Pakistan’s listed pharmaceuticals sector posted a 3.1x increase in earnings to PKR 24.8 billion ($88 million) in calendar year 2024, driven by higher net sales and improved gross margins.
Net sales increased 15% to PKR 318 billion in 2024, primarily due to a rise in drug prices. According to Topline Securities, in February 2024 the government approved the deregulation of non-essential drug prices.
This policy change allowed companies to increase prices without a cap, replacing the previous drug policy that limited price hikes for non-essential drugs to the full increase in the Consumer Price Index (CPI) with a cap of 10%. Prices for essential drugs remain capped at up to 70% of the CPI increase, with a cap of 7%.
Additionally, on Feb. 6, 2024, the Ministry of National Health Services, Regulations, and Coordination (NHSR&C) approved price hikes for 146 essential drugs, according to the Topline report.
These developments, combined with price increases, led to an improvement in gross margins, which rose from 26% in 2023 to 36% in 2024. Furthermore, the decline in raw material prices for several drugs and PKR appreciation contributed to the gross margin growth.
Selling and administrative expenses grew 14% and 15%, respectively, in 2024, aligning with inflation trends. The sector’s finance costs rose 1% year-over-year to PKR 8 billion in 2024, up from PKR 7.9 billion in 2023. Despite a decrease in the average Karachi Interbank Offered Rate (KIBOR)—from 21.6% in 2023 to 18.5% in 2024—the rise in finance costs was attributed to higher borrowings.
JS Global mentioned that 2024 was a positive year for the pharmaceuticals sector, citing stable currency and raw material prices, alongside the deregulation of non-essential drug pricing. This policy enabled companies to pass on cost impacts as needed to ensure the availability of key drugs.
JS Global projected profitability for the sector to remain elevated, with the full impact of deregulation expected to materialize in 2025. Additionally, ongoing monetary easing and cost-saving measures are anticipated to benefit leveraged and integrated players, particularly AGP.
Topline Securities noted that the deregulation of non-essential drugs would further enhance margins for pharmaceutical companies, especially those with a high proportion of non-essential products. The full impact is expected to unfold in the coming quarters. Furthermore, the decline in interest rates and anticipated reduction in borrowings by some companies are likely to bolster profitability in 2025.
