Equity Valuation Report on Square Pharmaceuticals Limited (Update)

(This document has been prepared by the Research team of EBL Securities Limited) for information only of its clients. No part of this report should be copied or used in any other report or publication or anything of that sort without any reference given or permission taken from the authorized publisher of this report)

Pharma, the multi billion industry of the country, has Expected to grow at CAGR of 15% over the annual turnover over BDT next 5 years 205 bn now Square is the market leader since 1985

Quality , Innovation & Square Pharma Corporate governance Holds 16.95% leads to be the number market share one in Pharma Industry.

Square was in High Growth Trajectory which may slow down due to stiff competition

Consistent 26.24% Mix of 12.20% 8.20% 10.45% Cash and Stock Dividend Historical Expected Historical Expected 5 Years Revenue CAGR 5 Years NPAT CAGR

Square Pharmaceuticals Kenya Limited, a wholly owned subsidiary in Kenya, is likely to bring the next growth story Project Initiation Commencemnet of Operation Investment June 7, 2017 2020 USD 7-8 mn

Capacity 2bn Tablets & 60 mn Bottles of EPZ in Athi River Liquid

10 year corporate income tax Mixture of Debt & Equity will holiday lead to tax shield

Square Pharmaceuticals Limited DSE: SQURPHARMA BLOOMBERG: SQUARE:BD Analyst: Current Price: BDT 248.3 Mohammad Rehan Kabir Valuation date: 23rd May, 2019 [email protected]

Company Fundamentals Government has declared 10% cash incentives for export Sector Pharmaceuticals & Chemicals of pharmaceutical products. Approximately 4% of Market Cap (BDT mn) 195,910 company revenue is generated from exporting pharma Equity Market Weight 5.7% products. Current export coverage to 42 countries and Paid-up Capital (BDT mn) 7,890.1 submitted several ANDAs to USFDA for approval. No. of Share Outstanding (in mn) 789.0 Free-float Shares (Inst.+For.+ Public) 65.6% The company is setting up a subsidiary manufacturing plant in Nairobi, Kenya. Square Pharma has invested BDT 1-Year Avg. Daily Turnover (BDT mn) 94.5 216.26 mn as share money deposit in this subsidiary as on 1-Year Avg. Daily Volume 349,067 June, 2018. Ground development and construction works Current P/E 15.62 for this formulation plant is underway which is expected Current P/NAV 3.03 to be completed by 2020. 52-week price range (BDT) 245.5-299.0 The company is allocated three plots in API Park in 2019-20 2020-21 2017-18 2018-19 Munshigonj. It is expected that the production cost will Exp. Exp. significantly decrease with the commercial operation of Financial Information (BDT mn) API Park. Net Sales 39,654 42,988 46,282 49,776 Square Pharmaceuticals Limited has 26 blockbuster drugs Gross Profit 19,564 21,463 23,141 24,938 among the top 100 medicines sold in Bangladesh EBITDA 15,846 17,831 19,524 21,115 according to IMS Q3 2018. Operating Profit 12,781 14,065 15,480 16,565 Profit After Tax 10,491 11,553 12,746 13,639 Square Pharma maintains large cash and cash Total Assets 61,273 70,140 80,003 90,713 equivalents. Current balance of cash and cash equivalent Total Debt 0 0 767 1,052 is almost equal to the replacement cost of their PPE. After Total Equity 57,841 64,659 74,760 84,847 Renata (Solo), Square Pharma has highest Operating Retained Earnings 46,159 52,242 61,832 71,328 Profit margin, Net profit margin in the Pharma Industry Cash 16,980 25,323 29,570 34,316 of Bangladesh. It’s latest ROA and ROE also exceeds its Dividend (C/B)% 36%/7% 40%/5% 50%/5% 60%/2.5% close competitors. Margin (50%/5 (60%/2.5 Square Pharma is an unlevered firm thus less vulnerable Gross Profit 49.3% 49.9% 50.0%%) 50.1%%) to interest rate movements. To avail tax benefits,

EBITDA 40.0% 41.5% 42.2% 42.4% company will use debt financing for its Kenya Subsidiary Operating Profit 32.2% 32.7% 33.4% 33.3% but due to tax shield this won’t have any noteworthy Pretax Profit 34.9% 36.0% 36.2% 36.0% impact on its net profit. Net Profit 26.5% 26.9% 27.5% 27.4% Pharma Industry is oligopolistic in nature where Square Growth Pharmaceuticals Limited is the market leader with 16.95% Sales 8.5% 8.4% 7.7% 7.5% of market share. But recently other players are also Gross Profit 7.1% 9.7% 7.8% 7.8% entering into the industry and rivalry becomes intensified Operating Profit 3.9% 10.0% 10.1% 7.0% resulted in market share lose by Square Pharma. Retaining Net Profit 7.9% 10.1% 10.3% 7.0% current share may become a challenge for Square Pharma Profitability in days ahead. ROA 17.1% 16.5% 17.0% 16.0%

ROE 18.1% 17.9% 18.3% 17.1% We initiated a valuation based on Discounted Cash Flow Payout Ratio 25.3% 27.3% 32.5% 38.3% method and Relative Valuation method while assuming next 5- PEG ratio 2.59 1.97 1.75 2.41 Years’ CAGR of revenue will be 8.20% (which is 12.20% now). Leverage Debt Ratio 0.0% 0.0% 1.0% 1.2% Price-Volume Movement of SQURPHARMA 2,000,000 Debt-Equity 0.0% 0.0% 1.0% 1.2% 350 VOLUME CLOSEP*

Altman Z-Score 40.7 28.1 30.6 28.9 330 1,500,000 Valuation 310 1,000,000 EPS (BDT) 13.3 14.6 16.2 17.3 290

NAVPS (BDT) 78.4 81.9 94.8 107.5 270 P/E 20.6 20.0 18.1 16.9 500,000 250 P/NAV (x) 3.7 3.6 3.1 2.7 EV/EBITDA 12.6 11.5 10.9 10.5 230 0 EV/Sales 5.0 4.8 4.6 4.4

Bangladesh Pharmaceutical Industry: the story of an emergent generic drugs hub in Asia According to Bangladesh Association of Pharmaceutical Industries (BAPI) and Directorate General of Drug Administration (DGDA), approximately 257 licensed pharmaceutical manufacturers are operating in Bangladesh and about 150 are Market Size of Pharmaceuticals Product of Pharmaceuticals Bangladesh and Growth (Amount In US Dollar Million) industry of Bangladesh functional. These manufacturing $2,500 40.0% Local Sales Growth has experienced a CAGR companies meet around 97% of local 35.0% 33.5% $2,000 of 15.6% in last 5 years, demand. Specialized products like 30.0%

expected to become an vaccines, anti-cancer products and 25.0%

$1,500 industry of $5.11b by 22.6% hormone drugs are imported to 20.0% 2023 with an expected meet the remaining 3% of the $1,000 16.3% 15.0% 15.0% 14.0% growth of 15% demand. 80% of the drugs produced 10.1% 10.0% in Bangladesh are generic drugs, rest $500 6.2% 5.0% 20% are patented drugs. According $797 $977 $1,136 $1,206 $1,375 $1,835 $2,020

$- 0.0% to Director General of Drug 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Administration (DGDA), the Source: Bangladesh Association of Pharmaceutical Industry & EBLSL Research industry has 29,351 registered of allopathic medicine, 2,400 registered Homeopathic drugs, 6,207 registered Unani Drugs, 524 registered Herbal drugs and 3,998 registered Ayurvedic drugs.

Domestic market value of Pharmaceutical products in Bangladesh has shown an increasing trend over the past few years and the market size is BDT 205.12 billion now1. However, this number does not reflect total market size because IQVIA report does not include homeopathic, unani, ayurvedic or herbal medicine information. According to industry experts, market size of pharmaceuticals may reach about $5.11 bn (or BDT 434.35 bn considering $1 = BDT 85) by 20232. According to Bangladesh Bureau of Statistics, the industry has contributed 1.83% to the GDP in

2017-18 at constant prices. Burgeoning Exports of Pharmaceuticals Product from Bangladesh- Currently Being Exported to 145 Countries around the World

According to Bangladesh Export Revenue of Pharmaceuticals Product and Association of Pharmaceutical Growth (Amount In US Dollar Million) Exports of Industries (BAPI), approximately $120.00 30.00%

Pharmaceuticals 1,200 pharmaceutical products $100.00 25.00% 24.0% products crossed $100 received registration for export

$80.00 20.00% mn benchmark in 2017- over the last two years and are 16.0% $60.00 15.7% 15.00% 18 with a 5-year CAGR being exported to more than 145 13.0% of 11.6%. Target for 8.9% countries including USA, UK, $40.00 10.00% 2018-19 is $112.19 on 8.1% 8.6% Australia and Africa. According to 4.9% which 89% have been $20.00 5.00% Export Promotion Bureau (EPB), $44.30 $48.25 $59.82 $69.24 $72.64 $82.11 $89.17 $103.46 achieved within 9 $- 0.00% months of this fiscal in the fiscal year 2017-18, 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 year Bangladesh has exported Source: Bangladesh Export Promotion Bureau & EBLSL Research pharmaceuticals product worth USD 103.46 million as against USD 89.17 million in 2016-17. Over the last 7 years, export revenue CAGR was nearly 10%. However, export sales only contributes 5.12% of pharmaceuticals market in 2017-18. Hence, the contribution of export sales in pharmaceuticals industry is low. Pharmaceuticals Company of Bangladesh can only sell different medicine to other country when they get approval of the particular medicine from the drug authority of that particular country. Approval from other country signifies that the local medicine has international standard which helps them to build a strong position in local market.

1 https://thefinancialexpress.com.bd/trade/a-handful-of-companies-dominate-pharma-mkt-1549424895 2 https://www.thedailystar.net/business/local-pharma-market-set-hit-511b-2023-1614133 2

Opportunities & Problems in Global Generic Drug Market for Bangladesh Opportunities in Global Generic Drugs Market for Bangladesh Pharmaceuticals industry of Bangladesh has tremendous opportunity to grow in the future. Bangladesh offers significant manufacturing cost advantages due to the lower cost of labor. Major generic hubs India and China are losing cost advantages. Cost of labor in Bangladesh is 3 to 4 time lower than that of China and India. Medicine price in Bangladesh is currently among the lowest in the world. As a result, Bangladesh has opportunity to export pharmaceuticals product more than India and China. At the same time, major producer of pharmaceuticals raw materials in India and China won’t be able to produce the patented raw material due to the restrictions from World Health Organization (WTO). Thus, Bangladesh can export to foreign countries easily.

