OBS Pakistan - General Remarks

OBS Pakistan (Pvt.
) Ltd

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GENERAL REMARKS
1. PURPOSE OF FINANCING PROPOSAL
We have approved financing relationship of PKR 150 Mn with OBS Pakistan (Pvt.) Limited (referred to as the
company or OBSPL) through Financing Proposal Synopsis # FIRD/MFC/SR/522/2012 dated November 27,
2012. Through this financing proposal, we seek approval for One-off Murabaha Facility of PKR 350 Million.
Transaction details along with Facility Structure are given below.
2. FACILITY & TRANSACTION STRUCTURE

Facility No 2 MURABAHA LOCAL (ONE-OFF)
Amount PKR 350 Million
Purpose One off facility will be utilized for the procurement of stocks in trade locally from
ICI Pakistan Ltd
Justification Facility has been proposed keeping in view the acquisition of stocks/inventory of
Astra Zeneca (AZ) from ICI Pakistan Ltd (ICI). The license agreement between ICI
and AZ is being terminated due to the change in majority ownership of ICI. Now
OBSPL is acquiring AZ operations in Pakistan and require financing to procure its
stock from ICI.
Shariah MO Shariah Modus Operandi (MO) is in process of approval and will be obtained
prior to final approval; however, proposed Shariah MO for local Murabaha will
have the following features:
OBSPL will provide an Order Form to Burj for purchase of goods.
Burj will issue instructions to OBSPL (as an agent of BBL) to procure the
goods, as per Order Form
Burj will make advance payment or if Credit facility available to OBSPL from
its supplier(s), the payment shall be made after stipulated time period
OBSPL will confirm receipt of funds for onward payment to supplier(s)
OBSPL will provide invoices of the goods procured to Burj as evidence of
purchases.
OBSPL will provide Declaration for taking possession of the described goods
along with undertaking for non-consumption / non-destruction of goods.
Burj will offer to sell the goods to OBSPL at agreed cost plus profit on
Deferred Murabaha basis and OBSPL will accept the offer to sell the goods
made by BBL or vice versa.
In case of Advance against Murabaha, the same will be converted into
Murabaha Financing within 60 working days (max) in parts / lump sum
effective from the date of disbursements of funds by BBL for the purchase
of goods
Pricing MatchingKIBOR + 2.00%
One-off Processing Fee of PKR 1.75 Million (On best effort basis)
Tenor OTT for Max 210 Days

Repayment Companys business cash flows will be mainly utilized for the repayment of the
facility. The facility will be fully repaid maximum in 210 days from the draw
down. However the repayment would be in tranches under Sub-Murabaha
transactions of different amounts & tenors. Tentative repayment plan is under :
Amount Days from the draw down
1. PKR 50 Mln 60 days

Note: Partial Payments / Early Repayments to be allowed
OBS Pakistan (Pvt.) Ltd

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Note
PG's of following 5 Directors backed by Personal Net Worth Statements (PNWS) will be obtained to secure
total exposure: (1) Mr. Tarek M Khan (2) Mrs. AdellaTarek Khan (3) Syed Zeeshan Mobin (4) Dr. Ali Afzal (5)
Dr. Jehanzeb Akram
Once the customer has fully adjusted the OTT/Facility # 2 and has developed a repayment
track record with us; the funded/non-funded lines will be realigned within the approved
exposure of PKR 500 Mn.

2.1. Ways out Analysis
Principal Source: Principal source for repayment is companys own financial sources including but not limited
to cash flows
Secondary Source: Second source of repayment is financing and working capital limits available from other
financial institutions
Tertiary Source: Tertiary source of repayment is the recovery through sale of hypothecated stocks/property of
the company and/or calling Personal Guarantees of Directors

2.2. Security Analysis / Cushion Availability
Cushion Availability in Stocks & Receivables:

Post-Acquisition Cushion Availability (Hypothetical Scenario)

