COMPANY OVERVIEW

COMPANY BACKROUND
Beximco Pharmaceuticals Ltd. is the leading Pharmaceutical Company of
Bangladesh. .It involves for manufacturing and marketing of pharmaceuticals finished
products and active pharmaceuticals ingredients. BPL is the pioneer pharmaceuticals
company in all its activities related to international markets in Asia. It also pioneered
to enter into CLS countries and Africa. It has major export market in Bhutan,
Cambodia, Czech Republic, Germany, Hong Kong, Iran, Iraq, Kenya, Singapore, Sri
Lanka, Thailand, Ukraine, Vietnam, and Yemen. It has 50000 shareholders and 1385
employees. A S F RAHMAN is the chairman and SALMAN F RAHMAN is the vice
chairman.The board of directors of BPL comprise of 11 members with Mr. A S F
Rahman as chairman and Mr. Salman F Rahman as Vice Chairman. The primary
concern of the board is to ensure that the overall activities of the business are
conducted responsibly and with focus on long term value creation. There is a four
member Executive Committee for closer monitoring of business performance and to
provide operational guidance. The responsibility to implement EC decisions and
supervision of day to day business affairs of the company lies with the management
committee. The committee consists of functional heads of different operating
segments and is headed by CEO. BPL is the first company to receive National
Export Trophy in 1994-1995 Which was the very first year of introduction of such
award by the government of Bangladesh .This is the highest national recognition for
excellence in export. Beximco Pharmaceuticals Ltd. has also been awarded National
Export Trophy recently for two consecutive years 1998-1999 & 1999-2000. it is the
only to be the record 3 times winner of this award for its outstanding export
performance.

RECENT PERFORMANCE
The recent performance of the company is good compared on year-over-year.
Beximco pharmaceuticals limited is the first company to receive National Export
Trophy (Gold) 1994-1995,1998-1999 and 1999-2000.it is the only company to be the
record 3 times winner of this award for its outstanding export performance. Their
performance clearly indicates that, they have made their organization a leading one.
They have
Successfully integrated Beximco Infusions Limited.
Net sales increased by 11.3% to Tk 3702.32 million.
Profit before TAX increased by 7.8% to Tk 523.24 million.
Declared cash dividend of 7% par value.
Beximco Pharma entered into 4 new overseas markets namely Ghana,
Bostwana Belize, & papua.
It registered 79 new products in existing overseas market
Beximco pharma is the first Company in Bangladesh which introduced 5 anti
retroviral medicines for HIV/AIDS.
It also introduced Oral Anti smoking drug.
Beximco Pharma Created many vibrant brands like Napa, Neoceptin-R
Amdocal, Neofloxin, Tycil, Omastin, Amazol, Bexitrol-F, Atova, Bextrum
Gold etc.
1

Beximco pharma introduced Oseflu in Bangladesh market to combat the

growing threat of Birdflu.
Started partnership with Bayer-AG with Germany, Upjohn Inj of USA, Roche
of Switzerland, Pharma Italia Carlo Erba of Italy in 2005.
Became the first and only company to get listed in the LSE (LONDON
STOCK EXCHANGE) from Bangladesh.

PERFORMANCE ANALYSIS

Ratio Analysis
Solvency Ratio:
Solvency ratio refers to the firms ability to meet its future short term obligations. We
will use four key ratios to measure our companys solvency condition. Current ratio is
satisfactory, but in the financial year of 2006-2007 it has declined to 1.33. Current
ratio for Beximco pharma is 1.42 on an average. It might be able to meet its short
term obligations. While employing cross sectional analysis we have found an industry
average of 1.30 which suggests that current ratio of Beximco pharma is better. Quick
ratio serves a clearer picture of solvency position of the company because it excludes
less liquid component like inventory. Quick ratio is increasing over time but in the
financial year 2006-07 is .63.Beximco Pharmas average quick ratio is 066. It shows
lower pattern compared to the industry average which is 0.68. So it does not indicate a
good liquidity position. Inventory Turnover ratio for Beximco pharma is 1.77 on an
average and by historical time series analysis it shows an upward trend though the
ratio seems to below the industry average, 2.64. We have also tried to calculate
average collection period and it is very high (average 72.46 days) and also showing an
increasing trend. It is substantially high compared to the industry as well. The low
inventory turnover value& long processing time implies that capital is being tied up in
inventory and could signal obsolete inventory.

Efficiency Ratio
The efficiency ratios examine how the management uses its assets and capital, measured in
terms of sales generated by assets or capital categories. Fixed asset turnover ratio of Beximco
pharma tends to decrease on recent days. The average of fixed asset turnover ratio is .44 times
which are lower compared to industry average. In case of Total Asset Turnover, it has been
maintaining a fluctuating situation for the last couple of years. Total asset turnover ratio of
Beximco pharma is .31 on an average. As our companys capital is tied up in excess asset.
The total asset turnover ratio is more stable than the fixed asset turnover which implies that

fixed assets are more critical in generating sales. It also indicates low sales revenue tend to
have low asset turnover.