Key drivers for growth of Pharmaceuticals company in Bangladesh Economic Growth of the country- one of the fastest growing economy in the world: In the year Population growth, 2017-18, Bangladesh has achieved GDP growth rate of 7.86%. It is expected that the GDP growth increase in income level may reach to 8.25% this year3. GDP growth rate outperformed the target growth rate of 7.4% of people, increase in and the country experienced 7%+ GDP growth rate since 2015-16. Considering the positive medical facilities and outcomes for ongoing US-China trade war, London-based Economic Intelligence Unit (EIU) has health awareness are the key growth drivers predicted that Bangladesh will experience a real GDP growth rate of 7.7% and above starting for Pharmaceuticals from 2018-19 to 2022-23 riding on increased private consumption and investment. Bangladesh industry in Bangladesh has entered the socio-economic classification of Lower Middle Income Group. It is targeted that Bangladesh will become higher Middle Income Group and Higher Income Group by 2021 and 2041 respectively. Better living standard will also followed by higher health care expenditures from both individual and government. Population growth rate- steady growth with growing life expectancy: Bangladesh is one of the densely populated countries in the world. Current population growth is 1.03%, with a birth rate of 18.8 Births/1000 Population and death rate of 5.4 Deaths/1,000 Population. This additional population with increased life expectancy will contribute to the growth of Pharmaceuticals sector of Bangladesh in days ahead. Growing income level of people and increasing MAC population may foster its real graduation to mid income status: Average income level of Bangladesh has increased. With the growing GDP growth, per capita income is likely to rise (currently stands at $1,909 and a target was set to reach it to $2,750 by 2023-24 by current govt.). Increasing MAC (middle and affluent class, median age of our population is 26.7 years now) gives indication of rising consumption demand in Bangladesh which will help the economy of Bangladesh to shift its gear to accelerate further. Thus, people have more money to allocate for medical expenditure. Increase in modern healthcare facilities to ensure quality healthcare services: Medical and Pharmaceutical facilities in Bangladesh are adopting modern technology. This will largely contribute to the growth of Pharmaceuticals industry of Bangladesh. Health awareness of mass people: People of Bangladesh is becoming aware of health day by day. Increase awareness of health and high life expectancy will lead to the growth of pharmaceutical sector of Bangladesh. Major problems in export include lack of backward linkage, lack of modern testing laboratory and non-existence of bioequivalence test facility Lack of Backward Linkage: Pharmaceutical sector in Bangladesh has advanced mostly in the production of finished drugs. At present, we are greatly dependent on other countries for importing raw materials for the production of finished products. Currently, more than 90% of raw materials are imported. The govt. has taken an initiative to establish an API park by June 2020 and the work is going on. However, the country needs more API parks to strengthen its

3 https://www.dhakatribune.com/business/2018/09/06/gdp-growth-rate-expected-to-reach-8-25-this-year 3

backward linkage. Recently NBR has granted VAT waiver for API importers upon fulfillment of some conditions till 20254. Lack of Modern Drug Testing Laboratory and Insufficient R&D: The drug testing laboratory is the central quality monitoring facilities of drug authority of Bangladesh. It is not modern and well equipped. So, our drug control authority faces problems in monitoring the quality of drugs manufactured by different companies. Foreign buyers and regulatory authorities also raise question about the status of our drug testing laboratory. Besides, investment in R&D isn’t adequate and major players have less than 1% of sales amount been invested in R&D. Disease profile of people is varying, thus to ensure our self-sufficiency and meeting global standard for exporting purpose we should invest more on R&D. Lack of Bioequivalence Test Facility: Bioequivalence test of a product is must to be registered in many regulated and moderately regulated countries. In our country, there is no bioequivalence study center at present. In order to register a product, a pharmaceutical company has to carry this test in foreign country by spending a huge testing charge. The cost of Bioequivalence for oral dosage is between USD 100,000 to 300,000 and more in some other countries5. For this reason, many local manufacturers don’t show interest in registering their products in other countries to export. High Registration Fees of Importing Countries: Regulatory authorities of importing countries charge high registration fees. It creates obstacles to the small manufacturers to register their drugs for export as the higher registration fees might result in lower profitability for them. Therefor only big companies are taking the opportunities and market is limited for those companies only.

Market Position of Different Market Share of Top 10 Companies Companies- an industry Top 20 Companies Annual Sales*(Cr) Market Share which is oligopolistic in dominate the nature and few key players 1 Square Pharma 3476.25 16.95% pharmaceuticals dominate the whole 2 Incepta Pharma 2272.99 11.08% market; holds about industry 3 Beximco Pharma 1694.26 8.26% 87.01% of pharma Pharmaceutical companies market share (top 10 in Bangladesh usually 4 Renata 1066.43 5.20% holds 68.12% of the provide branded-generic 5 Healthcare Pharma 1061.07 5.17% market share. product as a result of which 6 Opsonin 1042.53 5.08% established brands become 7 A.C.I. 898.79 4.38% able to charge premium for 8 Eskayef 895.71 4.37% its products. According to 9 Aristo Pharma 842.48 4.11% IQVIA 2018 data, top 10 10 Acme 721.66 3.52% companies hold 68.12% of Source: IQVIA 2018 (Extracted from New Age)6 Pharma market share. *Annual Sales represent company sales of Pharmaceutical products only. Companies that secured position ranging from 11th to 20th on the basis of their relative market shares hold 18.97% market share. Summing up, top 20 companies hold 87.01% market share, leaving 12.99% market share to other existing companies (Source: IQVIA 2018 Q1). Thus the industry is oligopolistic in nature. The Pharmaceuticals market is concentrated among few local companies only and entry barrier is higher due to large capital investment and legislative bindings. Square Pharmaceutical is the market leader having 16.95% market share followed by Incepta, Beximco and Renata. The above table shows the current market share held by leading pharmaceutical companies as per IQVIA 2018 data.

4 http://thefinancialexpress.com.bd/editorial/vat-waiver-for-api-producers-1557591040 5 Pinheiro Edos S, Bruning k, Macedo MF, Siani AC (2014) Production of antiretroviral drugs in middle and low income countries. Antivir Ther 19 (Supple 3): 49-55. 6 http://www.newagebd.net/article/63935/top-10-pharma-cos-keep-holding-nearly-68pc-of-market-data 4

Recently, 19 companies planned to invest BDT 6.55 bn to setup their facilities7. These will intensify competition among the major players. These companies have completed setting up their facilities and they will start operations within the next 1.5 years.

Sl. No. Investors BDT (mn) Sl. No. Investors BDT (mn) 1. JR Pharmaceuticals 106.0 6. Promixco 47.5 2. Bimco Animal Health 92.6 7. Vision Drugs 47.0 3. AFC Agro Biotech 75.0 8. Lilian Pharmaceuticals 40.4 4. Senetive 50.0 9. Peartop Pharma 34.5 5. Inver Pharmaceuticals 49.0 10. Doctors Industries 10.5

Pharmaceutical Industry in Bangladesh is still in ‘developing’ phase which may contribute to further growth of pharmaceutical industry in Bangladesh

API Park: Pharmaceuticals industry of Bangladesh is dependent on imported raw material for An API Park is going to manufacturing drugs. According to International Trade Administration, about 80% of raw be established in material is imported. Main suppliers of raw material are India, China. Bangladesh Small and Munshigonj to reduce Cottage Industries Corporation (BSCIC) has begun the work of setting up Active Pharmaceuticals the dependency of Ingredients (API) Park on 200 acres of land at Baushia, Gazaria, Munshigonj in 2008. The park is imported raw materials being built under the public-private initiative with the Bangladesh Association of Pharmaceutical Industries (BAPI). After revising third time, the estimated cost of the project was BDT 3,810.0 million. There will be about 42 number of plots to be set up. The cost of each acre of land is estimated as BDT 31 million. The Companies will get 10 years’ time to pay for the plot. There are 29 plots in “A” category (3.55 acre each), 4 plots in “B” category (3.00 acre each), and 9 plots in “S” category (2.5 to 5.0 acre). 32 member companies of BAPI has applied for 57 plots. All After the third revision of infrastructural facilities including Common Effluent Treatment Plant (CETP) and Waste Dumping ‘API industrial park’ Yard will be available in this project. The cost of the Common Effluent Treatment Plant (CETP) is project, with an estimated as BDT 800 million, to be established by the companies. With the completion of API additional costs hike of Park, Bangladesh will be able to decrease the cost of locally manufactured drugs and it will add BDT 800 mn, the project to the cost advantage for exports. API can also be exported to other countries. Currently, Global is expected to be API market stands at USD 162 billion (as on December, 2017 and is expected to reach USD 257.46 completed by June 2020. bn by 2026). It is to be noted that major raw material supplying countries such as India and China are not legally able to produce the patented raw materials due to the WTO restriction. At the same time, The Government of Bangladesh has declared Pharmaceuticals sector as thrust sectors (in 2018, Pharmaceutical Products were named as Product of the Year 2018). This gives immense opportunity for Bangladesh to export API to these countries. It has been announced that Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited has been approved three plot in the API Park. Trade Related Aspect of Intellectual Property Rights (TRIPS): Being a least-developed country, As a least developed Bangladesh has been exempted from the obligations to implement patents and data protection country, Bangladesh is for pharmaceutical products till 2032 by the World Trade Organization. As a result, Bangladesh enjoying TRIPS waiver up is allowed to produce any patented medicines without taking prior permission from innovator. to 2032 Also, Bangladesh has the opportunity to export to any country if the medicine is not under patent.

7 https://www.thedailystar.net/business/news/19-firms-invest-tk-650cr-pharma-1721332 5

Competitive Structure of the Pharmaceuticals Industry in Bangladesh i.e. shape of the industry Threat of new entrants of the industry: Low A company that wishes to enter into pharmaceuticals industry requires huge capital expenditure and regulatory permission from the drug authority, these create significant barriers to enter into the industry. Furthermore, customer’s loyalty towards established brands, access to distribution channel, relationship-based marketing (through marketing representative) create further barriers. All these cause threat of new entrants in the industry significantly low. Threat of substitute product: High The retail consumer of pharmaceutical products often switch from one brand to another. There

Threat of New are many substitute brands of single generic medicine. If consumer does not find one brand, Entrants he/she switches to another brand very quickly. Besides, sometimes people have a tendency to

Bargaining purchase medicines from a specific dispensary only. Unavailability of any brand to that specific Intensity of Power of Competition Suppliers dispensary sometimes cause customers to switch to another brand. Thus, the threat of substitute product in pharma industry is very high. Bargaining Threat of The bargaining power of buyers: Low Power of Substitution Buyers The government strictly maintains the retail price of the medicine. Furthermore, the buyers are not concentrated and possess low bargaining power while fixing price of the pharma products. The bargaining power of the supplier: High Currently, Bangladesh imports 98% of raw materials of pharmaceuticals industry; mainly from China and India. Bangladesh can also import API from European suppliers also. But, it will incur more cost if Bangladesh imports raw material from European supplier. Concentration of the supplier and high switching cost create high bargaining power from the supplier. Rivalry among the exiting competitors: High The pharmaceuticals market is highly concentrated. Top 20 players dominate the lion share portion of the market. Every company has the same medicine in different brands. The companies are competing with each other fiercely in order to grab the market share. Square Pharmaceuticals Limited- A Flagship Company of giant Square Group that holds leadership position in the industry for more than last 3 decades Square Pharmaceuticals Limited is the manufacturer, marketer and distributor of

Square Pharma is the pharmaceuticals drugs, medicine, basic chemicals, animal health product, agro vet and pesticide flagship company of products. The Company’s product portfolio consist of 669 pharmaceuticals product, 74 agrovet Square group and market product, 32 pesticide, 14 pellet product and 8 basic chemicals. The products of Square leader in Bangladesh Pharmaceuticals Limited are available in different forms like tablet, capsule, injection, infusion, pharmaceutical industry dry powder, ENT preparation, Opthal preparation, suppository, insulin, pellet etc. Square since 1987; first company Pharmaceuticals Limited is renowned for its world class pharmaceuticals product. Square ever from Bangladesh to Pharmaceuticals Limited became market leader in 1987 among all the national and multinational get UK MHKA approval in companies. Since then Square Pharmaceuticals Limited stayed as the market leader for the last 2007; was the product 31 years. Square Pharmaceuticals Limited was the first company ever from Bangladesh to get manufacturer of Johnson & Johnson UK MHRA (United Kingdom Medicines and Healthcare products Regulatory Agency) approval in 2007. The company secured permission to manufacture product on behalf of Johnson & Johnson, Belgium in 1972 with their prescribed formula. After securing a contact with Johnson & Johnson, Square Pharma produced only Johnson and Johnson brand product. However, the contact become void in 1982 when the government changed their policy in this respect. Currently, the company has an agreement with M/S NAAFCO Pharma Limited and M/S Sharif Pharmaceuticals Limited for contract manufacturing of some of the products of Square. Founder: Late Samson H Chowdhury Establishment: In 1958 as a Partnership Enterprise with the name “Square Pharmaceuticals Works” Incorporation: In November 10, 1964 as a Private Limited Company Commencement of Manufacturing Operations: In 1959 6

Conversion into Public Limited Company: In 1991 Listing: Dhaka Stock Exchange & Chittagong Stock Exchange: December, 1995 Credit Rating: Long Term: AAA, Short Term: ST-1, Outlook: Stable (By CRISL) Key personnel: Chairman Mr. Samuel S Chowdhury Vice-chairman Mrs. Ratna Patra

Managing Director Mr. Tapan Chowdhury Director Mr. Anjan Chowdhury Director Mr. Kaji Iqbal Harun Independent Director Mr. Sayed Afzal Hasan Uddin Independent Director Mrs. Nihad Kabir

Company secretary Mr. Khandaker Habibuzzaman

Approved merger: Square Formulations Limited, a subsidiary of Square Pharmaceuticals Limited and Square Herbal & Nutraceuticals, a concern of Square Group merged with Square Pharmaceuticals Limited. Earlier Square Formulations Limited was 99.5% owned subsidiary of Square Pharmaceuticals Ltd. So, after this merger there will be no significant change in group financials. Subsidiary Company- Entities which are directly controlled by Square Pharmaceuticals Limited and have significant impact on consolidated earning disclosed by Square Pharmaceuticals Ltd.