Description PKR (As of Jan 31, 2013)
Raw and Packi ng Materi al 192,835,043
Work i n Process 45,685,019
Fi ni shed Goods 463,162,279
Stores & Spares 16,457,126
TOTAL STOCKS 718,139,467
Trade Debts 21,091,040
A TOTAL STOCKS & TRADE DEBTS 739,230,507
Short Term Bank Borrowi ngs 408,952,583
B Required Charge Amount (Incl. 25% Margin) 545,270,111
C Drawing Power/Cushion Available (A-B) 193,960,396
Description PKR
1 Value of Stocks to be Procured from AZ (Approx.) 900,000,000
Local Murabaha Facility - Burj Bank 350,000,000
2 Required Charge Amount (Incl. 25% Margin) 466,666,667
3 Cushion Available (1-2) 433,333,333
Security First Pari Passu hypo charge over all present and future stock-in-trade, trade
debts and receivables of the company with 25% risk margin duly registered with
SECP.
(Initial disbursement to be allowed against Ranking Charge which will be
upgraded to First Pari Passu status within 120 days from the date of first
disbursement)

Ranking Hypothecation Charge of Rs. 350 Mn over All Present & Future Fixed
Assets of the company located at C-14, Manghopir Road, S.I.T.E., Karachi.
(Charge on Fixed Assets to be vacated upon full settlement of one-off local
Murabaha Facility and/or upgradation of ranking hypothecation charge over
stocks & receivables to 1st pari passu status)
Procedural
Requirements (If Any)
Local Murabaha will most probably be disbursed in one go however the
repayments would as per above mentioned repayment plan

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Cushion Availability in Fixed Assets (located at C-14, Manghopir Road, S.I.T.E., Karachi):

Note: Value of Fixed Assets is as per Valuation Report dated 30 July 2010 by PBA approved valuator M/s. Iqbal
A. Nanjee & Co. (Pvt) Ltd

2.3. Deferral / Waiver Requested
Ranking Hypothecation Charge on stocks & receivables will be upgraded to First PariPassu status within
120 days from the date of the disbursement of Facility # 2

Ranking Charge on Fixed Assets to be vacated upon full settlement of one-off local Murabaha Facility
and/or upgradation of ranking hypothecation charge over stocks & receivables to 1st pari passu status

2.4. Exceptions
N/A

3. GROUP PROFILE
Company Names Date of
Establishment
Location Nature of Business Market
Check/ECIB
OBS Healthcare
(Pvt.) Ltd
1963 Karachi Manufacturing, Marketing,
Distribution of Pharmaceutical
Products
Clean eCIB
OBS Pharma (Pvt.)
Ltd

2007 Karachi Manufacturing/ Marketing/
Distribution of Therapeutic
Medicines
Clean eCIB
Schering Plough
Pakistan (Pvt.) Ltd.
2005 Karachi Manufacturing and Distribution
of Pharmaceutical Products
Clean eCIB

Description PKR
Land 207,900,000
Buildings 70,303,474
Plant, Machinery, Equipments, Furniture & Fixtures 276,779,180
1 Total Fixed Assets 554,982,654
Long Term Debt O/S 31-Dec-2012 71,250,000
2 Required Charge Amount (Incl. 25% Margin) 95,000,000
3 Cushion Available (1-2) 459,982,654

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4. COMPANY PROFILE
The company was formed in 2008 for the acquisition of Merck Sharp
&Dohme (MSD)of Pakistan (formerly a subsidiary of Merck & Co. Inc., USA)
which has been operating in the Pakistani pharmaceutical market since
June 1962.OBSPL is ranked amongst the top 20 pharmaceutical players in
Pakistani pharmaceutical market with a strong nationwide presence. It is
among the very few companies in Pakistan which has specialized in
developing strategic business alliances with reputed international firms like
Organon, Merck & Co. Inc. USA and Schering Plough by providing a full
range of high quality professional services encompassing manufacturing,
marketing and sales of pharmaceutical and consumer health products. The
company aims to become the center of excellence for their partners.

OBSPL has developed expertise in major health segments like Cardiology,
Neuropsychiatry, Anti-Infectives, Gastroenterology, Gynecology,
Ophthalmology, Pulmonology, Endocrinology, Vaccines and Bone
Disorders.The company has strong coverage all over Pakistan through 250 plus professionally trained medical
representatives covering more than 20,000 healthcare professionals across the country. Their products are
available in over 15,000 pharmacies across Pakistan.OBSPL continuously invest on upgrading its information
systems which enable us to scientifically grow their business and help the management to have effective
controls and further improve the efficiency of the organization. In addition to the systems the company also
strongly believes that people are the most important asset for any organization. Moreover, OBSPL regularly
invest in the training and development of their human resource through both internal and external training and
development programs.
In continuation of its rapid pace of expansions in June 2009, the company further signed a strategic alliance
with Merck & Co. Inc., USA to acquire certain MSD brands in Sri Lanka. This was the first step for OBSPL in the
international arena followed by which it looks to rapidly expand its operations in other South East Asian and CIS
countries including Vietnam, Philippines, Myanmar and Uzbekistan.
In December 2010, MSD as a natural progression to its business strategy
and considering the successful track record of its strategic partner in
Pakistan made OBSPL the custodian for their Schering Plough business in
Pakistan mainly specializing in the field of Gastroenterology and Cardiology.