Profitability Ratio
It indicates Profit as a percentage of sales and percentage of capital employed. Our Firms
Gross Profit Margin is 41.55% which is substantially higher than the industry norm. Gross
profit margin has shown increasing trend . On the other hand, Operating Profit margin is
20.83% on average which is substantially lower and different from gross profit margin. It
implies that they have a very high marketing, selling and administrative costs. Though
operating profit margin showed downward trend but the Net profit margin is declining.
Another two important profitability ratios are return on equity and return on asset. The ROE
of Beximco pharma is basically showing an decreasing trend over last 5 years Our firms
average is also 5.63%. The percentage of income in terms of equity is quite bad. But through
a further Dupont analysis, we can make sure what factors are responsible for this ROE. If we
break down ROE, we will get three other ratios, they are profit margin, total asset turnover
and financial leverage. As we have discussed earlier our profit margin is low and asset
turnover is low, the reason for low return on equity is for abnormally low financial leverage
ratio which results financial risks.

Financial Risk: Debt to equity ratio measures the extent of financial risk of the firm.
The debt to equity is ratio quite low with an average of .28 for five years .That means on an
average the debt is almost .28 times lower than the equity financing which reduces financial
risk and the probability that it will finally able to meet its obligations.. The ratio of interest
coverage has also declined substantially and on the final year of operation the ratio is only
2.95 times due to increased interest expense and low operating income. The leverage ratio
fluctuates over time.

PROSPECTIVE ANALYSIS
Part A: Pro forma Statements
Pro forma Statements are projected financial statements for the forthcoming years. We
have used 5 years historical data (2002-2003 to 2006-2007) and prepared another 5
years Pro forma income statements and balance sheet. To facilitate the work, we have
also prepared the common sized statements which expresses each number as a
percentage of sales. The working capital are prepared by the pro forma income and
financial statements. The Pro forma statements are prepared according to these
assumptions:

Income Statement

Sales
Cost of Sales
Selling, General & Administrative
Expenses
Depreciation
Other Net (income)/Expenses
Finance cost

Income tax

Welfare fund
Balance Sheet
Assets
Cash and Marketable Securities
Accounts Receivable
Inventories
Other Current Assets
Property, Plant and Equipment,
Gross
Other Non-Current Assets
Accumulated Depreciation
Loan, Advances and Deposits
Liability and Shareholders
Equity
Accounts Payable
Short-Term Debt
Income tax payable
Accrued Expenses
Long term Borrowing current
maturity
Dividend payable

Will grow at 11.6%, based on historical growth rate

49% of sales, as a percentage of sales
21% of sales, based on percentage on sales
1.4% of Gross PP&E, based on analysis of depreciation
schedules
-.48% of sales, based on historical average
Finance cost is calculated based on project loan,
specifying interest rate 13% which is repayable in half
yearly installments ending by 2012(specified on the annual
report-2006).
Forecasted income tax is calculated in accordance with the
requirements of BAS 12: Income Tax. Thus the applicable
tax rate is 30% because the company qualified as a
Public Traded Company
In case of welfare fund, the act of the Bangladesh Labor
Law is followed. It is 5% of net profit before tax.

6% of sales based on historical average

20% of sales, based on historical average
51% of sales, based on historical average
6.3% of sales, based on historical average
Will grow at 17% per year, by observing historical growth
The investments in shares represents 5.4 % of total issued,
subscribed and paid up shares of Beximco
pharmaceuticals ltd.
Calculated from Other Items
17% of sales , based on historical average

7.5% of sales, same as historical average

Use to balance the balance sheet (plug), but cannot be
negative
1.4% of sales , based on historical average
4.2% of sales, based on historical average
51% of long term debt
.1% of sales, based on historical average

Long- term Debt

Will grow 23.06% , based on historical average

Deferred Income Tax

2% of sales , based on historical average

Other Non current liabilities

6% of sales, based on historical average

Issued Share Capital

Will remain unchanged

Share premium

Will remain unchanged

Tax holiday reserve

40% of net income specified by tax ordinance 1984

Capital Reserve

Will remain unchanged

Paid in capital

Will remain unchanged

Retained earnings

Calculated from other items

Part B: Valuation
P/E Method: Beximcos P/e ranged 8.57x- 11.50x with an average of 12.43x over
last 5 years. Current P/E is less than both the historical average and industry. WE
believe forecast P/E will be close to the higher end and will be higher than the
average.
P/E
Average

2002
8.57

2003
13.42

2004
19.55

2005
9.09

2006
11.50
12.43

The valuation is done in an integrated manner with the Proforma statements. The
estimates of projected sales, COGS, Selling, general and administrative, EBIT,
Depreciation are same as the Proforma statements. The estimates of working capital
are provided in a separate work sheet which is appendix. Other Key assumptions are:

Discounted Cash flow method

Key assumptions are:
1. Revenue is expected to grow CAGR of 10% for next 5 years
2. Depreciation and Capex are also expected to grog at 3 year CAGR
3. Cost of Debt= 10 years Treasury + spread for A rating
4. Marginal tax rate 30%
Here forecast Equity per share is 66.37.Beximcos recent market price is 53.70.So
value per share will exceed current market price , tk 53.70.We conclude that the stock
will be undervalued in the market. So investors will want to buy more of Beximcos
share because they will follow a passive strategy.

ANALYSTS THESIS

Beximco pharmaceuticals relative performance in recent years has been a good one. It
has consistent positive growth and I believe Beximco pharmas performance will
continue to improve with economic growth.
In addition to this, Beximco pays flactuate dividend. Following table shows dividend
yield for last 5 years.
Dividend
yield (%)
Average

2002
5.49

2003
5.8

2004
3.7

2005
3.18

2006
3.00

On average dividend yield was 4.23%.

4.23%