|  | 


JS Securities Limited – JS Research (September 26, 2022)

Karachi, September 26, 2022 (PPI-OT): AGP: Robust growth and margins, an attractive bargain

We initiate coverage on AGP Ltd (AGP) with a DCF based Target Price of Rs125/share; an upside of 73%. Our buy call is premised on strong organic and inorganic growth, complemented by best-in-class gross margins of 55-61% vs peer average of 39%; which drive a 3-year EPS CAGR of 21%.

Recent Sandoz portfolio acquisition (AGP holding: 65%) is likely to contribute Rs1.5/sh (16%) to CY23 bottom-line, while it contributes Rs25/sh (20%) to our TP, highlighting efficacy of acquisition-led growth strategy.

The acquisition adds Azomax (leading Covid management drug) to existing star portfolio led by Rigix, Osnate and Ceclor. Contribution from recently announced acquisition of selected portfolio products of Viatris, would be over and above our base case, while management intends to continue the acquisition spree given its successful track record.

In terms of valuation, fundamental growth is complimented with attractive multiples, where P/E at 8x on CY23 earnings is trading at a 56% discount to its own historical average of 18x, indicating significant room for re-rating as sentiments improve.

While we highlight high inflation as key risk to margins as prices are effectively capped at 7%/10% for essential/ non-essential drugs, profits are not significantly impacted by movement in PKR due to alternate vendor sourcing and localization in addition to economies of scale.