Acquiring Astra Zeneca Operations in Pakistan
ICI Pakistan Limited (ICI) has been the Licensee in Pakistan of Astra
Zeneca (AZ) a Swiss based company, for the manufacture, marketing,
distribution and the sale of their certain pharmaceutical products. This
business has been carried on by the Life Sciences division of ICI. AZ is a
global, innovation-driven, integrated biopharmaceutical company which
discover, develop, manufacture and market prescription medicines for six important areas of healthcare, which
include some of the worlds most serious illnesses: cancer, cardiovascular, gastrointestinal, infection,
neuroscience, and respiratory and inflammation.

License Agreement between ICI and AZ permits AZ to terminate the Agreement in the event there is a change
in the majority ownership of ICI. As of last year, Lucky Holdings Limited is in the process of acquiring the
majority ownership of ICI following which AZ does not wish to continue its relationship with ICI, and therefore
the License Agreement will in due course be terminated.


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This alliance would result in guaranteed performance as OBSPL will be fully compliant and aligned with ICIs
medico-marketing strategies and ethical business practice. OBSPLs model will also provide ICI with the flexibility
of placing their own managers thereby ensuring full implementation of their marketing strategies, compliance
policies, code of ethics, etc. Also, there is a guaranteed price increase for selected products (in addition to
general price increase if any) in one year and fast track new product registration coupled with market
introductions.
As discussed with OBSPL; 70% of AZs sales come from locally manufactured pharmaceutical products and
remaining 30% from directly imported finished stocks. Since ICI has no manufacturing facility hence all the local
manufacturing was being done through Searl Pakistan Ltd (Searl) under toll manufacturing contract. Whereas
the distribution of the AZs products was being carried out 100% by United Distributors Ltd (UDL). As per
OBSPLs understanding with AZ the same business model will be followed going forward. The finished goods
will be imported by OBSPL directly from AZ UK whereas the raw material and APIs for locally manufactured
products will be imported
from different sources,
preferably from European
countries, as identified by
AZ. The business model is
graphically represented as
follows:

After this acquisition; the projected Profit & Loss position of OBSPL for next two yearsis expected to be as
follows:

NOTE: Since the year-end of OBSPL is June, that is why three (3) month sales effect of AZ is incorporated with
OBS resulting in expected sales of PKR 2.7 Bn for 2013. However, in 2012 the full year effect would lift the sales
of OBSPL to PKR 4.8 Bn.
PKR % PKR % PKR %
Net Sales 1,836,829 100.0% 2,734,002 100.0% 4,857,388 100.0%
Cost of Sales 1,015,990 55.3% 1,581,295 57.8% 2,865,322 59.0%
Gross Profit / (Loss) 820,839 44.7% 1,152,708 42.2% 1,992,066 41.0%
Operating Expenses 487,399 26.5% 685,140 25.1% 1,065,377 21.9%
Operating Profit / (Loss) 333,440 18.2% 467,568 17.1% 926,688 19.1%
Financial Cost 69,575 3.8% 70,696 2.6% 102,985 2.1%
Profit before Taxation 263,864 14.4% 396,872 14.5% 823,704 17.0%
Taxes 90,644 4.9% 170,655 6.2% 354,193 7.3%
Net Profit 173,220 9.4% 226,217 8.3% 469,511 9.7%
Post Acqusition of Astrazeneca
Description 2012 2013 2014

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4.1. Directors / Shareholders / Sponsors
Shareholding structure of the group companies is tabulated as follows:

4.2. Management
NAME DESIGNATION QUALIFICATION / EXPERIENCE
Mr. Tarek M. Khan Chief Executive Officer Over 25 years of experience. Graduate of
Concordia University, Montreal Canada,
Graduate Diploma in Public Accountancy
(GDPA) from Mc Gill University, CMA from
Ontario, Certified Public Accountant (CPA) from
California.
Mr. Emile H.A.M Van Dongen Executive Director
International Business

