Techno Drugs Limited, a manufacturer of human and animal pharmaceuticals, is expanding its production facilities to address increasing market demand. The newly listed company on both stock exchanges has commenced commercial production in its hormone, penicillin, cephalosporin, and implant units.
This development was highlighted in an equity note issued by EBL Securities Ltd., a leading brokerage house in the country.
Techno Drugs Limited began trading on the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) under the 'N' category on Sunday. The newly listed shares saw an impressive 10 per cent increase, reaching Tk 26.40 on their first day of trading.
This milestone follows the company's successful initial public offering (IPO), through which it raised Tk 100 crore using the book-building method.
After successfully raising Tk 100 crore through the IPO following the regulatory approval from the Bangladesh Securities and Exchange Commission (BSEC) on March 7, the company states that the funds will be strategically utilised to fuel the company's growth and financial stability.
Specifically, the company states that Tk 27 crore will be allocated for the purchase of new machinery, Tk 25 crore for expanding the existing factory in Narsingdi, and Tk 30 crore for repaying bank loans.
Additionally, Tk 15 crore will be invested in constructing a new production unit in Gazipur, with the remaining amount covering IPO-related expenses.
The cut-off price for Techno Drugs' shares was set to be Tk 34 through electronic bidding by institutional investors, which took place from April 21 to April 24, while general investors, including non-resident Bangladeshis, benefited from a 30 per cent discount, acquiring shares at Tk 24 each.
Oversubscribed by 24.64 times
The IPO subscription, conducted from June 10 to 13, was overwhelmingly successful, being oversubscribed by 24.64 times. The company received Tk 248 crore against the Tk 100 crore worth of IPO shares, according to the DSE.
Each general investor was allocated 11 IPO shares, while non-resident Bangladeshis received 20 shares per Tk 10.
Incorporated in September 2009 and commencing commercial operations in July 2010, Techno Drugs Ltd has rapidly established itself as a key player in the pharmaceutical sector.
The company is a leading supplier of contraceptive hormonal medicines to the Directorate General of Family Planning under the Ministry of Health and Family Welfare.
Beyond its domestic success, Techno Drugs has expanded its reach internationally, exporting to India, Germany, Nepal, and the Philippines.
As of FY23, revenue from healthcare products accounted for 26.85 per cent of the company's total revenue, reflecting the market impact.
Heavy reliance on govt tenders
Regarding this, the EBLSL equity note addresses a critical concern for Techno Drugs Limited: the company's heavy reliance on government tenders for revenue generation. This dependency poses a significant risk, as reducing government tender calls can affect revenue.
This vulnerability was starkly illustrated in FY'23, when a lack of government tenders resulted in a 45.6 per cent revenue decline.
The equity note further states that Techno Drugs has begun expanding its production facilities to meet growing demand and has started the commercial production of various products detailed above. The construction of the remaining facilities is expected to be completed by December 2024, with commercial production beginning in January 2025.
With the completion of the expansion, Techno Drugs expects a significant 34.8 per cent increase in production capacity, rising from 489.22 million units to 659.55 million units. Additionally, according to the equity note, the company projects a notable improvement in its capacity utilisation ratio, which is set to increase from 40.3 per cent to 79 per cent.
Alongside improving capacity utilisation, Techno Drugs will also benefit financially from its new status as a listed company. Previously, as a non-listed manufacturing entity, the company was subject to a tax rate of 25 per cent. Now, being listed on the stock exchanges, the drug maker will enjoy a reduced tax rate of 20 per cent. This tax reduction will enhance the company's profitability, allowing it to report higher net profits.
Techno Drugs Ltd operates in a highly competitive landscape within the human and animal drug industries, contending with major players such as Renata, Acme, ACI, Square, and Incepta Pharma.
In FY23, the newly listed company generated 68.1 per cent of its total revenue from the sale of animal drugs, with the remaining revenue generated from its human drug sales.
Notable fluctuations
A recent report by BRAC EPL Stock Brokerage highlighted the financial performance of Techno Drugs Ltd from FY19 to FY23, a period marked by notable fluctuations in growth, profitability, liquidity, leverage, and operational efficiency.
The company's revenue growth experienced a significant decline of 7 per cent in FY19, followed by a remarkable recovery with a 90.7 per cent increase in FY20. This upward trend continued in FY21 with a 30.9 per cent rise but then sharply declined by 45.6 per cent in FY23.
Meanwhile, operating profit mirrored this volatility, surging by 70.1 per cent in FY20 before dropping by 42.2 per cent in FY23.
Net profit peaked with a 120.6 per cent increase in FY21 before falling by 59.3 per cent in FY23.
Additionally, profitability ratios also fluctuated during this period. However, the gross margin remained relatively stable between 36.1 per cent and 42.4 per cent, while the net margin and return on equity exhibited more defined changes.
The net profit margin reached 10.5 per cent in FY19 but dropped to 7.2 per cent by FY23. Return on equity peaked at 29.2 per cent in FY21, then sharply declined to 7.8 per cent in FY23.
