Highnoon Laboratories Limited

Highnoon Laboratories Limited (PSX: HINOON) was set up in 1984 under the Companies Act, 2017. The company manufactures, imports, sells and markets pharmaceutical and allied consumer products.

Shareholding pattern

As at December 31, 2020, the directors, CEO, their spouses and minor children hold over 22 percent of the shares of the company. Within this, Mr. Taufiq Ahmed Khan, one of the directors, and Mr. Tausif Ahmed Khan, the chairman, hold nearly 10 percent and 7 percent shares, respectively. Over 42 percent shares are with the local general public, followed by 13 percent shares in insurance companies. A little over 8 percent shares are with the foreign companies, while the remaining 14 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a rising topline with the exception of CY12, when it contracted by over 16 percent. Profit margins have also largely remained stable over the years.

During CY16, topline grew by 15 percent. A large part of the company’s revenue is generated through local sales. During the year, both local and export sales witnessed a rise, by over 12 percent and nearly 4 percent, respectively. Segment-wise, alimentary tract and metabolism segment saw a 17 percent rise in its revenue, 29 percent in respiratory segment, while the cardiovascular grew by 23 percent. The growth in latter was due to new products. With a marginal rise in cost of production, gross margin remained more or less flat at nearly 47 percent. With slight reductions in operating expenses, there was a marginal incline in net margin that was recorded at 10.6 percent.

In CY17, the company saw its revenue growing by nearly 18 percent. Both export sales and local sales witnessed growth, by 36 percent and 19 percent, respectively. Segment-wise, alimentary tract and metabolism grew by 18 percent, respiratory segment by 19 percent and cardiovascular by 23 percent. The company also has herbal portfolio that has received a decent response. On the other hand, cost of production reduced slightly that took gross margin 47.7 percent. However, the rise in distribution expenses, due to new product launches and expansion in sales personnel, had a negative impact on net margin; although the latter contracted very marginally, hovering around over 10 percent.

The company experienced one of the highest growth rates in revenue during CY18 at over 25 percent, crossing Rs 7.5 billion in sales. Export sales declined very slightly, while local sales saw a nearly 30 percent rise. Export sales were stagnant year on year due to “intermittent closure of border and change of distribution setup in Afghanistan”. Alimentary tract and metabolism segment grew by 20 percent, respiratory business by 27 percent and cardiovascular by 21 percent. On the other hand, despite the currency devaluation, the company managed to maintain its cost of production at 53 percent of revenue keeping gross margins close to 47 percent. However, the rise in distribution expenses due to product launches and continuous expansion of sales personnel, net margin reduced to 9.7 percent.

Highnoon Laboratories continued on its growth trajectory as revenue increased by over 20 percent during CY19. Forbes magazine listed it as one of the high-performance companies in Asia. While export sales continued to remain stagnant, local sales registered a 24 percent incline; overall, volume growth was 10 percent compared to industry’s growth at 2.4 percent. All the segments registered a growth in their sales revenue, the cardiovascular division in particular, that grew by 39 percent. Currency devaluation led cost of production to increase to 54 percent of revenue, but it was offset by decreases in operating expenses. This, coupled with a rise in other income allowed net margin to improve to nearly 11 percent for the year. Other income primarily increased due to return on deposit.

Recent results and future outlook

Despite the outbreak of Covid-19 that wreaked havoc across the world, Highnoon Laboratories continued to grow its revenue, at 18 percent during CY20, reaching over Rs 10.7 billion in value terms. Both export sales and local sales witnessed a rise, by 41 percent and nearly 19 percent, respectively. Local sales alone contributed over 94 percent of revenue. Cardiometabolic segment stood at Rs 3.2 billion while the respiratory product Combivair was the first brand of the company to cross the Rs 1 billion mark. The higher revenue was reflected in the higher gross margin that was recorded at an all-time high of nearly 48 percent. Combined with a higher than usual other income and a curtailment in distribution expense, net margin was also recorded at its highest of over 13 percent.

Given the consistent double-digit growth in revenues, combined with a maintained cost situation, it is likely that Highnoon Laboratories will continue to grow. Considering the uncertainty that has increased with the event of the Covid-19 pandemic and the ongoing third wave, it becomes all the more critical to ensure sustainable cash flows and cost effectiveness.