Subsidiary Name Ownership Paid-up Revenue Status (%) Capital (Latest) Square Formulations BDT Merged with Parent 99.50% BDT 100 mn Ltd. 11,313 mn Company Square Trial production is Share Money Pharmaceuticals estimated to be 100% Deposit BDT - Kenya EPZ Ltd. commenced by 05-02- 216.26 mn 19

Square Formulations Limited: Square Formulations Limited was incorporated in 21st November, 2011. The company started its commercial operation in 1st April, 2014. Square Formulations Limited is involved in producing formulation products. Square Pharmaceuticals Limited has Square Pharmaceuticals announced to merge Square Formulations Limited with its parent company on 22nd October Kenya EPZ Ltd. is 100% 2017. Authorized Capital: BDT 500 million, Paid up capital: BDT 100 million. Currently, Square owned subsidiary of Pharmaceuticals Limited holds 99.5% share of Square Formulations Limited. Square Pharmaceuticals Square Pharmaceuticals Kenya EPZ Limited: Square Pharmaceuticals Kenya EPZ Ltd. (SPL Kenya) Ltd. Ground development incorporated as a pharmaceuticals manufacturing company under the Companies Act 2015 of and construction works for Kenya as a private company limited by shares on 7th June 2017. Nominal share capital of this this formulation plant is subsidiary is KSH 80,000,000 divided into 800,000 shares of KSH 100 each. Square underway which is expected to be completed Pharmaceuticals Limited subscribed 8,000,000 shares of KSH 100 each (1KSH = BDT 0.83) out of by early 2020. Trial total issued 8,000,000 shares i.e. it’s a 100% owned subsidiary of Square Pharmaceuticals production is estimated to Limited. Square Pharmaceuticals Kenya EPZ Limited is a 100% owned subsidiary of Square be commenced by 5th Pharmaceuticals limited. As on 30th June 2018, Square Pharma has invested BDT 216.26 mn as February, 2020. share money deposit in this subsidiary. Recently Bangladesh Bank issued a guideline clarifying that no local entity will be allowed to take foreign currency aboard to set up subsidiary company. However, business will be allowed to use foreign currency from their Export Retention Quota (ERQ) account. With existing ERQ limit of 60% and considering 5% of total sales as Export, Square Pharma has approximate $15 mn in their ERQ account whereas they will require $8 mn to subscribe aforesaid subscription in the subsidiary. As a result, the decision won’t affect Square Pharmaceutical while opening-up aforesaid subsidiary because of their adequate balance in ERQ account.

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Associate Companies- Minority investments of Square Pharmaceuticals Limited:

Associate Ownership Paid-up Revenue/NPAT Business Line Name (%) Capital (Latest) Company operates spinning Square BDT 1,879 BDT 9,412 and twisting mills on which Textiles 46.36% mn mn/n/a they manufacture and Ltd. market yarn Square Share Money SHL is a 400-bed tertiary BDT 3,831 mn Hospitals 49.94% Deposit BDT care hospital /318 mn Ltd. 1,540 mn Square SFL produces different sorts n/a/BDT 1,690 Fashions 48.46% BDT 25.2 mn of Men’s, Women’s and Kids mn Ltd. wear

1. Square Textiles Limited: Square Pharmaceuticals Square group entered into Revenue, NPAT and NPAT margin of Square Textiles Limited (Amount in BDT mn) Limited hold 46.36% share the textile business with Revenue NPAT NPAT Margin 10,000 12.00% 9.98% of Square Textiles Limited 9,000 the establishment of 9.68%

10.00% and over the years this Square Textiles Limited in 8,000 9.03%

7,000 company shows stagnant 8.00% 1997. The company 6,000 performance 9,412 involves in the business of 5,000 5.33% 6.00% 4,000 8,110 8,188 8,250 7,759 4.88%

4.00%

manufacturing cotton ring 3,000

2,000 spun yarn for hosiery. 810 793 745 2.00%

1,000 414 459 Square Textiles supplies its 0 0.00% product to the export 2014 *2015-16 2014-1518 month data has2015-16 been annualized2016-17 2017-18 oriented readymade garments industry. The company started with a single unit in 1997 with an establishment cost of BDT 1,600 million. Square Textiles Limited subsequently established its second unit and third unit with an establishment cost of BDT 1,080 and BDT 960 in the year 1998 and 2000 respectively. Unit 1 of Square Textiles Limited has 36,288 spindles with daily production capacity of 20,000 kilograms. Unit 2 has 23,184 spindles with daily production capacity of 12,000 kilograms and 768 rotors with daily production capacity of 8,000 kilograms while unit 3 has 3,192 open end heads with daily production capacity of 20,000 kilograms. With its sophisticated vertically integrated technology, Square Textiles is producing 90,000 kilograms of yarns every day. Recently, company has increased its production capacity by investing BDT 916.0 mn and this will increase the capacity to 3,000 tons per annum. This expansion project will contribute BDT 706.5 mn per annum and expected profit contribution may be around 10% of yearly turnover. Projected completion of aforesaid expansion project will be within March, 2019. Authorized Capital: BDT 3,000 million, Paid Up capital: BDT 1,878.59 million Square Pharmaceuticals Limited hold 46.36% share of Square Textiles Limited. Square Textiles Limited has two subsidiary companies. They are a) Square Yarns Limited: Square Yarns Limited was established in 2006 with an establishment cost of BDT 1,600 million. Square Yarns Limited has 31,248 spindles with daily production capacity of 18,500 kilograms. Square Textiles Limited holds 99.48% shares of Square Yarns Limited. b) Square Texcom Limited: Square Texcom Limited belongs to the textile industry. Square Textiles Limited holds 95% shares of Square Texcom Limited.

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4,500 14.00% 2. Square Hospitals Limited: 13.52%

4,000 Revenue, NPAT and NPAT margin of Square Hospitals Limited (Amount in BDT 13.00% Square Hospitals Limited is a million)

3,500 12.00%

400-bed tertiary care hospital 3,000 11.00% Square Hospitals Limited is Revenue NPAT NPAT Margin 8.62% located at Panthapath, Dhaka. 2,500 10.00% a 400 beds tertiary care 3,831 hospital and one of the The hospital is an affiliate 2,000 8.33% 8.56% 9.00% 3,437 8.30% 1,500 2,349 2,937 8.00% leading contributors of partner of Methodist 2,507 private healthcare services 1,000 7.00% Healthcare, Memphis, 318 294 318 500 216 245 6.00% in Bangladesh. Square

Tennessee, USA, SingHealth, 0 5.00% Pharmaceuticals Limited Singapore, Bangkok Hospital 2013 2014 2015-16 2016-17 2017-18 hold 49.94% share of Medical Centre, Thailand and Square Hospitals Limited. Christian Medical College, The hospital can serve up to 1800 patients daily, Vellore, India. Major healthcare services provided by Square Hospitals Limited are radiology and through 100+ consultation imaging, chemotherapy, fine needle aspiration cytology, bone marrow therapy, intensive care rooms. unit, coronary care unit, cardiac care, neonatal incentive care, physiotherapy, telemetry service and cardiac surgical intensive care. Square Hospitals Limited has appointed highly qualified doctors from Bangladesh. Besides the hospital also appointed foreign doctors, many of them came from CMC-Vellore, India etc. Square Hospitals Limited started its operation in the year 2006. The main building of the hospital is 18 storey and the second building is 16 storey with an area of 450,000 square feet and 136,000 square feet respectively. The second building started its commercial operation in 2011. The outpatient department of the company has the capacity to serve 1,200 patient daily. Square Pharmaceuticals Limited hold 49.94% share of Square Hospitals Limited.

3. Square Fashions Limited: NPAT and NPAT growth of Square Fashions Limited (Amount in BDT million) Square Fashions Limited was NPAT Growth established in 2001 with an 113.4% establishment cost of BDT 1,200 1,800 120.00% 1,600

100.00% million. The company started its 1,400

1,200 80.00%

operation in June 2002. It 1,000 1,690 60.00%

800 involves in the Readymade Knit 1,367 600 18.0% 40.00% 1,094 400 782 Apparel business with the target 39.8% 23.6%20.00% 200 366 25.0%

market in USA and Europe. 0 0.00% Square fashion limited produces 2014 2014-15 2015-16 2016-17 2017-18 T-shirt, Polo shirt, tank tops, pajamas, sport wear, sportswear, under garments, men’s and ladies fashion wear, kids wear etc. The production capacity of Garments Unit-1 & 2 (within the brand name of Square Fashions Limited) is 60000 pcs/day & 45000 pcs/day respectively and the total production capacity of Fabrics Unit-1 & 2 is 39.5 (Solid-32 tons, Yarn Dyed-3.5 tons, Mercerized Fabric-4tons) tons fabrics/day. Square Pharmaceuticals Limited hold 48.46% share of Square Fashions Limited.

Other Minority Investments by Square Pharmaceuticals Limited: Share Money Deposit: BDT Square Informatix Limited: Square Pharmaceuticals Limited has invested in Square Informatrix 169.11 mn, Convertible Limited. The company gave share money deposit of BDT 100.00 mn for 1,000,000 ordinary Zero-coupon bond of BDT: shares of BDT 100 each. Besides, Square Pharmaceuticals holds 120,000 shares of BDT 100.00 396.7 mn, Preference each amounting to BDT 12.0 mn of United Hospital Ltd. (UHL), 5,711,804 shares of BDT 10.00 Shares of 116.36 mn, Non- each in the Capital of CDBL. Square Pharmaceuticals Limited also holds 250,002 Zero Coupon Convertible Zero Coupon Bonds amounting to BDT 180.05 mn of Lanka Bangla Finance Ltd., 250,000 Zero Coupon Bonds Bonds of BDT 300.01 mn amounting to BDT 128.95 mn of IDLC Finance Ltd., 200,000 Zero Coupon Bonds amounting to and Marketable Securities BDT 87.70 mn of BSRM Ltd., 150,000 preference shares amounting to BDT 116.36 mn of Raj of BDT 2,480.07 mn Lanka Power Company Ltd., Non- Convertible Zero Coupon Bonds amounting to BDT 127.70 mn of Shanta Holdings Ltd., Non-Convertible Zero Coupon Bonds amounting to BDT 40.81 mn of Durable Plastics Ltd., 100,000 Non-Convertible Zero Coupon Bonds amounting to BDT 84.60 of Flamingo Fashions Ltd., 40 Non-Convertible Zero Coupon Bonds amounting to BDT 46.90 mn of 9

Envoy Textiles Ltd. Square Pharmaceuticals Ltd. has investment in marketable securities (as on June, 2018) amounting to BDT 2,480.07 mn (at cost).