More than 20 years of experience. MBA from
University of Georgia.
Dr. Ali Afzal Executive Director
Technical Operations &
Regulatory Affairs
Bachelors in Medicine and Surgery (MD),
Various Business Management Courses from
American Management Association and
Management Center Europe
Syed Zeeshan Mobin Group Director Finance
& Corporate Services
Over 21 years of experience. CMA & Gold
Medalist Chartered Accountant
Dr. Jehanzeb Akram Director Business
Development & Exports
Over 15 years of experience. Bachelors in
Medicine and Surgery (MD) & MBA
Mr. Amjad Khan

Group Director Internal
Audit
Over 20 years of experience. Bachelors Degree
in Business Administration from Bishops
University Canada, ISO Certified Auditor &
Certified Public Accountant

4.3. Organization Structure
The key decision maker is Mr. Tarek M. Khan (CEO) along with his wife Mrs. AdellaTarek Khan. Mr. Khan is aged
56 years and has over 25 years of varied business experience in auditing, financial controls, and senior
management positions in Canada, Saudi Arabia and Pakistan. Besides Mr. Khan, the company has a balanced
set of Executive and Non-Executive directors who are well qualified and are in mid of their careers.
OBS PAKISTAN (PVT.) LTD. SHAREHOLDING (%)
Mr. Tarek M Khan 9.9968%
Mrs. AdellaTarek Khan 0.0006%
Syed Zeeshan Mobin 0.0006%
Dr. Ali Afzal 0.0006%
Dr. Jehanzeb Akram 0.0006%
Dr. Kawaja A.Moiddin 0.0006%
Ms. Qurat-ul-Ain Zeeshan 0.0006%
OBS Healthcare (Pvt.) Ltd.* 89.999%
TOTAL 100.000%
*OBS HEALTHCARE (PVT.) LTD. SHAREHOLDING (%)
Mr. Tarek M Khan 70%
Syed Zeeshan Mobin 10%
Dr. Ali Afzal 10%
Dr. Jehanzeb Akram 10%
TOTAL 100%

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Moreover, the company has developed system of hierarchy in management and chain of command that
ensures automatic replacement of every key position on immediate basis. This system endorses that the
company is dependent on robustness of system instead of individuals.
4.4. Products & Services
Major products of OBSPL are as follows:

# PRODUCTS CATEGORIES
1 Cozaar Cardiovascular Diseases
2 Hayzaar Cardiovascular Diseases
3 Fortzaar Cardiovascular Diseases
4 Zocor Cardiovascular Diseases
5 Renetic Cardiovascular Diseases
6 Invanz Infections Control
7 Tienam Infections Control
8 Singulair Asthma Control
9 Fosanaxo Orthopedics
10 Gardasil Cervical Cancer
11 Decadron Injections
12 Aldomet Blood Pressure
13 Sinemet Parkinson Disease

As far as top performers in terms of sales are concerned, Decadron (Injections) holds major share (29.8%) in
sales followed by Aldomet (Blood Pressure) with 13.6% share. Renitec (Cardiovascular Diseases) has 3
rd
largest
contribution (11.1%) in sales along with Sinemet (Parkinson Disease) comprising 11.0% share in sales.

Product list of ICI - AZ is as follows:

Above mentioned products are likely to be procured from ICI Pakistan Limited under the proposed one-off
Murabaha facility of PKR 350 Mn. Specific details of products will be finalized prior to disbursement.

# PRODUCTS CATEGORIES
1 Arimidex Anti Neo Plastics, Immunomodulators and Drugs used in Palliative Care
2 Casodex Anti Neo Plastics, Immunomodulators and Drugs used in Palliative Care
3 Diprivan Drugs used in Anesthesia
4 Inderal Cardiovascular Diseases
5 Meronem Anti-infective Drugs
6 Nolvadex Antineoplastics, Immunomodulators and Drugs used in Palliative Care
7 Seroquel Psychotherapeutic Drugs
8 Tenoret Cardiovascular Diseases
9 Tenormin Cardiovascular Diseases
10 Zestoretic Cardiovascular Diseases
11 Zestril Cardiovascular Diseases
12 Zomig Anti Migraine Preparations

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4.5. Sales& Buyers
OBSPL products are sold to the general masses.Major distributors of the company are as follows:

NAME LOCATION/ADDRESS YEARS OF ASSOCIATION SELLING TERMS
Pharmalink
Karachi
May - 2011 Cash / Credit - 30 Days
Chandka Distributors
Larkana
Farhat Ali, Pharma Link
Lahore
Muller & Phipps PakistanLtd
Karachi
1966 21 Days from Invoice Date
Haroon Enterprises
Lahore
Haroon Enterprises
Mardan
Tariq Nazir& Co.
Sukker
Oncolink Pharma,
Lahore

United Distributors Pakistan Limited(UDPL) is the distributor for AZs products in Pakistan. OBSPL will continue
to use UDPLas its distributor for the sale of AZs products.

