Citi Pharma Limited on expansion mode

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We initiate coverage on Citi Pharma Limited (CPHL), Pakistan’s largest and only listed manufacturer of Active Pharmaceutical Ingredient (API), with a ‘Buy’ rating and June-2023 Target Price of Rs47/share, offering a potential total return of 44% (including dividend yield of 6%).

CPHL is geared to reap the benefits of (i) favorable country demographics, (ii) increasing chronic/other diseases, (iii) rising health awareness, (iv) low per capita health care expenditure & its potential to grow, and (v) GoP’s increased focus on healthcare sector.

We believe that the company’s growth story is yet to be fully priced in as CPHL is set to become the only vertically integrated Pharma company listed at PSX with API manufacturing, Formulation and Hospital business. This warrants premium valuations as the company is set to post 5-year (FY23-FY27) revenue and earnings CAGR of 21% & 32%, respectively. CPHL is currently trading at FY22E and FY23F PE of 12.9x and 8.7x, respectively.

Key drivers for company’s revenue & earnings growth include: (i) expansion in API segment, (ii) expansion into high margin Formulation segment, (iii) vertical integration with the setup of Hospital business, and (iv) favorable sector dynamics.

Expansion in API Segment: This segment is the largest revenue driver for CPHL as it is expected to contribute ~94% to its total revenue in FY22. We expect API segment to continue driving CPHL’s revenues on the back of rising demand of Paracetamol (API of leading Pharmaceutical drug Panadol). CPHL has expanded Paracetamol’s annual production capacity by 67% from 3,600 tons to 6,000 tons in FY22. This will open room for CPHL to increase its Paracetamol market share from 50% to 70% by FY27.

Currently, 80-90% of the total country’s APIs (Paracetamol and other APIs) demand is catered through imports, mainly from India and China which creates huge potential for growth in this segment. We expect revenue of CPHL’s API segment to grow at 5-year (FY23-FY27) CAGR of 13%.

Expansion into high margin Formulation segment: CPHL also plans to expand into the Formulations segment which is a higher margin category. We expect gross margins from this segment to remain in range of 20-25% for FY23-FY27. The announced expansion includes increasing capacity of Tablets (from 2mn/day to 4.5mn/day), Capsules (from 0.1mn/day to 4.2mn/day), Suspensions (from 20,000 Bottles/day to 60,000 Bottles/day) and addition of Vial/Injectable manufacturing to 0.2mnVials/day. With the expansion of formulation manufacturing facility (expected to come online in 4QFY23), CPHL will also be providing toll manufacturing facility to leading pharmaceutical producers in Pakistan. We expect revenue of Formulation segment to grow at 5-year (FY23-FY27) CAGR of 56% due to low base.

Vertical integration with the setup of Hospital business: As part of its vertical integration strategy, CPHL also announced to enter into health care segment by establishing a 200 bed hospital facility in Lahore to cater the demands of a densely populated city. The hospital is expected to start operation by FY25. Pakistan currently has 5th largest population of the world and it is growing at ~2% vs global population growth rate of 1.1%. This will result in increased demand for Healthcare and Pharmaceutical products. Hospital is expected to contribute ~5-6% to total revenue of the company by FY25-FY27 and ~6-10% of total profitability by FY25-FY27.


Risks: Key risk to our investment thesis includes (i) delay in API & Formulation expansion, (ii) delay in regulatory approvals required to establish Hospital, (iii) higher than expected currency devaluation, (iv) higher than expected interest rates, and (v) economic slowdown.

Courtesy – Topline Securities

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