The largest pharmaceutical company in Pakistan by far, GlaxoSmithKline Pakistan Limited (PSX: GLAXO) came into being in 2001, by the merger of SmithKline and French of Pakistan Limited, Beecham Pakistan (Private) Limited, and Glaxo Wellcome (Pakistan) Limited. Its legacy company, Glaxo Laboratories Pakistan Ltd, was in fact the first pharmaceutical company to be listed on the Karachi Stock Exchange in 1951. The multinational's market capitalisation today is a whopping Rs 72 billion.

GSK Pakistan operates mainly in two industry segments: pharmaceuticals (prescription drugs and vaccines) and consumer healthcare (over-the-counter-medicines, oral care, and nutritional care). The company boasts a diverse and profitable business of over 150 brands, and claims almost 10.3 percent of the value and over 17 percent of the volume-share of Pakistan's pharma market.

In March 2015, GSK completed a three-part transaction with Novartis. The company acquired Novartis' vaccines business (excluding influenza vaccines) and combined its consumer healthcare businesses to create a new company. In addition, Novartis acquired the company's oncology portfolio.

Stock and Pattern of Shareholding

GLAXO has clearly outperformed the KSE100 index by a significant margin. The stock remains buoyed by robust fundamentals and investor confidence, not to mention dividends.

The main shareholder of the company is S.R. One International - which is the corporate venture capital arm of GlaxoSmithKline. The firm invests globally in emerging life-science companies. The local public accounts for just over six percent of GLAXO shares.

Historical Performance

GSK's top line has been growing like clockwork annually, with a CAGR of 8.24 percent for the four years from 2011 to 2015. The bottom line growth has not been as straightforward, though it too has risen substantially over the years, particularly in 2015.

For some reason, a decent profitability has largely eluded GSK. However, the latest and greatest year of 2015 brought net margins of nine percent - an enormous spike over the 5-6 percent range of the earlier years. Although there is no company of GSK's size (ie almost Rs 30 billion in annual sales) for comparison, the next-largest peer, Abbott Laboratories (over Rs 21 billion in annual sales) boasts a net margin of 16 percent. Similarly, Ferozsons Laboratories (on track for Rs 20 billion sales this year), has a 21 percent net profit margin. So, the company's profitability can be seen as weak compared to its peers. That being said, the recent year did witness a significant spike in margins, owing to a better product mix, product portfolio rationalisation, and cost efficiencies in manufacturing operations.

One area where GSK really deserves credit is the growth of its consumer healthcare business. The segment has gone from accounting for around 11 percent of net sales in 2011 to nearly 20 percent as of FY15. The business is now being spun off into a separate corporate entity, called GlaxoSmithKline Consumer Healthcare Pakistan Limited, to be listed on the PSX. The de-merger is currently under way. Curiously enough, however, the margins of this growing segment have lagged behind the pharma business, although given the current regulatory environment for drugs in Pakistan; one would expect it to be the other way around.

In terms of exports, there really isn't much to say. From 2011 to 2015, GSK's exports have gone from 3.6 percent of sales to just 4.3 percent. Almost all the exports go to Afghanistan, and there has been little growth in this area. Citing risks, as of January 1, 2016, the company has changed its operating model in Afghanistan and has discontinued working through existing distribution agreements. Instead, GSK will supply medicines and vaccines to Afghanistan through supranational organisations or direct to governments, says the company's last annual report.

Recent performance

Halfway into 2016 and GSK is still continuing its upward journey. The top line grew by 11 percent over last year, giving an 8 percent increase in gross profit. Although gross margins contracted slightly, the bottom line figure was up by 29 percent year-on-year.

As per the previous Director's Report, key growth drivers in 2016 had been antibiotics, respiratory, analgesics, and anthelmintic portfolios. The consumer healthcare segment saw growth from its flagship brands, Panadol and Sensodyne.

The growth comes on the back of a price increase for some products on account of hardship cases, continued product portfolio rationalisation, and a better sales mix, as per the last quarterly Director's Report.

One significant development for the recent quarter is the stark reduction in selling, marketing and distribution expenses. Although the reason for the decline is uncertain at this time, these reduced expenses played a huge role in buffing up the bottom line.

Outlook

The regulatory environment that has plagued the industry has seen some lenience in recent days, with some hardship cases getting approvals on price increases. Moreover, the new Drug Pricing Policy was kicked into gear this fiscal year.

For GSK, everything looks good. It's all set to complete the de-merger of its consumer healthcare business. Despite losing its exports, the company remains buoyed by a market dominance that is difficult to challenge, and growth that seems difficult to stop.