4.6. Resources & Suppliers

NAME LOCATION/ADDRESS YEARS OF
ASSOCIATION
BUYING TERMS
Klockner Pentaplast GHBH Germany 20 60 Days from BL/Airway Bill Date
Merck Sharp &Dohme B.V Holland 6 120 Days from Airway Bill Date
West Pharmaceutical Services Singapore 20 Sight LC
Aventis Pharma S.A France 29 90 Days from BL/Airway Bill Date
DSM Fine Services Austria 15 45 Days from BL/Airway Bill Date

OBSPL will procure imported finished goodsdirectly from AZ - UK while the raw material and APIs for local
manufacturing will be procured from different sources identified by AZ but preferably from some European
countries. Further Searle will do the toll manufacturing services for the locally manufactured products. The
buying terms for theimports of stocks would range from 90-180 days from BL / Airway Bill Date.

4.7. Plant Capacity& Infrastructure

OBS Pakistan (Pvt.) Ltds manufacturing site is approximately 2.97 acres and is located at S.I.T.E Industrial Area,
Karachi. Break-up of OBSPL plant capacity is as follows:

Installed Capacity per year (Tablets) = 430 million
Installed Capacity per year (Vials) = 30 million
Installed Capacity per year (Capsules) = 20 million
Installed Capacity per year (Soft Gelatin Capsules) = 20 million

Manufacturing facility also has a Water Purification Plant for production of RO, DI & WFI for use in
manufacturing of Sterile and Oral products, along with a sophisticated and modern Waste-water Treatment
Plant.


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4.8. Existing Banking & Financing Arrangements/ Relations

5. INDUSTRY ANALYSIS

Pharmaceutical industry of Pakistan is one of the most structured industries. Pakistan meets 80% of its domestic
demand of medicines from local production and 20% through imports. Any surpluses are exported to 40
different countries of the world. Approx. 85% of the local market share is held by the top 50 drug
manufacturers, with the share of MNCs estimated at 53%. At present the pharmaceutical industry in Pakistan is
a sizeable industry producing 125 categories of medicines with an annual turnover of USD 1.2 billion and an
annual growth rate of 10-11%. During 2012, total export value of Pakistani-manufactured medicines around the
world stood at USD 400 million. Many different companies sell a diverse range of drugs and pharmaceutical
products, the biggest household names of which include:

Getz Pharma
Glaxo Smith Kline
Hilton Pharma
Abbot Laboratories
Sanofi Aventis
Bosch Pharmaceuticals
Sami Pharmaceuticals
Novartis Pharmaceuticals
Roche
Martin Dow Pharma
Ferozsons Laboratories

# COMPANIES SALES VALUE (PKR MN) 1Q 2012 SHARE (%)
1 GLAXO SMITH KLINE 4,877,967 11.0%
2 ABBOTT LAB PAK LTD 2,869,727 6.5%
4 PFIZER INC 2,014,285 4.5%
5 NOVARTIS PH.PAK LTD 2,009,689 4.5%
3 GETZ PHARMA 2,104,036 4.7%
6 SAMI 1,649,258 3.7%
7 SANOFI-AVENTIS PAK 1,588,483 3.6%
8 SEARLE 1,300,042 2.9%
9 HILTON 1,225,432 2.8%
10 MERCK (PRIVATE) LTD 1,179,958 2.7%
11 BOSCH 1,000,178 2.3%
12 NESTLE 884,216 2.0%
13 BAYER PAK PVT LTD 735,635 1.7%
14 ROCHE 692,562 1.6%
15 GLOBAL PHARMA 623,769 1.4%
24 MARTIN DOW 509,986 1.1%
16 BARRETT HODGSON 608,276 1.4%
BANKS PKR Mn SHORT TERM LONG TERM
Faysal Bank 400 -
JS Bank Limited 395 -
Syndicate loan - 71.25
Soneri Bank Limited 200 -
Burj Bank Limited 150 -
Total 1,145 71.25

