Abbott Laboratories (Pakistan) Limited

The second-largest pharmaceutical company in Pakistan, Abbott Laboratories (Pakistan) Limited (PSX: ABOT) was incorporated in 1948 as a private marketing company, with its first manufacturing facility commissioned in 1962 in Karachi. Over the years, the healthcare company has established dominance in pharmaceuticals, nutrition, diagnostics, and diabetes care. Its market capitalisation is north of Rs94.4 billion.

Abbott boasts seven brands of over Rs1 billion, and over 180 products. It is the number one nutrition company in Pakistan, with over 90 percent market share in adult nutrition. The company also has several number one pharmaceutical brands: Brufen, Arinac, Klaracid, and Duphaston are all market leaders in their respective therapeutic areas. Having a market share of 6.1 percent in Pakistan is what makes Abbott the second-largest pharmaceutical company in the country.

Stock Price & Pattern of Shareholding

The majority of ABOT shares are in the hands of its associated company, M/S Abbott Asia Investments Limited, which, according to Bloomberg, is a UK-based investment advisory firm. It holds almost 78 percent of the company’s stock. The general public holds a little more than 10 percent of ABOT shares (how much of the public is foreign and how much is local is not disclosed). The only public sector company to hold ABOT stock is State Life Insurance, holding less than one percent of the total.

Abbott stock has performed largely in line with the KSE100 index. The share price has increased by approximately 50 percent year-to-date as of the time of writing.

Prior Performance

The multinational giant is quite literally the picture of growth; Abbott’s sales and profits have grown like clockwork over the years. The six-year CAGR of the company’s sales is an astounding 10.36 percent, while the same for gross profit and net profit is 12.32 percent and 16.07 percent, respectively. Gross and net margins have also grown annually over the period. All this is quite impressive, given the tight regulation the pharma sector in Pakistan operates under.

Abbott operates in three business segments – pharmaceuticals, nutrition, and other (manufacturing, importing, and marketing of diagnostic equipment, diabetes care, molecular devices, their testing kits and general healthcare products). Pharmaceuticals accounts for the lion’s share of Abbott’s sales (72%), followed by nutrition (18%) and others (10%), as of 2016.

Abbott gets high impact from a balanced portfolio, and all three of its segments have seen strong growth. However, the margins have fluctuated over the years, with the pharmaceutical segment being the most profitable as of 2016! Again, it’s interesting to see Abbott’s pharmaceutical segment giving the highest returns, considering the pricing regulation in Pakistan. The company has maintained effective cost controls, a suitable product mix, and new product launches to sustain itself.

According to the company’s annual reports, Abbott Pakistan has continuously been making investments into its production facilities for process improvement, energy conservation, and overall improved productivity. In the absence of price increases on its products, Abbott seems to have been controlling its costs in this way.

Finally, Abbott operates largely in the local market, with exports amounting to less than six percent of total sales as of 2016. Although exports have been growing vis-à-vis the domestic sales, their share remains little.

Recent Performance

Last week, Abbott Laboratories announced its financials for the first quarter of 2017. Although the company’s top line grew by an impressive 10 percent year-on-year, costs grew by a greater proportion, shrinking the gross margins. The bottom-line was lower by two percent over last year.

Despite a drop in administrative expenses, selling and distribution was up by 12 percent year-on-year. Other charges also grew significantly, hurting the bottom-line and net margins. Local sales increased by 10 percent year-on-year, while exports grew by 18 percent.

As per Abbott’s annual report for 2016, there were 12 new product launches in the year across all business segments. Moreover, during the year, Abbott acquired St. Jude Medical, a medical device company. The benefits of these are likely to have been reaped in the quarter under review.

Outlook

Like all pharmaceutical manufacturers, Abbott faces the challenge of cost escalation in the absence of any price increase on medicines. However, the company continues to make efforts to offset increases in manufacturing and operating costs through productivity improvements, cost containment, and process simplification.

With its diverse product portfolio, leading existing brands, and new product launches, Abbott looks set to continue on its path of growth.

==========================================================


ABBOTT LABORATORIES (PAKISTAN) LIMITED


==========================================================


Rs (Million)                     1QCY17   1QCY16       YoY


==========================================================


Sales                             5,394    4,886       10%


Cost of Sales                     3,398    3,024       12%


Gross Profit                      1,997    1,862        7%


GP Margin                           37%      38%      down


                                                   110 bps


Selling & Distribution Expenses     917      820       12%


Administrative Expenses             101      110       -8%


Other Charges                       141       80       76%


Other Income                        114      117       -3%


Finance Cost                          2        1      100%


Taxation                            245      246        0%


Profit After Tax                    705      721       -2%


NP Margin                           13%      15%      down


                                                   170 bps


EPS                                 7.2     7.37       -2%


==========================================================