
Research and development expenses 4 4 0%
Other operating expenses 46 32 44%
Other income 10 15 -33%
Finance cost 12 20 -40%
Taxation 143 77 86%
Profit after tax 272 156 74%
EPS 14.96 8.56 75%
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