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23 INDUS 533,197 1.2%
18 GEOFMAN PHARMA 571,542 1.3%
17 AGP (PRIVATE) LTD 571,600 1.3%
21 HIGHNOON 538,085 1.2%
20 OBSPL 546,785 1.2%
22 ATCO 535,510 1.2%
19 FEROZSONS 547,480 1.2%
27 CCL 456,754 1.0%
25 I.C.I 500,786 1.1%
28 JOHNSON & JOHNSON 445,437 1.0%
26 HIGH-Q INTL 463,282 1.0%
29 ELI LILLY 428,342 1.0%
30 MACTER 402,479 0.9%
31 OTHERS 11,946,032 26.9%

PAKISTAN PHARMA MARKET 44,360,810 100.0%
Total number of pharmaceutical companies is 379 out of which 350 are local companies and 29 are
multinational companies. 70%-75% of the companies are located in the South region, while remaining players
have set-ups in central and north regions.
The expected growth this year in sales of both prescription and over-the-counter (OTC) medicines will be largely
due to the knock-on effects of Pakistans humanitarian assistance program and pricing pressures, plus higher
inflation levels. A stable political and security situation could create potential for the pharmaceutical market to
expand significantly, reaching to a value of $4.13 billion in 2020. However, it cautions that, with inflation
expected to average around 7% over the forecast period, real growth in pharmaceutical expenditure is expected
to be much lower.
Access to adequate health care for much of Pakistan's rural population is a major barrier to the market's
development and, with multinational firms dominating the sector; the country has a significant negative trade
balance in pharmaceuticals. The domestic industry is focused on generics but there are signs that the larger
locally-owned companies are looking to move up the value chain, for example, the largest domestically-owned
manufacturer, Getz Pharma, has recently announced plans to invest in the local production of pegylated
interferon, as part of its strategy of producing high-value, hard-to-make generics.
The industry has invested substantially to upgrade itself in the last few years and today the majority industry is
following Good Manufacturing Practices (GMP), in accordance with the domestic as well as international
guidance. Currently the industry has the capacity to manufacture a variety of products ranging from simple pills
to sophisticated Biotech, Oncology and Value Added Generic compounds.
Market Dynamics
Pharmaceutical companies import at least 85% of their raw material with a 60-day lag before the consignment
reaches its destination. The material can be imported form anywhere, provided it meets the U.S. and U.K.
specifications. There are some special products like blood products, e.g.; immunological, anti-cancer drugs,
certain anti-diabetic drugs, antidotes and products manufactured from biotechnology, which are being
imported in the finished form. Most companies in Pakistan import pharmaceutical products from USA, UK,
China, Switzerland, Japan and France as well as from new sources such as Singapore, Hong Kong, South Korea
and India. Based on the chemical potency, raw material is normally processed and stored for 45-50 days on
average. Majority of the active ingredients are being imported from various countries. Main suppliers include
Japan, Germany, UK and US. On average imports are effected for two month production requirements. In
established companies, supplier credit terms are also available. Finished goods inventory is held for an
additional 45-50 days with most companies requiring their distributors to maintain a 2-month stock. However,
in majority of the cases payment terms from distributors are on cash or maximum 15-30 days credit. Normal

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production time can range from 0-30 days-however; this may be longer for products that require gestation of
ingredients. As the bulk of raw materials are imported, import financing is required by the companies in the
form of letters of credit and import loans.

Recent Development in the Industry Expansion Potential
Going forward, the sector is likely to witness marginal strengthening of the generics sector, albeit more in terms
of volumes than values. The share of generics is also likely to increase further as major drugs come off-patent in
the near term, to the likely benefit of the generics-dominated local industry. Pakistans pharmaceutical sector
has the potential to double its export in next five years provided pricing and contracting challenges are
addressed in an efficient way.
Local pharmaceutical companies have started entering generic markets and their managements continue to
focus on increasing number of products under generic portfolio (portfolio growth), exploring opportunities for
export of medicines (market diversification in light of post WTO era), maintaining focus in specialized
vaccinations and treatment medicines (high margin niche market) and toll manufacturing for multinationals
(adds credibility to the companies).
The government is considering providing incentives to the pharmaceutical industry so that it could compete in
the international export market. The policy recommendations have been made to the government to enlarge
the size of the pharmaceutical sector by providing necessary financial and technical support to help penetrate in
the export market in the areas of bulk drugs where competitiveness is almost purely determined by
economics of scale.
In addition, these products can also play a vital role in meeting domestic health care needs at affordable prices.
In this regard, adequate funds should be allocated and efficiently utilized for conducting pharmacological and
clinical investigation on various medicinal plants which could lead to new products or strengthening the
scientific basis of existing products.