Dissolved subsidiaries and associates of Square Pharmaceuticals Limited 1. Square Cephalosporin Limited: Incorporation: August 29, 2005 as a private limited company. Square Pharmaceuticals Limited held 99.48% share of Square Cephalosporin Limited. Separate operation of Square Pharmaceuticals Limited was uneconomical and costly. That’s why Square Cephalosporin Limited merged with Square Pharmaceuticals Limited on 1st April, 2014. 2. Square Biotechs Limited: Square Biotechs Limited was incorporated to carry out the business of inter alia manufacturing, marketing, sales and distribution of all kinds of biotechnological medicines/drugs for life saving and healthcare. However, the company could not go on to operation. The company was liquidated in the year 2011-12 and all the assets of the company sold out to Square Pharmaceuticals Limited. Incorporated on: June 12, 2006, Authorized Capital: BDT. 1,000 million, Paid up capital: BDT 670 million. Square Pharmaceuticals Limited held 99.25% shares in Square Biotechs Limited. The company has been wounded up on August 30, 2012. 3. Square Multi Fabrics Limited: Square Multi Fabrics limited carried out the business of manufacturing, marketing in all types of knit fabrics, yarn, garments for gents, ladies and children's including the preparation, sizing, mercerizing, processing, printing, embroidering, dyeing, coloring and finishing and other ancillary work. The company discontinued its commercial operation from January, 2012 due to various technical and operational problems. All the assets of the company were sold out to Square Fashions Limited in the year 2011-12. Incorporated on: June 24, 2008. Authorized Capital: BDT 500 million, Paid up capital: BDT 100 million. Square Pharmaceuticals Limited held 99.50% shares in Square Multi Fabrics Limited. 4. Square Knit Fabrics Limited: Square Kint Fabric Limited was involved in the business of producing Knit Fabrics. The company was established in 2001 with the production capacity of 12,000 kilograms every day. This company was dissolved and currently integrated with Square Textiles Limited and operates as 2nd manufacturing facility of its vertical integration.

Contribution of companies to Square Square Pharmaceuticals Ltd. contributes significant Pharma's NPAT (Latest) portion of SQURPHARMA’s NPAT (though the

1.84% contribution shows a descending trend but still its above 1.37% Square Pharmaceuticals Ltd. 0.00% 69%. Square Formulations also contribute around 20% 7.05% 0.00% Square Formulations Ltd. to SQURPHARMA’s NPAT and after the post-merger

Square Cephalosporins Ltd. contribution of Square Formulations has increased 20.65% notably (mainly due to synergistic benefits arouse from Square Multi Fabrics Ltd. 69.40% using basic chemical and pellet in pharma production Square Textile Limited which are produced by Square Formulations). Square Square Hospitals Limited Textiles Ltd., Square Hospitals Ltd. and Square Fashions

Square Fashions Limited Ltd. contributes less than 10% to SQURPHARMA’s NPAT in FY’18.

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Contribution of Companies to Square Pharma's NPAT (Last 5-years)

2017-18

2016-17

2015-16

2014-15

2013-14

2013-14 2014-15 2015-16 2016-17 2017-18 Square Pharmaceuticals Ltd. 79.88% 93.62% 80.79% 71.72% 69.40% Square Formulations Ltd. 0.00% -7.26% 8.44% 19.47% 20.65% Square Cephalosporins Ltd. 6.37% 0.00% 0.00% 0.00% 0.00%

Square Multi Fabrics Ltd. 0.00% 0.00% 0.00% 0.00% 0.00% Square Textile Limited 7.59% 6.15% 3.75% 1.80% 1.84% Square Hospitals Limited 3.21% 1.80% 1.33% 1.38% 1.37% Square Fashions Limited 3.59% 6.30% 5.76% 6.22% 7.05%

Shareholding Pattern

Sponsor Inherits added No. of Shares and Percentage of Sponsors declined due to Sponsor Inherits added with the with the General Public as General Public as per newly introduced definition of "Sponsor" by BSEC (Public Issue) Rules, 2015 per newly introduced and Listing Regulation, 2015 which has been depicted through declined sponsor/director definition of "Sponsor" by percentage in December-15 and corresponding increased in public shareholding. Besides, due BSEC (Public Issue) Rules, to their consistant performance and dividend payout with sound coprorate governance attracts Sponsor/Director holding both instritutional and foreign invetsors to invest in this scrip. of the company shares decreased with a Shareholding Pattern During Last 5 Years corresponding increase in Dec/18 Dec/17 Dec/16 Dec/15 Dec/14

public shareholdings

54.21%

53.52%

37.76%

36.34%

35.76%

35.29%

34.43% 34.43%

20.40%

19.78%

19.46%

17.80%

16.26%

15.85%

15.05%

12.11%

10.85%

10.35%

10.34% 10.01%

SPON./DIR I N S T . F O R . PUB.

Shareholding Pattern of the Company Date Spon./Dir. Govt. Inst. For. Public

As on December 31, 2017 34.43% 0.00% 10.35% 19.46% 35.76% As on March 31, 2018 34.43% 0.00% 10.13% 20.00% 35.44% As on June 30, 2018 34.43% 0.00% 10.12% 19.85% 35.60% As on December 31, 2018 34.43% 0.00% 10.01% 17.80% 37.76% As on March 31, 2019 34.43% 0.00% 9.90% 20.34% 35.33% As on April 30, 2019 34.43% 0.00% 9.95% 20.32% 35.30%

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Shareholding Structure (December 31, 2018) Shareholding Structure (March 31, 2019) Spon./Dir Inst. For. Pub. Spon./Dir Inst. For. Pub.

35.33% 34.43% 37.76% 34.43%

9.90% 10.01% 20.34% 17.80%

Composition of Shareholding Structure among Top Stakeholder

Key Shareholders (As on 30th March, 2013) Key Shareholders (As on 30th June, 2018) 6.07% 3.07% 7.06% 3.02% 7.06% Mr. Samuel S Chowdhury Mr. Samuel S Chowdhury

Mrs. Ratna Patra 7.31% Mrs. Ratna Patra Mr. Tapan Chowdhury 7.31% 6.77% Mr. Tapan Chowdhury Mr. Anjan Chowdhury 6.77% Mr. Anjan Chowdhury Mr. Kazi Iqbal Harun Mr. Kazi Iqbal Harun Dr. Kazi Harunar Rashid 7.22% 7.22%

During the last 5 years, key shareholders of the company remained in the same proportion. Only Chowdhury Family change which has been taken place is the transmission of 26.25 mn shares of late Sponsor Dr. members hold 28.36% Kazi Harunar Rashid to his legal heirs: 13.13 mn to Mr. Kazi Iqbal Harun (son, Director of the shares of Square Company), 6.56 mn shares to Mrs. Nilufar Ferdous (daughter) and 6.56 mn shares to Mrs. Nargis Pharmaceuticals Limited Ferdous (daughter) in 2017. This has increased Mr. Kazi Iqbal Harun’s share possession in the as on June 30, 2018. company. Positions of Chowdhury Family members in Square Pharmaceuticals Limited

Late Mr. Samson H Chowdhury, Founder

Anjan Samuel S Kazi Iqbal Chowdhury, Ratna Patra, Vice Tapan Chowdhury, Chowdhury, Chairman Managing Director Harun, Director Chairman Director

Chowdhury Family members hold 28.36% shares of Square Pharmaceuticals Limited as on June 30, 2018 Product Quality: Square Pharmaceuticals Limited produces product by following GMP (Good Manufacturing Practice) standards of World Health Organization. The company also maintains strict surveillance to withdraw expired product from the market. Production Units: Square Pharmaceuticals Limited has 17 manufacturing units. 1. Dhaka Unit: This unit is about 50 kilometre in the north of capital city, Kaliakoir, Dhaka. Bovis Lend Lease, UK designed this plant. All the facilities in this unit has been developed by meeting the requirement of cGMP CFR 21. This plant has approval from UNICEF and MHRA- UK. In the year 2012, Dhaka unit and Square Cephalosporin Limited got “Therapeutic Goods

12

Administration (TGA)” of Australia approval (Cephalosporin unit was a subsidiary company of Square Pharmaceuticals Limited in 2012). This plant has started operation from 2002. There are seven manufacturing units in this location which is engaged in producing formulation products. Those units are as follows: a) Solid Dosage Unit-1 or General Production Unit (GPB): General Production Unit is used for bulk production of tablet & capsule and their packaging. This unit started operation in 2002. This unit is the main production building of Dhaka unit. b) Solid Dosage Unit-2: To cope with increasing demand, another manufacturing plant was developed in 2014. This unit has a production capacity of 8.0 bn tablets and 2.0 bn capsules. This unit was also designed and commissioned as per international regulatory and GMP guidelines. This steel structure building is designed jointly by international consultant and Square project team. c) Cephalosporin Unit: Cephalosporin Unit is used for producing cephalosporin. This unit started operation in November, 2006. Cephalosporin Unit complies with the requirement of international GMP standards like EMEA (European Agency for the Evaluation of Medical Products), UK MHRA (UK Medical and Healthcare products Regulatory Agency), TGA (Therapeutic Goods Administration, Australia) and US FDA (US Food and Drug Administration). d) Small Volume Parenteral & Ophthalmic Unit: Small volume parenteral & ophthalmic unit was built in accordance with US FDA and UK MHRA cGMP specifications. This facility is built by Telstar S.A. of Spain a world renowned pharmaceutical manufacturing facility expert and the machines are designed and manufactured by Weiler Engineering, USA. To maintain aseptic environment, this unit uses Blow-Fill-Seal (BFS) Technology while manufacturing. e) Insulin Unit: Insulin unit is used for producing insulin solution and suspension. The infrastructure and major production machineries was provided by Tpro, a well-known Spanish company. For filling insulin product, IMA-MAC vial washing, filling machine was brought from Italy. f) Large Volume Parenteral Unit: Large Volume Parenteral Unit of Square Pharmaceuticals Limited is a facility that follows strict cGMP compliance. The building as well as the facility of this unit was designed in accordance with the EU GMP and USFDA guidance industry regulation. Wide ranges of sterile dosage forms – Large Volume Parenterals (BFS PP bottle technology, Glass bottle and PVC bag Infusion), Small Volume Parenterals (Glass Ampoules, Glass vial- Lyophilized and Liquid filled Injection), Pre-filled syringe and non-sterile dosage forms of Haemodialysis solution, Nasal spray and Topical Spray are manufactured in this unit. g) Metered Dose Inhaler Unit: Meter dose Inhaler unit is engaged in producing a specific types of device that delivers specified amount of drugs to lungs. This unit is started in September 2008. This manufacturing facility was established by Tpro (Telster Projects) and MA-MAC vial washing, filling machine from Italy is used to fill insulin products in this unit. 2. Pabna Unit: Pabna Plant is the first manufacturing facility of Square Pharmaceuticals Limited and started operation in year 1958. This plant complies with WHO – cGMP (current Good manufacturing Practice) requirement. This unit has upgraded its Quality Management System in 2008. The production facilities in this units are: a) Hormone & Steroid Unit: Manufacturing procedures including Tablet Compression, Tablet Coating, Tablet Blistering, Personal Cleaning, and Dispensing Booth & Automatic Granulation for producing hormones & steroids products are completed in Hormone & Steroid unit. b) Liquid Unit: This unit produces syrup, suspension, dry-powder, cream gel. This unit started its operation from 2010. c) Penicillin Unit: According to cGMP unit, Pharmaceuticals companies need to set up penicillin unit separately to avoid cross contamination of other drugs with penicillin. To

