Earnings growth of listed pharmaceutical companies is slowing

The pace of profit growth for pharmaceutical companies in Bangladesh has slowed in the January-March period of the current fiscal year compared to a year ago due to higher operating costs despite stronger sales.

The profits of the 18 pharmaceutical companies listed on the Dhaka Stock Exchange (DSE) increased by around 5% to reach Tk 850 crore in the third quarter of 2021-2022.

Profits rose 21% to Tk 807 crore in the same period a year ago, according to data compiled by Sandhani Asset Management Company.

An analysis of financial reports showed that pharmaceutical companies spent more money on marketing from January to March this year, compared to the same quarter in 2021.

Sales, marketing and distribution costs for the top five listed drug makers – Square Pharmaceuticals, Renata, Beximco Pharmaceuticals, Acme and Orion – jumped 31% year-on-year to Tk 770 crore during the last trimestre.

Companies’ sales growth was higher, but higher marketing costs drove up operating costs, which impacted their profits.

Average sales growth was 16%.

A senior official at a listed drugmaker said the hiring of new staff almost stopped at the height of the pandemic and travel for marketing representatives was also restricted. This had resulted in lower operating costs.

As almost all businesses have started recruiting and marketing expenses have also increased thanks to the rebound in the economy, operating expenses have increased.

“It will, however, give better results soon,” the official said.

Demand for drugs surged in the first quarter of 2021 as the pandemic still raged in Bangladesh. But as the number of coronavirus cases fell sharply in the first quarter of 2022, earnings growth was relatively weak.

However, the average growth rate is almost similar to the market growth rate, he added.

Of the drugmakers listed, 12 profits rose in the first quarter, one returned to profit while the rest posted weaker profits.

Square Pharmaceuticals, the largest drugmaker in Bangladesh, posted 15% higher profit growth, the highest among drugmakers, reaching Tk 406 crore in the third quarter.

Beximco Pharmaceuticals profits fell 27% to Tk 106 crore.

Renata’s earnings rose 10.5% to Tk 136 crore while Acme Laboratories posted 28% higher earnings to Tk 50 crore. Orion Pharma’s profit rose 8% to Tk 26 crore.

The market capitalization of pharmaceutical stocks is Tk 70,821 crore, which is about 14% of the total DSE market capitalization. This is the highest of all sectors, according to UCB Stock Brokerage.

The sector price/earnings ratio was 17 against the market PE ratio of 13.98.

The annual turnover of the entire pharmaceutical sector is around Tk 27,000 crore.

Exports of pharmaceuticals rose 21% to $40 million in the January-March 2021-22 period, according to data from the Export Promotion Bureau.