6. PEER ANALYSIS
The pharmaceutical industry is highly patent/license oriented industry, each company having different
patents/license with unique cost structure for every product and pricing caps from the government authorities,
therefore, comparative analysis cannot be used for benchmarking in this sector.

7. FINANCIAL ANALYSIS
7.1.1. Sales
Sales increased by 21.5% on YoY basis in FY12. Manufacturing
turnover increased by 17.15% while trading turnover
increased by 28.42%. Previously in FY11 sales momentum was
slightly disturbed as production batches for Cozaar & Hyzaar were not executed and the production capacity
was distributed amongst other product batches in order to ensure optimum utilization of manufacturing
capacity.
As per the Management Accounts of December2012, sales have increased by 3.09% on YoY basis to PKR 947
billion.

Year-end (June) 2012 2011 2010
Sales (PKR in Mn) 1,837 1,512 1,656
Growth 21.5% -8.7% 11.0%

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7.1.2. Profitability
The company earned a gross profit of Rs. 821 million
(FY12) recording a healthy GP margin of 44.69% as
compared to 42.49% in FY11. This is due to a 64.7% and
13.2% decrease in sale allowances in manufacturing
and trading respectively.
Net margin has increased to 10.03% (FY12) as compared to previous year of 7.07% due to a decrease of 7% in
administrative expenses.
As per the Management Accounts of December 2012, the GP margin and NP margin have decreased to 43.82%
and 8.37% respectively. NP margin has decreased due to an increase of 9.6% and 27% in distribution cost and
administrative expenses respectively, and more specifically due to a 25% increase in Freight on delivery, a 29%
increase in travelling and entertainment and a 42% increase in repairs and maintenance.
7.1.3. Liquidity
Current ratio of the company has been 1.0 (FY12) as
compared to 1.16 (FY11), the major contributor to
this factor was payable to a group company Schering
Plough Pakistan, which has risen to Rs. 106 million in FY12 as compared to NIL in FY11.
The company also generated cash flows from operating activities amounting to Rs. 254.4 million in FY12.
As per Management Accounts of December 2012, the Current ratio of the company has increased to 1.12. This
increase is due to a 322% increase in short-term investments, a 48% increase in Trade Debs and a 50% increase
in finished goods stock-in-trade.
7.1.4. Leverage
Leverage ratios have been on an improvement
trend over the last 3 years as illustrated in the
table, primarily on account of reduction in long-
term debt of the company.

As per Annual Accounts of FY12, Total Liability to Net Worth ratio has increased to 1.13x as compared to 1.01
(FY11) due to a 95% increase in current liabilities and more specifically in Bills Payable of 151.5%, however,
since the long term liabilities has been decreasing continuously therefore especially the long-term syndicate
facility availed by OBSPL, Debt to Net Worth ratio has further declined to 0.1x as compared to 0.2x (FY11).

Moreover, due to the increase in profitability and generation of cash through operationsas explained above,
the Finance Cost Coverage Ratio has increased.

As per Management Accounts of December 2012, Total Liability to Net Worth ratio has increased to 1.15x due
to a 10.8% increase in current liabilities and more specifically in Short term borrowings of 118.1% and in
Creditors of 72%. The Debt to Net Worth ratio has remained constant at 0.1x, while Debt Service Coverage
Ratio and Finance Cost Coverage Ratio have decreased to 1.4x and 4.7x respectively.

Year-end (June) 2012 2011 2010
Gross Profit (PKR in Mn) 821 643 786
GP Margin 44.69% 42.49% 47.48%
NP Margin 10.03% 7.07% 14.04%
Year-end (June) 2012 2011 2010
Current Ratio 1.00 1.16 1.47
Year-end (June) 2012 2011 2010
Total Liab / Net Worth 1.1 1.0 1.0
Debt / Net Worth 0.1 0.2 0.4
DSCR 2.0 1.3 2.0
FCCR 5.0 3.1 4.6

Page | 13

7.1.5. Asset Coverage Cycle / Efficiency Ratios
The cash cycle for FY12 is 148 days which has
increased from 111 days in FY11 due to the
increase in inventory turnover. OBSPL
continues to have a shorter turnover for trade
creditors, and also a decrease in days trade
debtors.This number of days is highly favorable
for the pharmaceutical industry.