13

meet up the requirement with cGMP, Square Pharmaceuticals Limited has set up penicillin unit separately. 3. Pet bottle unit: PET bottle unit has the production capacity to produce 5,000 pcs per hour. It can run 24 hours continuously in a day. This unit started its operation from 2004. The whole process of producing pet bottle is completed in this division having a self-diagnosis program to turn PET resins into finished container. 4. AgroVet Division: Agro vet Division produces 73 types (133 presentations) of poultry and livestock products. This division has started its operation in 1998. This unit produces different therapeutic classes comprising antibacterial agents, anthelmintics, NSAIDs, antihistamine, antidiarrhoea, vitamins, digestive stimulants etc. Besides this unit also deals with versatile imported products like vitamins & mineral premixes, enzymes, growth promoters, antioxidants, liver tonic, mould inhibitors, toxin binders, salmonellas killers, pH lowering agents, electrolyte & minerals, coccidiostat, larvicide, feed grade amino acids, respiratory stimulant, anti mastitic products etc. of renowned principals. Last year, Square Pharma commenced the marketing of Schering Plough Animal Health, the biggest global veterinary pharmaceutical company. Besides company has signed agreement with renowned veterinary injectable manufacturer of UK, Norbrook Laboratories & DOW, USA. 5. Pharmaceutical Bulk Manufacturing Plant (API Unit): Pharmaceutical bulk manufacturing unit of Square Pharma is one of the largest pharmaceuticals bulk producing unit of the country. This unit was established in 1992 and started commercial operation in 1995. Until 1996, thus manufacturing unit was used only for own consumption of the company. From 1997, the company starts marketing of API products to many pharmaceutical company including (but not limited to) Aventis Pharma, Novartis Bangladesh Ltd., ACI Ltd., Beximco Pharmaceuticals Ltd., The Acme Laboratories Ltd, Eskayef Bangladesh Ltd., Opsonin Chemicals, Renata Ltd., Essential Drugs Co. Ltd. 6. Pesticide Unit: The main operations include repacking, selling and marketing of insecticides, fungicides, and herbicides of Chimac-Agriphar s.a., Belgium and FMC Corporation, USA. This unit also produces formulation of mosquito control aerosol. 7. Square Formulations Limited: The factory of Square Formulations Ltd. is located at Momin Nagar, Gorai, Mirzapur, Tangail. This unit started operations in 2014. The company has the capacity to produce 8,000 million tablet and 2,000 million capsule annually. Total operational area of this unit is 36,644 square meters. Distribution network: Square Pharmaceuticals Limited maintains strategic distribution network to ensure uninterrupted supply of pharmaceuticals products throughout the country. The company has 21 depot in 21 different districts of the country to reach wide range of customers. Export: Square Pharmaceuticals Limited is the pioneer of exporting medicine from Bangladesh and they initiated their export in 1987. The company exports pharmaceuticals finished products since 1995. The company currently export antibiotics and other pharmaceuticals products to 42 counties including 3 countries in Oceania, 19 countries in Asia, 13 countries in Africa, 6 countries in Central and South America. Besides Square Pharmaceutical has contract manufacturing facilities in UK. Square Pharmaceuticals Limited offers more than 300 off patent and on patent molecules in different dosage forms. The company exports pharmaceuticals products in the market of Europe, Australia and USA and finished formulations ASEAN, SAARC region. Square Pharmaceuticals Limited has 700 product approvals for Bangladesh Market. Foreign Accreditation: UK-MHRA, USFDA and TGA-Australia

14

During last 7 years Pharma Pharma Market Growth Vs Square Pharma Growth market in BD grew by 14.21% Pharma Sector Growth Sales Growth Square Pharma 25.0% whereas 7-years CAGR of 22.6% 20.3% Square Pharma was 10.43%. 19.6% 7-years CAGR of Pharma In FY’13 and FY’18, sales 20.0% 17.0% 16.0% market in BD was 14.21% growth of Square Pharma whereas was 10.43% for moved in the opposite 15.0% Square Pharmaceuticals 10.3% direction to markets whereas 15.0% 16.3% 14.0% Ltd. 10.0% 8.5% in other years Square Pharma 13.0%

outperformed market. With 8.6% 5.0% growing income and 6.2% increased life-expectancy it is 3.1% anticipated that individual’s 0.0% 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 propensity to consume pharma products will increase thus it is expected that pharma market will grow in days ahead. Considering historical trend, and considering the industry growth, as a market leader Square Pharma has the potentiality to grow in days ahead.

Blockbuster drugs:

Industry Rank Brand Name Market Share Generic

1st Seclo 1.86% Omeprazole

Cefixime 5th Cef 3 0.78% Trihydrate

Square Pharmaceuticals 14th Zimax 0.42% Azithromycin Ltd has 14 blogbuster drugs ranked within 50 in the industry and 26 17th Neotack 0.39% Ranitidine blogbuster drugs ranked

within 100 in the industry Vitamin B1, 19th Neuro-B 0.37% B6 & B12 Calcium 20th Calbo-D 0.37% Carbonate + Vitamin D Metformin 25th 0.35% Comet Hydrochloride

28th Ceevit 0.31% Ascorbic Acid

29th Ciprocin 0.31% Ciprofloxacin

Losartan 32nd 0.29% Angilock Potassium

Production Capacity Square Pharmaceuticals Limited produces medicine in different forms. Those forms include tablet, capsule, liquid etc. In the year 2017-18, production capacity of tablet was 7,887 million piece where actual production was 4,601 million piece. Capacity utilization rate was 58%. Production capacity of tablet has shown decreasing trend during the last 2 years. Over the last 5-years, tablet production capacity was decreased by 6%, whereas average capacity utilization rate was 55% during this five years. Square Pharmaceuticals Limited always maintains buffer production capacity. Competitive structure of the industry forces the company to maintain

15

buffer capacity so that they can meet up any unforeseen demand promptly which will help them to retain market position. Tablet (in million pcs) Tablets (pcs) Capacity Tablets (pcs) Production Tablets (pcs) Utilization (%)

10,000 66% 70% 59% 9,000 56% 58% 58% Production capacity for both 60%

8,000 52% tablet and capsule segments 48% 50% 7,000 are decreasing in recent

6,000 periods, whereas capacity 40% 5,000

5,296 30% utilization remains stagnant; 4,000 4,862 4,870 4,357 4,601 3,000 4,091 meanwhile own use of 3,940 20% liquid chemicals is 2,000 10% increasing 1,000 7,345 7,348 8,396 8,437 9,023 8,226 7,887

0 0% 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Before 2013-14, Square Pharma utilized more than 100% of its capacity and in 2013-14 company increased its production capacity but actual production remained in the same level thus utilization rate decreased. But in recent 2 years, both production capacity and utilization ratio of capsule unit have decreased. Current capacity of capsule stands at 1,205 million pcs whereas capacity utilization rate is 40%. During last 5 years, production capacity of capsule units decreased by 32.15% during last 5 years and average capacity utilization rate was 51%. Square Pharmaceuticals Limited has buffer capacity in capsule production line to meet any unforeseen demand in the industry. Capsule (in million pcs) Production Capacity Actual Production Utilization (%)

2,000 125% 140%

1,800

120%

1,600 102% 1,776 1,783 1,769

100% 1,400

1,200 1,253 80% 1,000 1,205 1,151 54% 63%

60% 800 934 54% 40% 42% 600 40%

400

20% 200 1,171 1,177 955 1,122 945 502 512

0 0% 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Sales from liquid unit is increasing day by day and accordingly revenue from this segment is also growing. Own use of chemical plant products is increasing whereas previously company used to sale them to outsiders. As a result gap between production and sale proceeds from liquid unit has lessened than that of earlier. Liquid (In MT) Sales (MT) Revenue (in mn BDT)

600 511.8

500 420.4

400 470.76

300 379.83 238.79 244.75 209.22 189.13 185.3

200 239.55 60.91 61.63 100 165.01 136.27

0 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

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Square Pharma shows consistent growth in its export over the last few years. 5-year CAGR of 5 year CAGR of export by export was 11.38%. To promote exports, government is giving trust in this sector by allowing Square Pharma was 11.38%; exporter 10% subsidy (cash incentives) on its exports. Currently Square Pharma covers 42 current exports to 42 countries and submitted countries and received approval of first ANDA in April, 2018 and submitted several ANDAs to several ANDAs to USFDA for USFDA for approval. Besides company is trying to avail contract manufacturing options for USA approval. and UK market to boost annual export volume. Last year this company was awarded with gold trophy for becoming the largest pharmaceutical exporter in Bangladesh.

Export (In BDT MN)

Export (In BDT MN) 1,600.00 1,450.53 1,386.83

1,400.00 1,120.21

1,200.00 1,076.55

1,000.00 846.33 799.05

800.00 538.65

600.00

400.00

200.00

0.00 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

It is important for the Pharmaceuticals Companies of Bangladesh to ensure uninterrupted production and supply of the pharmaceutical products. Failure of meeting the demand may result in switch to substitute product by the customer, thus will result in the reduction of market share of the company.

Regulatory changes that may favorably affect the business operation of Square Pharmaceuticals Limited Government has allowed  10% subsidy on net FOB value of the export of pharmaceutical products from Bangladesh. 10% subsidy on export of pharmaceutical products  Corporate tax holiday benefits till 2032 for pharmaceutical ingredients makers as per API from Bangladesh. Besides export and production policy pharmaceutical ingredients  Exemptions and concessionary rate of duties of some pharmaceutical raw materials, raw makers are allowed to enjoy materials of Active Pharmaceutical Ingredients (API) have been proposed. tax holiday benefits till 2032  VAT exemption on import of Erythropoietin which is used for anti-cancer and kidney and Vat will be waived for disease. API import till 2025  VAT waiver on import of API raw material upon fulfillment of some conditions till 2025 8.

8 https://thefinancialexpress.com.bd/trade/api-raw-material-imports-to-get-vat-waiver-until-2025-1557201150 17

Competitor Analysis (Based on the 2018, Q3 An. Financial Statements)

Profitability (Amount in BDT mn) Profitability Margins ACI (Solo) ACMELAB BXPHARMA (Solo) RENATA (Solo) SQURPHARMA (Solo) NPAT Margin OP Margin GP Margin

Revenue 49.75% 35,858 54.59%

Gross Profit 46.64% 17,839 38.94%

Operating Profit 44.77% 28.38% 10,176 25.56% 22.78% Operating Expense 22.32% 7,664 27.91% 17.20% 9.06% 14.26% Net Profit 9.54% 10,009 4.19% - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Return To Asset And Equity Employeed Financial Positions (In BDT mn) ROA ROE ACI (Solo) ACMELAB BXPHARMA (Solo) RENATA (Solo) SQURPHARMA (Solo)

80,000.00 20.31% 17.32%

70,000.00

63,220 57,778 60,000.00 10.34% 15.83%

6.28% 8.48% 13.96% 45,018 50,000.00

40,666 6.62% 35,590 40,000.00 4.30% ROE

28,812 2.24% 26,146

30,000.00 24,817 ROA

18,053

17,537

17,065 16,206

20,000.00 14,520

ACI (Solo) ACMELAB BXPHARMA RENATA (Solo) SQURPHARMA

7,752 5,442 10,000.00 (Solo) (Solo)

- Total Asset Total Equity Total Liability

Earnings Per Share NAV Per Share SQURPHARMA (Solo) 12.69

291.05 RENATA (Solo) 43.03 211.89 BXPHARMA (Solo) 7.35

85.32 71.04 73.23 ACMELAB 7.24

ACI (Solo) 18.27 ACI (Solo) ACMELAB BXPHARMA (Solo) RENATA (Solo) SQURPHARMA (Solo) - 5 10 15 20 25 30 35 40 45 50

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Financial Performance In order to analyze financial performance of Square Pharmaceuticals Limited, annual information’s from 2014-15 to 2017-18 and 2018-19 ‘6-month’ annualized information is considered. Liquidity Position: HEALTHY From 2014-15 to 2017-18, all the liquidity ratios i.e. current ratio, quick ratio and cash ratio showed an increasing trend. Up to Q2 ’19, liquidity ratio decreased slightly due to an increase in sundry creditor from BDT 447 mn to BDT 2,371 mn but still liquidity ratios are much higher than standard average. Consistent improvements in liquid assets were fueled by bulk amount of Cash and Cash Equivalent (by the end of December ’18, Square Pharma has BDT 20.43 bn as cash and cash equivalent which is almost near to their replacement costs of PPE). From the period 2014-15 to 2017- Liquidity Position 18, Current ratio, quick ratio and Cash Ratio Quick Ratio Current Ratio cash ratio have increased. This 12.93 improvement is attributed by the 11.63 increased of current asset, 9.81 specially increase of cash in a 10.91 9.95 large amount. From 2014-15 to 6.34 8.23

2018-19 period the companies 4.26 9.14 8.41 4.97 6.69 cash and cash equivalent has 2.85 4.05 increased by four times. By the 2.17 end of December, 2019, the 2014-15 2015-16 2016-17 2017-18 2018-19 current ratio stands at 11.63, meaning that the company has BDT 11.63 current asset in order to pay BDT 1 of current liability. Quick ratio shows companies liquidity position excluding the inventory taken in account. It shows that the company has BDT 9.95 current asset excluding inventory to pay BDT 1 current liability. Finally cash ratio shows that the company has BDT 8.41 cash and cash equivalent to pay off its short term liability. During the period 2018-19 (after 6 months), those ratios has slightly decreased. Nevertheless, the company maintains strong liquidity position in all sorts’ liquidity analysis.

