Square Pharma rises above peers, passing tests of tumultuous time

Square Pharma stands out among the drug makers, having successfully navigated economic storms of FY23 with efficient inventory management and non-operating income.
While currency devaluation, pricier raw materials, and energy price hikes ate up huge chunks of profits, leading to a 9.4-54.6 per cent year-on-year decline in annual income of its peers, Square Pharma has reported record profit -- Tk 19 billion -- for FY23.
Square's income grew at a rate of 4.45 per cent year-on-year in FY23, which, according to Moniruzzaman, managing director of Prime Bank Securities, was an outcome of an excellent performance in a turbulent weather.
"The company's profit would have been much higher if there were less impact from currency devaluation, price hikes of raw materials and rising energy costs," said Md Zahangir Alam, chief financial officer at Square Pharma.
On the other hand, Renata, Beximco Pharmaceuticals, and Beacon Pharmaceuticals suffered a dent in their income, which was deeper and wider depending on how much of the excess cost could be passed on to consumers.
Moniruzzaman said the take's persistent decline in value against the dollar and deferred LC (Letter of Credit) settlements due to the shortage of greenbacks had shrunk the scope of profit for drug makers.
Pharma companies could adjust prices of only 20 per cent of the products manufactured. Moreover, there was a spike in operating expenses due to inflation and utility price hikes.
Renata reported a seven-year low profit for FY23.
Its costs of raw materials jumped 25 per cent year-on-year due to currency depreciation alone, while energy costs soared 72 per cent, said the company.
The excess cost dragged the profit by 54.6 per cent to Tk 2.32 billion for FY23, compared to the previous fiscal year.
Renata could not secure a profit growth as its core business did not support the balance sheets. Like other drug makers, Renata could not adjust their product prices in line with the rise in production costs.
Sarwar Ali, chairman of Renata, said the company was rebounding, which was reflected in its year-on-year profit growth in the first quarter of FY24.
Beximco Pharmaceuticals saw a 9.4 per cent year-on-year drop in consolidated profit to Tk 4.52 billion in FY23.
It had taken up expansion projects a few years back, with foreign debts, which kept interest payment high.
Also, Beximco Pharma had acquired Novista and Sanofi-Aventis, which had an impact on the balance sheets, said Asif Khan, chairman of EDGE Asset Management.
In an earnings disclosure, the organisation said it had a non-recurring pre-tax income of Tk 619 million as vaccine distribution fee under a contractual agreement in the previous fiscal year, which was why the profit for FY23 went down.
Company secretary and chief financial officer of Beximco Pharmaceuticals could not be reached for comments on the company's business performance.
The profit of Beacon Pharma declined 45 per cent to Tk 510.51 million for FY23, compared to the previous fiscal year. It had exhibited an upward trend in profit for three fiscal years until FY22.
What mattered most in Square Pharma's profit growth
Square Pharma had a cost advantage maybe because of an inventory already built at the peak of commodity price cycle, Moniruzzaman said.
The FE collected a copy of the financial report for FY23 from the leading drug maker to learn that Square Pharma has maintained a focus on inventory management to ensure a good backup of raw materials ever since the Covid outbreak.
Keeping raw materials stored ahead of time caused a fall in consolidated net operating cash flow from Tk 14.52 per share for FY22 to Tk 9.64 per share for FY23.
However, the inventory backup helped the company to keep operations uninterrupted amid the difficulties in LC opening and settlement.
Square Pharma also had a significant 18 per cent year-on-year growth in non-operating income to Tk 4 billion in FY23. Also, profits from the associates, including Square Textiles and Square Hospitals, rose 25 per cent to Tk 2.52 billion for FY23.
It saw a 15 per cent hike in the cost of raw materials and a 38 per cent surge in energy costs in FY23, compared to the previous fiscal year. On top of that the overhead cost rose 22 per cent year-on-year in FY23.
Still, a 9 per cent revenue growth in FY23 from the year before resulted in a 4.45 per cent year-on-year rise in profit in FY23.

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