As per Management Accounts of December 2012, Days Trade Debtors, Days Stocks and Days Trade Creditors
have increased to 7 days, 179 days and 5 days respectively.The increase is due to an increase in the stock-in-
trade, especially a 50% increase in the finished goods inventory. Due to this increase the cash cycle has
increased to 181 days which is considered favorable for the pharmaceutical industry.
8. SAFETY ASSESSMENT

8.1. Risks &Mitigants
S # Risk Factor Extent of Risk* Mitigant
1. Business Risk
Import Cost Risk

Operational Risk

Product Risk

Low

Low

Low

The depreciation of PKR against USD/EURO, has affected
the prices of raw materials imported. The Ministry of
Health MOH has regulated the prices, which results in
decreased profits for the manufacturer. But, MOH is
granting price revisions to hardship cases to help cover the
manufacturing costs.

OBSPL have the capacity and expertise to acquire and run
the pharmaceutical business which is evident from the fact
that they have previously acquired and managed MSDs
operations quite well.

Product risk is minimal forOBSPL Products and the
upcoming AZ products as their sales have remained stable
and they have an established market. The risk is further
mitigated by the fact that demand for medicines is inelastic.
2. Financial Risk

Low Improving sales volumes, healthy profit margin and low
leverage and sound capital structure.
3. Management Risk

Low OBSPL is managed by experienced professionals having
expertise in pharmaceutical sector and financial affairs.
4. Security Risk

Low Adequate security is being provided against the financing to
cover the risk of non-payment/default.
5.
Succession Risk

Low OBSPL is a private limited company, with a strong
management team and a good succession plan in place for
their management team.
* High; Moderate or Low

8.2. Critical Success Factors
Stable Industry: The client is in the business of manufacturing pharmaceuticals a product whose
demand remains mostly unaffected during economic downturns.

Year-end (June) 2012 2011 2010
Days Trade Debtors 5 6 23
Days Stocks 146 110 104
Days Trade Creditors 3 5 3
Cash Cycle 148 111 125

Page | 14

Experienced Management: A competent team of individuals run the company, which is highlighted with
their superior track record.

Strategic Alliance: OBSPL has strategic alliance and business partnership with Merck & Co. which is a
global research driven pharmaceutical company with annual sales of approx. USD 24 billion and ranked no
9 in the world and with Astra Zeneca a global, innovation-driven, integrated biopharmaceutical company
which discover, develop, manufacture and market prescription medicines for six important areas of
healthcare, which include some of the worlds most serious illnesses.

8.3. Third Party Check / Information
Third party check was conducted with Soneri Bank Ltd., JS Bank and Faysal Bank when the relationship was
established in 2012. Further, the e-CIB of the company and the group companies is clean without any
restructuring/rescheduling/write-offs during the last 5 years.

9. RELATIONSHIP STRATEGY
We have proposed a one-off short-term funded facility of PKR 350 Mn under local Murabaha to facilitate
OBSPL in procurement of stocks from AZ. However, once this facility is fully adjusted, we will realign funded
and non-funded limits within the approved exposure, so that we can meet OBSPLs increased working capital
requirements due to the acquisition of AZ. This will enable us to capture the sizeable import business in future.
Further, we will try to identify and capture the cross sell opportunities in the form of ancillary business
(payrolls, cash management etc.) with OBSPL and its other group companies.

We expect to fetch trade import business of PKR 150 Mn and expected earning from the relationship is PKR 5.9
Mn with yield of above 3.0%. This includes PKR 3.9 Mn of Net Revenue from Financing and expected Fee
Income of PKR 2.0 Mn.

10. RECOMMENDATIONS
OBSPL holds a good reputation within the industry and its management has shown full commitment in fulfilling
the financial obligations of the project on time.

Due to sound financial performance, good credit and repayment history and market reputation of the
company, the above financing facility is being recommended for approval.

Proposed By

___________________ ________________ _______________________
M. Shoaib Khan M. Haris Munawar Shahid Ali Khan
Relationship Manager Team Leader Regional Head CBG - South

Recommended By

_______________
M. R. Mirza
Group Head CBG

OBS Pakistan - General Remarks

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