Operating Efficiency: GOOD From 2014-15 to 2016-17 Inventory Turnover Ratio Receivable Turnover Ratio periods Square Pharma 9.79 8.95 9.26 30.28 shows consistent 8.95 24.76 24.55 25.17 improvements in its 7.52

inventory turnover ratio 16.58 which decreased in 2017- 18 and then further 2014-15 2015-16 2016-17 2017-18 2018-19 2014-15 2015-16 2016-17 2017-18 2018-19 improved in 2018-19. As

on December, 2018 Average Collection Period Cash Conversion Cycle (Days) ( D a y s ) Inventory Turnover Ratio 44.42 45.51 41.84 21.71 40.13 40.95 stands as 9.26 times which means that yearly sales of Square Pharma is 14.54 14.67 14.30 11.89 9.26 times of their inventory. 2014-15 2015-16 2016-17 2017-18 2018-19 2014-15 2015-16 2016-17 2017-18 2018-19 Square Pharma has also improved its Receivable Turnover during 2014-15 to 2016-17 (when their Receivable Turnover Ratio came to the lowest point). During the last two years average collection period of the company extended and Square Pharma collects its average receivable around 25.17 times each year. Average Collection Period (days) suggests that it is around 14.3 days during which Square Pharma’s sales remain as accounts receivable. 19

Cash conversion cycle swivels around 40 to 45 days thus it resembles that company has control over their liquidity i.e. it takes around 1.5 months for the company to convert their investment in inventory and other resources into cash.

Total Asset Turnover shows a decreasing trend over period Total Asset Turnover (%) which depicts that company’s efficiency while generating 75.14% 74.65% sales/revenues using the assets is deteriorating over times. 0 0 This so happen because company is piling up huge cash 69.56% 0 and cash equivalent which may otherwise be used for 64.72% 65.52% 0 other revenue generating purposes. As a consequence of 0

this increase in Cash and Cash Equivalents which 2014-15 2015-16 2016-17 2017-18 2018-19 eventually raise the amount of total assets without contributing to generate any revenue has deteriorated Total Asset Turnover Ratio of Square Pharma. Profitability: GROWING

Square Pharma shows steady growth in its Margins profitability. During last 5 years Gross Profit Net Profit Margin (NPM) Operating Profit Margin (OPM) Gross Profit Margin (GPM) Margin reached to 51.03% from that of 49.99% 49.34% 51.03% 44.57% in 2014-15. This shows that cost of 48.35% sales pharma product is decreasing and it 44.57% costs Square Pharma less than half of the 33.65% 33.10% sales price to produce the product (on 32.64% 32.23% 27.66% average). Economies of scales i.e. bulk 28.01% 22.29% 26.60% 26.46% production allows them to attain such 17.00% efficiency in reducing cost of production and

improve margin. 2014-15 2015-16 2016-17 2017-18 2018-19 Operating profit margin shows improvements as well, with progress in gross profit mainly due to a decrease in COGS correspond with less hike in operating expenses, Operating Profit Margin shows a steady growth. From 2014-15 to 2018-19 Net Profitability (ROA & ROE) Profit Margin escalates remarkably. Almost Return on Total Assets (ROA) Return on Equity (ROE) dried financial expenses, increase in Other 19.82% 19.55% Non-operating Income foster Net Profit 18.50% 18.14% 18.17% 18.35% Margin over the last few years. As per Q2 16.64% 17.12% FY’19 (An.) Net Profit Margin stands at 14.22% 28.01% compared to 17.0% in 2014-15. 12.77% From 2014-15 to 2016-17 both Return on

Asset (ROA) and Return on Equity (ROE) 2014-15 2015-16 2016-17 2017-18 2018-19 show an increasing trend. After a bump in 2017-18 it has started to raise again. After December ’18, annualized ROA stands at 18.35% and ROE stands at 19.55% which is attractive for a pharma sector company. Leverage ratio: Close to ‘0’ Square Pharmaceuticals Limited is less dependent on debt (both long term and short term). Currently, the company has no long term or short term loans. After 2014-15 company repaid all their outstanding loans. Due to their huge cash and cash equivalent, they needn’t take loan in any form which also makes them less vulnerable to interest rate volatility. As their financial expenses are too trivial they have strong capacity to repay financial expenses using available operation profit. But in future, to avail tax benefits in Kenya Subsidiary, Square Pharma will avail USD 9 million loan which will raise their financial expenses and debt-equity ratio in future.

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2014-15 2015-16 2016-17 2017-18 2018-19 A Leverage Ratios Total Debt to Equity 0.9% 0.0% 0.0% 0.0% 0.0% Debt to Total Assets 0.9% 0.0% 0.0% 0.0% 0.0% Coverage Ratios Times Interest Earned (TIE) 66.00 2,037.14 79,644.40 136,550.99 226,484.86

Investment Insights Investment Positive  Square Pharmaceuticals Limited is the market leader of pharmaceutical industry in Bangladesh and possess 16.95% market share as per IQVIA Health Report for Q1, 2018. Company has strong fundamentals and brand image among the customers. It occupies 26 blockbuster drugs among the top 100 medicine sold in Bangladesh according to IQVIA. They have 14 blockbuster drugs ranked within top 50 drug list of the country.  Government has declared 10% cash incentive for export of pharmaceutical products. Approximately 4% of company revenue is generated from exporting pharma products. 5-year CAGR of export was 11.38%; current exports to 42 countries and submitted several ANDAs to USFDA for approval. Thus, this incentive will encourage company to initiate more exports. Thus, this incentive will encourage company to initiate more exports.  The company is setting up a subsidiary manufacturing plant in Nairobi, Kenya. Square Pharma has invested BDT 216.26 mn as share money deposit in this subsidiary as on June, 2018. Ground development and construction works for this formulation plant is underway which is expected to be completed by 2020.  Square Pharmaceutical is well-known for their strong corporate governance. Besides, they are good at paying dividend as well. Historically, company maintained a mixture of cash and stock as its dividend policy and now moving towards disbursing cash rather than stocks.  The company is allocated three plots in API Park in Munshigonj. It is expected that the production cost will significantly decrease with the commercial operation of API Park.  Square Pharma maintains large cash and cash equivalents. Current balance of cash and cash equivalent is almost equal to the replacement cost of their PPE.  After Renata (Solo), Square Pharma has highest Operating Profit margin, Net profit margin in the Pharma Industry of Bangladesh. It’s latest ROA and ROE also exceeds its close competitors.  According to latest financial disclosure available up to March, 2019, Square Pharmaceuticals Limited doesn’t have any debts of i.e. they don’t have any outstanding long term or short term loans thus less vulnerable to interest rate volatility.  Company margins (gross, operating, pretax and net) are one of the highest in the industry (only solo margins of Renata is higher than Square Pharma). ROA and ROE of the company are also attractive which currently stand at 18.35% and 19.55% respectively. Investment Concern  According to IQVIA Q1, 2018 Square Pharmaceutical Limited holds 16.95% which was 18.06% in 2017 and 18.48% in 2016. Gradually company is losing its market share due to fierce competition among the current players and they don’t have any remarkable recent investment in PPE thus it will become difficult for them to retain leading market position in future.  Pharma Industry in Bangladesh is almost oligopolistic in nature (10 companies’ hold 68.04% of Pharma market share. Top 20 companies hold 87.01% market share). But competition is intensified nowadays as new comers are entering into the market (very recently 19 companies have invested BDT 6,500 mn to setup their facilities and will commence operations within the next one and a half years) thus the oligopolistic nature of the market may become monopolistic in near future.

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 Square Pharma will avail USD 9 million loan to establish Square Pharmaceuticals Kenya EPZ Ltd. Company may result payment for financial expenses in coming days which is close to ‘zero’ now.  Company is exposed to foreign exchange and raw materials risk because ≈80% of company raw materials are imported thus any unfavorable change in currency rate will adversely affect company profit. Key Assumptions Underlying the Valuations  Competition in the industry is growing and new entrance into the industry posits challenges while retaining current market share by Square Pharmaceuticals Ltd. Recently company lost approximately 2% of the market share (during the last 2-years). Besides production capacity of tablet unit is also shrinking. Thus we assume a revenue growth which is slowed than current pace in days ahead.  Fully owned subsidiary in Kenya (having capacity of 2,000,000,000 tablets and 60,000,000 bottles which will commence operation from February 2020) will improve its growth soon after 2020 and we incorporate this in assuming revenue growth rates of the company.  Cost of Goods sold showing downward trend, besides API Park (which supposed to commence operation from 2019) will further contribute to reduce the COGS of the company.  Selling and marketing expense will continue to grow because of the competition. Besides subsidiary in Kenya will also uplift their selling expenses because of free samples, recruiting medical representative and other marketing expenses to promote company.  Due to economies of scale from large scale operation, Square Pharma will be able to reduce their administrative cost as percentage of their net sales. Considering this we assume administrative cost as proportion to net sales will decrease over times.  During last 2-3 years, Square Pharma decelerated their investment in PPE. As a result their market share also reduced. Besides, decreasing production capacity of current machinery and current growth in the industry makes it essential to initiate PPE acquisition. Square Pharma has large amount of cash and cash equivalents in hand thus they can easily fund new PPE acquisition using their idle fund. We assume that to retain and increase current market share, Square Pharma will gradually invest in PPE. Besides investment in Kenya subsidiary will also increase consolidated PPE.  As company will invest in their PPE thus portion of their PPE investment will remain in work in progress and considering this we assume our capital work in progress.  Square Pharma has 3 associate companies (Square Textiles Ltd. 46.36%, Square Fashions Ltd. 48.63%, Square Hospitals Ltd. 49.94%) and all of them are profitable companies. We assume that, company will make further investments in these associate companies to facilitate their growth and finance need in near future.  We assume that company will move towards paying cash dividend rather paying stock as it dilutes earnings  USD 9 mn loan will be availed by Square Pharma for their Kenya subsidiary. Company doesn’t have any long-term loan right now and considering (USD 1 = BDT 85) as exchange rate, we assume that BDT 765 mn will be total long-term loan of the company and company will gradually avail this amount within 2020 (probable commencement date of the subsidiary is February 2020). We assume that 2/3rd of the project will be completed by June 2020 and rest will be completed by the end of December 2020 and accordingly assume long term loan which company planned to avail.  We also assume that company will start repayment of their long-term loan from 2021 from the revenue it generates from the subsidiary. Accordingly, we decrease long-term loan of the company.  As company is going to expand business by opening new subsidiary in Kenya, thus to attain tax benefits, they may also avail short term loans for managing working capital needs in Kenya. Considering this, we assume that short-term loan will increase in future

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Effective Tax rate: The effective tax rate history of Square Pharmaceuticals Limited is as follows: The tax rate for Square Pharmaceuticals Limited is 25%. However, considering the effective tax rate of the company over the last few years, tax rate for forecasted period is determined:

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (An.) Avge. 25.35% 25.45% 26.45% 23.61% 21.91% 23.14% 23.51% 21.93% 23.64%

Discount Rate: The appropriate WACC (Buildup Method) discount rate for Square Risk Free rate (cut off yield 1-year T-bill) 4.23% Pharmaceuticals Limited is calculated Expected Equity Risk Premium- SQURPHARMA 7.75% by using weighted average cost of Cost of Equity 11.98% After Tax Cost of Debt 0.00% capital method where the cost of Cost of equity (Buildup) 12.00% equity is calculated by using Capital Total Debt 0 Asset Pricing Model. But due to strong Shares Outstanding 789.0 correlation between market return Share Price (Intrinsic Value, in BDT) 292.5 and Square Pharma return calculated Market value of Equity (in mn) 230,783 Weight of Equity 100% beta was inconsequential. Thus using Weight of Debt 0% buildup method WACC of the WACC 12.23% company was determined. Cut off yield of government 364 days T-bill rate was considered as risk free rate. The weighted average cost of capital for Square Pharma in this valuation is 12.00%. Terminal growth rate: Five years average ROE (17.9%) and retention rate (74.7%) for 2017-18 indicates terminal growth rate of 13%. Besides it was anticipated that riding on expanded domestic market and new export frontiers BD pharmaceutical market is expected to grow 15% in next 5-years. During the last 5-years our GDP growth was ≈7% and it is expected to remain robust till 2023. Considering all these issues, we have used 7% as terminal growth rate. Large number of population, high population growth, increase in income level of people (provisional income currently stands at $1,909), increased awareness of health among the people and propensity to consume more healthcare products with increased income level will cause to grow the Square pharmaceuticals Limited at assumed 7% rate infinitely.

