SEARL plans to carve out Searle Pakistan

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According to a PSX notice, SEARL has in principle approved the 100% disposal of its 90.61% shareholding / control in Searle Pakistan (SPL) – formerly OBS Pakistan. This follows SEARL’s initial intention to explore different investment options to improve the liquidity position of SPL which is significantly leveraged (debt/equity: c. 45%). SEARL was initially (i) reconsidering listing on the PSX by way of IPO, (ii) seeking equity investment through strategic partnership under JV, (iii) strategic sale of SPL or its business or (iv) placement of shares with multiple investors through private placement process. SEARL has not yet revealed its plans for the funds it receives from the disposal.

This will help deleverage the business and improve liquidity

Searle Pakistan contributed c.PKR650mn in net profits (EPS: PKR1.27) in FY23 with total assets of PKR19.8bn. The total investment in SPL stood at c.PKR15.8bn funded through a LT Musharika facility from HBL to the tune of PKR10bn and the remaining from issuance of right shares (net acquisition cost was PKR8.6bn). We think carving out of SPL would lead to a negative impact on operating profits but a positive impact on the net earnings due to a significant drop in finance costs – we expect this to more than halve following the disposal. Currently SEARL’s debt to equity ratio stands at c.45%, which we expect to drop to c. 20% following the disposal.

About Searle Pakistan:

Searle Pakistan (formerly OBS) is one of Pakistan’s top corporations in the healthcare segment and is a leading producer of iron sucrose injections (brand name: Venofer) which contributes c. 30% to the overall topline. SPL has a relatively small drug portfolio where top 5 drugs contribute c. 65% to the overall topline, all of which fall in the National Essential Medicines List. These are primarily concentrated in the following segments: Nephrology, rheumatology, cardiovascular and antibiotics, etc. The portfolio has increased SEARL’s presence in the scheduled drugs category. SEARL had initially planned to list Searle Pakistan at an estimated cPKR5bn with the proceeds to be utilized for expansion in the Intravenous segment. However, SEARL acquired Searle IV Solutions in August 2023 via a right issuance.

Courtesy – IMS Research 



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