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Navana Pharmaceuticals Limited, a newly listed company that made its stock trading debut yesterday, logged a 158 per cent year-on-year rise in its financial expenses in the first nine months of the fiscal year 2021-22.
The company registered the staggering rise in expenses mainly due to the soaring amount of short-term loans it borrowed from lenders, said an equity note prepared by EBL Securities Limited.
The company’s short-term debts soared by as much as 144 per cent in the first nine months of fiscal 2021-22, which would likely hammer its profitability in the forthcoming quarters.
Meanwhile, the debt-equity ratio of the drug maker almost doubled to 87.6 per cent from 44 per cent in the previous fiscal.
Jounul Abedin, company secretary to Navana Pharma, told The Business Post that after the company came under new ownership in 2020, more loans were taken to increase the production volume but its board too adopted an aggressive marketing policy to thrive
its sales.
As the sales are becoming stronger due to the existing marketing policy, so the high debt would not put any ominous impact on the net profit, he claimed. Once a concern of Islam Group, its ownership was transferred to the current sponsors or directors back in October 2020.
However, Navana Pharmaceuticals never had any association with the Navana Group.
The drug maker’s share trading on the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) started on Tuesday.
The company raised a fund of Tk 75 crore from the capital market through an IPO under the book-building method.
Navana Pharma is involved in the manufacturing, marketing, and distribution of generic pharmaceutical finished products under two divisions— the human health division and the veterinary division.
As per the EBL Securities study, the profit margins of the company are much lower than that of the industry average.
In fiscal 2020–21, its operating profit margin and net profit margin were 10.1 per cent and 5.6 per cent, much lower than the average margins of the listed peer firms of 21.8 per cent and 14.6 per cent respectively.
Members of a single family, however, are dominant on the company’s board. So, any probable family disputes or conflict of interest could directly affect the prospect of the company, the EBL Securities equity note stated.
This was also identified as a latent business risk for the company.
As per the company’s financial statements, its short-term loans stood at TK 277 crore till March 2022. The amount was Tk 113 crore at the end of FY21.
Meaning, the loans jumped by around 144 per cent in the first nine months of FY22.
The company has to import a major portion of its raw materials from different destinations. So, any further devaluation of the Taka against the dollar might also affect its cost structure and profitability, EBL Securities said.
Navana Pharma might also witness a substantial decline in revenue generation from its exports as the company exports around 75 per cent of its outbound products to Sri Lanka only, a country which was currently undergoing economic turmoil, commented EBL Securities.
With the IPO proceeds, Navana Pharma is slated to spend Tk 23.24 crore for the construction of a new general production building, Tk 9.73 crore for the construction of a new utility and engineering building, and Tk 17.85 crore for the refurbishment of a
cephalosporin unit.
Once the expansion projects are operational, the company’s production capacity and output would increase by around 20 per cent, putting a positive impact on its revenue earnings as well, the EBL study read.
The company would utilise Tk 21 crore of the IPO proceeds to partially repay its short-term and long-term loans which would have an impact on the bottom line as the financial cost burden would be reduced to some extent.
The company’s shares closed at Tk26.40 per share on the Dhaka bourse on Tuesday.
According to the company’s audited financial statements for Q3, its net profit stood at Tk 6.8 crore against Tk 3.84 crore for the same period of the previous year.
Its basic earnings per share (EPS) stood at Tk 0.85 for the three-month (Jan-Mar’22) period ended in March 2022 versus Tk 0.48 for the same period of the previous year.
However, its post-IPO basic EPS for the three-month (Jan-Mar’22) period ended in March 2022 would be Tk 0.63.