Quarterly Restated EPS Trend (BDT

4.02 4.02

3.97 3.97

3.92 3.92

3.82 3.82

3.78 3.78

3.72 3.72

3.62 3.62

3.62 3.62

3.42 3.42

3.27 3.27

3.12 3.12

3.07 3.07

2.68 2.68

2.51 2.51

2.30 2.30

2.04 2.04

1.94 1.94

1.76 1.76 1.65 1.65

Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar 2014-15 2015-16 2016-17 2017-18 2018-19

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Technical Indicators and performance in DSE During last 1-year, Square Pharmaceuticals Rebased Price Rebased Index Limited has underperformed then DSEX index. 130 125 During this period Square Pharmaceuticals 120 Limited lost around 15% of its price (dividend 115 110 adjusted price decrease was 9.78%) whereas 105 DSEX decreased by 9.35%. 100 95 The resistance and support level for Square 90 Pharmaceuticals Limited is 272.9 and 245.5 85 respectively.

Free cash flow to firm Valuation With discount rate of 12.00% and terminal growth rate of 7%. DCF analysis gives Net Present Value (PV) of Free Cash Flow to Firm (FCFF) of BDT 205.49 billion as of June, 2019. The fair value using DCF method stands at BDT 292.5 per share for the company, which implies an upside of 17.58% from current market price.

(Figures in BDT million) 2019-20 2020-21 2021-22 2022-23 2023-24 Terminal

Profit for the Year 12,746 13,639 14,629 15,802 17,133

Add: After Tax Interest Expenses 72 86 88 90 94 Add: Depreciation & Amortization 2,684 3,082 3,562 4,144 4,729 Less: Investment in NWC 1,803 742 842 1,000 1,148 Less: Capital Expenditures 3,538 4,266 5,177 5,203 5,641 Free Cash Flow to the Firm 10,161 11,800 12,260 13,833 15,167 283,244

Enterprise Value 205,490

Plus: Cash & cash equivalent 25,323

Less: Interest Debt -

Equity Value 230,813 No. of Share Outstanding 789.0

Value per Share (BDT) 292.54

Sensitivity Analysis We have also checked the sensitivity analysis of FCFFF value per share on discount rate and terminal growth rate. We considered a discount with a range from 11.8% to 13.0% and terminal rate with a range from 5.0% to 7.6%. As a result, we got values range from 223.4 to 351.8.

Sensitivity Analysis Discount Rates 292.5 11.5% 11.6% 11.8% 12.0% 12.2% 12.4% 12.5% 12.6%

5.00% 252.4 249.1 242.7 236.7 231.0 225.6 223.0 220.5 6.00% 280.0 275.6 267.3 259.5 252.2 245.4 242.2 239.0 7.00% 319.9 313.7 302.2 291.5 281.7 272.6 268.3 264.1 7.20% 330.1 323.4 311.0 299.5 289.0 279.3 274.7 270.2

Terminal Growth 7.40% 341.3 334.1 320.5 308.2 296.9 286.5 281.6 276.9 7.60% 353.7 345.7 331.0 317.7 305.5 294.3 289.0 284.0

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Relative Valuation Methods We conducted relative valuation using different relative valuations techniques.

Relative Valuation Particulars Multiple Valuation Average Historical PE multiple 24.22 14.64 354.7 P/NAVPS 3.80 81.95 311.5 Pharma Sector Forward PE 19.84 14.64 290.5 Market Forward PE 12.20 14.64 178.6 Sector PB 2.40 81.95 196.7 Market PB 1.62 81.95 132.8 Average Price Per Share 266.4

Calculations Historical PE of SQURPHARMA P/E Current P/E 15.62 PE at YE 2013-14 35.09 PE at YE 2014-15 31.05 PE at YE 2015-16 22.48 PE at YE 2016-17 20.47 PE at YE 2017-18 20.60 Average 24.22

Sector in DSE P/E P/NAV Price NAV SQURPHARMA 15.6 3.04 248.8 81.95 BXPHARMA 10.5 1.09 77.4 70.99 IBNSINA 24.0 5.71 254.0 44.5 GLAXOSMITH 31.4 10.71 1,390.1 129.85 ACMELAB 9.8 0.83 71.0 85.32 RENATA 27.7 5.37 1,158.1 215.71 Sector Avg. PE 19.84 3.80

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Key Terminologies/ Acronyms: 1. SQURPHARMA= Square Pharmaceuticals Limited 11. Free Float Share= Total shareholding- Sponsor or directors 2. CAGR=Compound Annual Growth Rate holding 3. DCF: Discounted Cash Flow Valuation Method 12. GDP= Gross Domestic Product 4. Div. Yield = Dividend Yield Based on Historical and 13. API= Active Pharmaceutical Ingredient Expected Fair Value per Share 14. NAVPS= Net Asset Value Per Share 5. DPS: Dividend Per Share 15. NPAT: Net Profit after Tax 6. EBIT= Earnings before Interest and Tax 16. OPEX= Operating Expenditure 7. EBITDA= Earnings before Interest, Tax, Depreciation & 17. PBT: Profit Before Tax Amortization 18. ROA= Return on Average Assets 8. EPS= Earnings per Share. 19. ROE= Return on Average Equity 9. EV=Enterprise Value 20. Others: Q = Quarter, mn= Million, bn=Billion 10. FCFF: Free Cash flow To Firm An. = Annualized, Exp. = Expected, YoY= Year on Year

Formulas Used 1. 퐸푃푆 = 푁푒푡 푃푟표푓𝑖푡 퐴푓푡푒푟 푇푎푥 ÷ 푁표. 표푓 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑𝑖푛푔 2. 퐸퐵퐼푇 = 푁푒푡 푃푟표푓𝑖푡 + 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒푠 + 푇푎푥 3. 퐸퐵퐼푇퐷퐴 = 퐸퐵퐼푇 + 퐷푒푝푟𝑖푐𝑖푎푡𝑖표푛 퐸푥푝푒푛푠푒푠 4. 푁퐴푉푃푆 = 푆ℎ푎푟푒ℎ표푙푑푒푟′푠 퐸푞푢𝑖푡푦 ÷ 푁표. 표푓 푆ℎ푎푟푒푠 푂푢푡푠푡푎푛푑𝑖푛푔 5. 푅푂퐴 = 푁푒푡 푃푟표푓𝑖푡 ÷ 퐴푣푒푟푎푔푒 푇표푡푎푙 퐴푠푠푒푡푠 6. 푅푂퐸 = 푁푒푡 푃푟표푓𝑖푡 ÷ 퐴푣푒푟푎푔푒 푇표푡푎푙 퐸푞푢𝑖푡푦 7. 퐼푛푣푒푛푡표푟푦 푇푢푟푛표푣푒푟 푅푎푡𝑖표 = 퐶표푠푡 표푓 퐺표표푑푠 푆표푙푑 ÷ 퐴푣푒푟푎푔푒 퐼푛푣푒푛푡표푟푦 8. 푅푒푐푒𝑖푣푎푏푙푒 푇푢푟푛표푣푒푟 푅푎푡𝑖표 = 푁푒푡 푅푒푣푒푛푢푒 ÷ 퐴푣푒푟푎푔푒 퐴푐푐표푢푛푡 푅푒푐푒𝑖푣푎푏푙푒푠 9. 퐴푣푒푟푎푔푒 퐶표푙푙푒푐푡𝑖표푛 푃푒푟𝑖표푑 (퐷푎푦푠) = 360 ÷ 푅푒푐푒𝑖푣푎푏푙푒 푇푢푟푛표푣푒푟 푅푎푡𝑖표 10. 퐼푛푣푒푛푡표푟푦 퐶표푛푣푒푟푠𝑖표푛 푃푒푟𝑖표푑(퐷푎푦푠) = 360 ÷ 퐼푛푣푒푛푡표푟푦 푇푢푟푛표푣푒푟 푅푎푡𝑖표 11. 푂푝푒푟푎푡𝑖푛푔 퐶푦푐푙푒 = 퐴푣푒푟푎푔푒 퐶표푙푙푒푐푡𝑖표푛 푃푒푟𝑖표푑 + 퐼푛푣푒푛푡표푟푦 퐶표푛푣푒푟푠𝑖표푛 푃푒푟𝑖표푑 12. 퐴푐푐표푢푛푡 푃푎푦푎푏푙푒 푇푢푟푛표푣푒푟 푅푎푡𝑖표 = 퐶표푠푡 표푓 퐺표표푑푠 푆표푙푑 ÷ 퐴푣푒푟푎푔푒 퐴푐푐표푢푛푡 푃푎푦푎푏푙푒푠 13. 푃푎푦푎푏푙푒푠 푃푎푦푚푒푛푡 푃푒푟𝑖표푑 (퐷푎푦푠) = 360 ÷ 퐴푐푐표푢푛푡 푃푎푦푎푏푙푒 푇푢푟푛표푣푒푟 푅푎푡𝑖표 14. 퐶푎푠ℎ 퐶표푛푣푒푟푠𝑖표푛 퐶푦푐푙푒 (퐷푎푦푠) = 푂푝푒푟푎푡𝑖푛푔 퐶푦푐푙푒 − 푃푎푦푎푏푙푒 푃푎푦푚푒푛푡 푃푒푟𝑖표푑 15. 푇표푡푎푙 퐴푠푠푒푡 푇푢푟푛표푣푒푟 = 푁푒푡 푅푒푣푒푛푢푒 ÷ 퐴푣푒푟푎푔푒 푇표푡푎푙 퐴푠푠푒푡 16. 퐹𝑖푥푒푑 퐴푠푠푒푡 푇푢푟푛표푣푒푟 = 푁푒푡 푅푒푣푒푛푢푒 ÷ 퐴푣푒푟푎푔푒 퐹𝑖푥푒푑 퐴푠푠푒푡 17. 푇𝑖푚푒푠 퐼푛푡푒푟푒푠푡 퐸푎푟푛푒푑 = 퐸퐵퐼푇 ÷ 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒푠 18. 푃퐸퐺 푟푎푡𝑖표 = 푃/퐸 푅푎푡𝑖표 / 퐸푎푟푛𝑖푛푔푠 퐺푟표푤푡ℎ 푅푎푡푒

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Statement of Consolidated Income (BDT mn)

