Higher sales fail to cheer up drug makers in H1 FY24

Revenue jumped in the first half of FY24, compared to FY23, but it was accompanied by higher cost of sales in the turbulent macroeconomic scenario, depriving drug makers of the pleasure of attaining the expected profit growth.
Higher raw material prices, energy costs, and finance expenses pushed up the manufacturing cost, but prices of drugs are more regulated than other commodities since keeping them accessible for people of all strata in society is important.
Hence, drug makers' profit margin was squeezed in the six months through December 2023, compared to the same period of the previous year.
"The bottom-line growth was narrowed by higher import costs, with the bar on increasing prices of drugs, imposed by the drug administration," said Md Moniruzzman, chief executive officer of Prime Bank Securities.
Of the seven major pharmaceutical companies, Navana sees the highest profit growth year-on-year at 57 per cent in July-December 2023. The newly-listed company has been operating on a smaller scale than others and hence has room for growth.
Company secretary Joynul Abedin said Navana had emphasized production of high-end drugs, which boosted sales in the human health division. Because of the stock market listing, the company also enjoyed tax benefits that helped secure a higher profit, he added.
Square Pharmaceuticals, which takes up nearly 20 per cent of the industry, more than any other drug makers, saw its revenue up 15 per cent, but its year-on-year profit growth was sluggish.
The largest drug manufacturer's operating expenses escalated almost 20 per cent year-on-year in July-December FY24. Selling and distribution expenses also rose significantly in H1 FY24, compared to H1 FY23.
Square Pharma's 6.41 per cent year-on-year growth in profit in July-December last year was partly possible for a significant income coming from cash and cash equivalent assets.
On the other hand, ACI went into the red and Renata witnessed a decline in profit, having borne the burden of high finance cost.
A leading conglomerate in Bangladesh, ACI suffered a loss of Tk 490 million in the six months through December last year although sales grew more than 9 per cent.
The company blamed higher borrowing costs rendered by interest rate hikes against a fresh injection of funds for further business growth.
Despite a 22 per cent surge in sales revenue, Renata's half-yearly profit dropped 11 per cent between H1 FY23 and H1 FY24, owing to an increase in raw materials' prices coupled with higher finance expenses.
Renata's cost of sales soared 24 per cent mainly due to a continued upward price pressure on raw materials and the dollar becoming costlier against the taka.
To avoid the potential risk of further interest expenses, Renata received regulatory approval to issue zero coupon bonds worth Tk 6.60 billion, with a five-year maturity period, to pay off outstanding short-term loans.
Company secretary Md Jubayer Alam said profit had shrunk due to the increased cost of goods sold. The alternative avenue for long-term financing will enable the company to bring down finance expenses, he added.
Beximco Pharma gained a 13 per cent higher profit in the six months through December 2023, compared to a year earlier, in tandem with its 12 per cent revenue growth year-on-year. The business strengthened its footing by launching 10 new products and registering 19 products in seven countries during the period.
"We are pleased with the underlying performance of our top and bottom lines over the period despite currency devaluation impacting the results when translated into GBP," said Ahmed Sohail Fasihur Rahman, chairman of Beximco Pharmaceuticals, in its earnings note.
He said he was optimistic about a continuation of the business momentum into the second half of the year through delivery of high-quality, affordable medicines.
Beacon Pharma's half-yearly profit grew 26 per cent year-on-year to Tk 752 million in July-December last year, riding on a 21 per cent increase in sales.
It said it had been striving to rein in operating cost as much as possible and focusing on increasing sales to offset erosion of profit.
Beacon Pharma's interest income multiplied 14 times year-on-year in the six-month period from the same period of the previous year, which drove the profit up.

[email protected]