2014-15 2015-16 2016-17 2017-18 2018-19An 2019-20 Ex. 2020-21 Ex. 2021-22 Ex. Gross Turnover 31,845 38,326 42,285 45,887 49,742 53,423 57,456 62,010 Less: Value Added Tax 4,314 5,252 5,742 6,233 6,754 7,141 7,680 8,289 Net Turnover 27,531 33,074 36,543 39,654 42,988 46,282 49,776 53,722 Cost of Goods Sold 15,260 17,082 18,275 20,090 21,525 23,141 24,838 26,794 GROSS PROFIT 12,271 15,991 18,268 19,564 21,463 23,141 24,938 26,928 Total Operating Income 12,271 15,991 18,268 19,564 21,463 23,141 24,938 26,928 Operating Expenses: 4,655 5,195 5,972 6,783 7,398 7,661 8,373 9,183 Selling and Distribution Expenses 3,862 4,350 5,057 5,751 6,300 6,480 7,108 7,825 Administrative Expenses 793 845 915 1,032 1,097 1,182 1,265 1,358 PROFIT FROM OPERATIONS 7,616 10,797 12,296 12,781 14,065 15,480 16,565 17,745 Financial Expenses 115 5 0 0 0 96 115 117 Other Non-Operating Income 332 657 1,094 1,768 2,200 2,216 2,383 2,572 PROFIT BEFORE WPPF 7,833 11,448 13,390 14,549 16,265 17,600 18,834 20,200 Allocation for WPPF 395 544 647 701 786 855 915 982 PROFIT BEFORE TAX 7,438 10,904 12,743 13,848 15,479 16,744 17,918 19,219 Provision for Income Tax 1,756 2,390 2,949 3,255 3,768 3,999 4,279 4,590 Provision for Deferred Income Tax 174 227 75 102 158 - - - Deferred Tax Income -75 -48 ------PROFIT AFTER TAX 5,507 8,287 9,719 10,491 11,553 12,746 13,639 14,629 NCI 827 916 ------PROFIT AFTER TAX FOR THE YEAR 4,680 7,371 9,719 10,491 11,553 12,746 13,639 14,629 Profit/(Loss) from Associate Undertakings 827 916 929 1,115 1,008 1,127 1,259 1,408 Unrealized gain/(loss) on Investment in Sec. -95 -3 330 -404 -25 - - - Total Comprehensive Income for the Year 5,507 8,287 10,648 11,606 12,561 13,872 14,899 16,037 EPS 5.93 9.34 12.32 13.3 14.64 16.15 17.29 18.54

27

Statement of Financial Position (BDT mn)

2014-15 2015-16 2016-17 2017-18 2018-19An 2019-20 Ex. 2020-21 Ex. 2021-22 Ex. Non-Current Assets: 25,598 27,240 29,355 32,831 33,655 38,279 43,251 49,131 PPE 18,147 18,848 19,324 20,545 20,900 23,853 27,390 31,656 Capital Work-in-Progress 88 - - - - 443 531 672 Deferred Tax Assets 72 ------Investment - Long Term (at Cost) 234 556 589 941 746 828 915 1,006 Investment in Marketable Securities 898 1,072 1,938 2,891 2,972 3,188 3,419 3,667 Investment in Associates Companies 6,159 6,765 7,505 8,454 9,036 9,968 10,996 12,130 Current Assets: 11,041 17,063 23,176 28,442 36,486 41,724 47,462 51,729 Inventories 3,661 3,695 3,731 4,433 4,725 5,271 5,669 6,119 Accounts Receivable 909 1,336 2,204 1,616 1,598 1,777 1,911 2,063 Other Debtor ------Advanced, Deposits and Prepayments 852 1,131 1,451 2,281 3,278 2,777 3,061 3,386 Short Term Investment 1,095 2,379 21 3,132 1,562 2,328 2,504 2,703 Cash and Cash Equivalents 4,524 8,523 15,769 16,980 25,323 29,570 34,316 37,458 TOTAL ASSETS 36,639 44,304 52,531 61,273 70,140 80,003 90,713 100,860 SHAREHOLDERS' EQU. & LIABILITIES: Shareholders' Equity: 32,912 40,558 49,040 57,841 64,659 74,760 84,847 94,672 Share Capital 5,543 6,236 6,859 7,374 7,890 8,285 8,699 8,916 Share Premium 2,035 2,035 2,035 2,035 2,035 2,035 2,035 2,035 General Reserve 106 106 106 106 106 106 106 106 Tax Holiday Reserve - 302 853 1,950 2,212 2,328 2,504 2,703 Retained Earnings 24,960 31,612 38,578 46,159 52,242 61,832 71,328 80,738 Gain on Marketable Sec. (Unrealized) 270 267 597 192 174 174 174 174 Non-Controlling Interest -2 1 13 25 - - - - Non-Current Liabilities: 1,137 1,054 1,129 1,231 1,350 1,667 2,009 2,032 Long Term Loans - Secured 237 - - - - 510 765 689 Deferred Tax Liability 900 1,054 1,129 1,231 1,350 1,157 1,244 1,343 Current Liabilities: 2,590 2,691 2,361 2,200 4,131 3,576 3,857 4,156 Short Term Bank Loans 2 3 - - - 231 249 269 Long Term Loans - Current Portion 73 - - - - 26 38 34 Creditors and Other Payables 651 694 844 525 679 953 1,025 1,106 Liabilities for Other Finances 1,766 1,952 1,490 1,586 3,438 2,297 2,470 2,666 Liabilities for Expenses 98 43 28 90 14 69 75 81 SHAREHOLDERS' EQUITY & LIABILITIES 36,639 44,304 52,531 61,273 70,140 80,003 90,713 100,860 Net Asset Value (NAV) Per Share 59.38 65.04 71.49 78.44 81.95 94.75 107.54 119.99 No. of Share Outstanding (in mn) 554.3 623.59 685.95 737.39 789.01 828.46 869.88 891.63

28

Ratio Analysis

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Liquidity Ratios: Current Ratio 4.26 6.34 9.81 12.93 8.83 11.67 12.3 Quick Ratio 2.85 4.97 8.23 10.91 7.69 10.19 10.84 Cash Ratio 2.17 4.05 6.69 9.14 6.51 8.92 9.55 Operating Efficiency Ratios Inventory Turnover Ratio 7.52 8.95 9.79 8.95 9.10 9.26 9.10 Receivable Turnover Ratio 30.28 24.76 16.58 24.55 26.89 27.42 26.99 Average Collection Period (Days) 11.89 14.54 21.71 14.67 13.39 13.13 13.34 Inventory Conversion Period(Days) 47.88 40.22 36.75 40.24 39.57 38.88 39.56 Operating Cycle (Days) 59.77 54.76 58.47 54.91 52.95 52.01 52.9 A/C Payable Turnover Ratio 23.45 24.61 21.65 38.29 31.7 28.35 25.11 Payables Payment Period (Days) 15.35 14.63 16.62 9.4 11.36 12.7 14.34 Cash Conversion Cycle (Days) 44.42 40.13 41.84 45.51 41.6 39.31 38.56 Total Asset Turnover 75.14% 74.65% 69.56% 64.72% 61.29% 57.85% 58.31% Fixed Asset Turnover 151.71% 175.47% 189.11% 193.01% 205.68% 194.03% 194.27% Operating Profitability Ratios Gross Profit Margin (GPM) 44.57% 48.35% 49.99% 49.34% 49.93% 50.00% 50.10% Operating Profit Margin (OPM) 27.66% 32.64% 33.65% 32.23% 32.72% 33.45% 33.28% EBITDA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Pre Tax Profit Margin 27.02% 32.97% 34.87% 34.92% 36.01% 36.18% 36.00% Net Profit Margin (NPM) 17.00% 22.29% 26.60% 26.46% 26.87% 27.54% 27.40% Return on Total Assets (ROA) 12.77% 16.64% 18.50% 17.12% 16.47% 16.98% 15.98% Return on Equity (ROE) 14.22% 18.17% 19.82% 18.14% 17.87% 18.28% 17.09% Leverage Ratios Total Debt to Equity 0.90% 0.00% 0.00% 0.00% 0.00% 1.00% 1.20% Debt to Total Assets 0.90% 0.00% 0.00% 0.00% 0.00% 1.00% 1.20% Coverage Ratios Times Interest Earned (TIE) 66 2,037 79,644 136,551 226,485 161 144 Cash Coverage Ratio Valuation Ratios P/B (price to book) Ratio 26.22 26.57 29.01 29.31 29.25 29.25 29.25 Book Value Per Share 10 10 10 10 10 10 10 EPS (Diluted) 5.93 9.34 12.32 13.3 14.64 16.15 17.29 EPS (Basic) 8.44 11.82 14.17 14.23 14.64 15.38 15.68 Dividend (C%/B%) 30%/12.5% 40%/10% 35%/7.5% 36%/7% 40%/5% 50%/5% 60%/2.5% Dividend per Share 3.0 4.0 3.5 3.6 4.0 5.0 6.0 Dividend Payout Ratio 35.53% 33.84% 24.70% 25.30% 27.32% 32.50% 38.27% Retention Rate 64.47% 66.16% 75.30% 74.70% 72.68% 67.50% 61.73% P/E Ratio 31.05 22.48 20.47 20.6 19.98 18.11 16.92 EV/EBITDA 15.24 12.16 12.45 12.57 11.52 10.94 10.48 EV/Sales 5.13 4.75 5.01 5.02 4.78 4.61 4.44 Price/Sales 7.51 6.34 6.26 5.83 5.37 4.99 4.64 Tobin's q 3.97 3.74 3.79 3.53 3.29 3.03 2.81 Sales/ Share 34.89 41.92 46.32 50.26 54.48 58.66 63.09 Growth Rates EPS Growth Rate 29.88% 57.50% 31.85% 7.94% 10.12% 10.33% 7.01% Dividend Growth Rate 0.00% 33.33% -12.50% 2.86% 11.11% 25.00% 20.00% Sales Growth Rate 13.88% 20.13% 10.49% 8.51% 8.41% 7.66% 7.55% Gross Profit Growth Rate 15.72% 30.32% 14.24% 7.09% 9.71% 7.82% 7.76% Operating Profit Growth Rate 21.17% 41.77% 13.89% 3.94% 10.05% 10.06% 7.01% Net Income Growth Rate 29.88% 57.50% 31.85% 7.94% 10.12% 10.33% 7.01% Dividend Payout Ratio -11.46% -4.76% -27.00% 2.44% 7.96% 18.97% 17.74% Retention Rate 7.68% 2.63% 13.81% -0.80% -2.70% -7.13% -8.54% Total Asset Growth Rate 14.42% 20.92% 18.57% 16.64% 14.47% 14.06% 13.39% Other Data 29

Stock price- Period End 262.2 265.7 290.1 293.1 292.54 292.54 292.54 No. of shares outstanding (in mn) 554.3 623.59 685.95 737.39 789.01 828.46 869.88 Market Cap (in bn) 145.34 165.69 198.99 216.13 230.81 242.35 254.47 EBITDA (in bn) 9.26 12.92 14.71 15.85 17.83 19.52 21.11 EV (in bn) 141.13 157.17 183.22 199.15 205.49 213.55 221.21 Depreciation (in bn) 1.71 2.01 1.97 2.00 2.35 2.68 3.08 DUPONT ANALYSIS Net Profit AT/Sales 17.00% 22.29% 26.60% 26.46% 26.87% 27.54% 27.40% Sales/Total Assets 80.19% 81.72% 75.48% 69.69% 65.42% 61.65% 58.31% ROA 13.63% 18.21% 20.07% 18.44% 17.58% 16.98% 15.98% Net Profit AT/Total Assets 13.63% 18.21% 20.07% 18.44% 17.58% 16.98% 15.98% Total Assets/Stockholders. Equity 1.13 1.1 1.08 1.06 1.07 1.08 1.07 ROE 15.36% 20.07% 21.69% 19.63% 18.86% 18.28% 17.09% Extended DUPONT ANALYSIS Net Profit/Pretax Profit 62.92% 67.60% 76.27% 75.76% 74.63% 76.12% 76.12% Pretax Profit/EBIT 97.66% 101.00% 103.63% 108.35% 110.05% 108.17% 108.17% EBIT/Sales 27.66% 32.64% 33.65% 32.23% 32.72% 33.45% 33.28% Sales/Assets 80.19% 81.72% 75.48% 69.69% 65.42% 61.65% 58.31% Assets/Equity 1.13 1.1 1.08 1.06 1.07 1.08 1.07 ROE 15.36% 20.07% 21.69% 19.63% 18.86% 18.28% 17.09%

30

Important Disclosures

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