Company overview

El Anadalous Medical Company was established in 2001, as limited partnership

company within the family. The company started its activity producing medicines annual
contracts such as: Sigma CO, Delta for manufacturing medicines, Epico, and Luna.
The company is mainly specialized in the sales and marketing of locally
manufactured generic pharmaceutical, antibiotics, mental, dermatologist, and children
medicines, and OTC products; moreover, it focuses on serving therapeutic areas with
unmet medical needs. Recently the company products have reached 37 medicines and
many more medicines are awaiting the Ministry of Healths approval, license, to
proceed.
In addition to the companys activities mentioned above, the company imports
and exports medical products and third party agencies involved in manufacturing
medical products. The company imports around 80% of its ingredients and chemicals
from India, China, and Korea. As for the packaging and some raw materials are
purchased from local companies including; Arab for Gelatin Products, Arab For
Medicines Packing, Concorde for Printing, and AL Salam For Printing.
The company markets around 90% of its production through distributors such as
United Pharmacists, Pharma Overseas, Ebn Sina Pharma , and The Egyptian Company
for Drug Trading.
As for the ownership and management of the company, there are five partners
including two of them functioning as managers as well. The partners are Dr. Mohamed
Ahmed Ibrahim Khalil, Mr. Nabil Fhamy Knawy , Mrs.Noha Mostafa Zazoa, and minors
Mostafa and Mentallah Mohamed Ibrahim.
According to the latest report about the company, the companys sales have
noticeably increased from year 2011 to year 2012. In 2011 total sales amounted 58.8
MM and in 2012 boosted to 86.2 MM. Such apparent increase in sales was due to
increase in volume of existing products, and launching three new medical preparations.

Industry:
Such geographic diversification and investment into the pharmaceutical and
healthcare sector of emerging economies such as Egypt may be a favorable strategy for
any multinational drug maker. Despite the fact that there is a steady growth in the
Egyptian pharmaceutical market, it is essential to consider the risks. Downside risks to
our forecast; in addition to the countrys current unstable state of political and economic
conditions. Moreover, such political and economic flux including patent cliff, pricing,
1

higher domestic drug production output, and a diversification of drugs available at

competitive prices in the generic drug sector.
According to a number of experts in this industry, the downgrading of Egypts
sovereign rating, by Moodys to CAAI and Standard & Poor to B- , has a direct effect on
raising the cost of pharmaceuticals in Egypt. Such effect is due to the countrys credit
score on the financial costs of credit and foreign currencies.
On the other hand, the costs of pharmaceuticals are tied up to foreign currency and the
cost of borrowing through letters of credit as all pharmaceutical components are
imported. Such aspect, may cause obstacles for most of pharmaceutical companies
mainly small ones as they have a limited number of products , and do not have a large
enough portfolio to balance their losses on one product against other more financially
viable products.
As for competition, the company faces aggressive competition in pharmaceutical
market due to various marketing strategies to sell their products. The companys main
competitors are Delta Pharma, Mash for Medical Industries, and BB Pharma.

SWOT analysis:

STRENGHS:
WEAKNESSES:
A. 4 new products are registered
A. The company relies on the
annually.
imports of raw material
B. Enhancement in R&D
which is prone to
department to improve their
fluctuations of foreign
performance in terms of
exchange rate as well as
knowledge and technology
political instabilities.
C. being a reputable company for
B. The company is involved
its high quality products
with third party agencies in
places the company as a
the manufacturing process
highly ranked one in the
which may lead to
industry
fluctuation in rental
expenses and production
limitations.

OPPORTUNITIES:
A. The population growth in
Egypt will directly affect the
pharmaceutical industry by
increasing the demand on
medical products.
B. Implementation of
comprehensive health
insurance will highly affect
such sector.
C. The sister company Al
Andalous Industrial will
flourish the companys
production as it produce 75%
of the total companys
production and production
limitations.

THREATS:
A. The government has set a
price ceiling to medicines
which prevents the
company from setting high
prices.

Profitability analysis:
EGP000
Sales
% Change in Sales
COGS/Sales
SG&A/Sales
GP Margin
NOP Margin
NPBT/ Sales
NPAT/ Sales
ROE
ROA
Tax Effective Rate

Historical
2011
58,866,859
30.08%
54.6%
25.43%
45.38%
19.95%
19.34%
15.35%
34.13%
20.63%
20.71%

2012
86,277,808
46.56%
58%
23.91%
41.72%
17.80%
16.31%
12.82%
30.16%
20.55%
21.31%

Sales: In 2012, the company managed to increase its sales by 46.56% over 2011 which
was mainly due to the increase in the sales volume of existing products in addition to
the introduction of 3 new medical preparations, all of which contributed to the boost in
sales. It is worth mentioning that 2012 the current events affecting the economy in
Egypt have not affected the increase in sales in 2011 and 2012 given the fact that Al
Andalous Pharmaceuticals provides the market with key pharmaceutical products that
serve unmet medical needs.
COGS/ Sales:
COGS/Sales increased in 2012 to record 58.3 % due to the increase of raw material
prices which could not be completely passed on to the end consumer as per the
Ministry of Health regulations which set a price ceiling for the pharmaceutical industry.
SG&A/Sales:
Although distribution costs in absolute terms increased from EGP 12,477,207 in 2011 to
EGP 17,765,673 in 2012, the company still managed to reduce its overall SG&A/Sales
by 5%.
NOP Margin:
All of the above factors contributed to the slight deterioration in NOP Margin recording in
2012 down from 19.95% to 17.80%.
ROE:
Despite the increase in NPAT in absolute terms, NPAT/Sales decreased to record
16.31% in 2012 down from 19.34% in 2011, which resulted in the decrease in ROE also

affected by the increase in equity by 43% in 2012 mainly due to the non distribution of
dividends in 2012.
ROA:
Increased in 2012 to record 0.21 up from 0.2 in 2011 as a result of the above mentioned
increase in NPAT which shows the companys management ability to generate more
profits using the available assets.

Asset Efficiency

WI
WI/Sales
A/R DOH
Inventory DOH
Advance
Payments DOH
A/P DOH
A/E DOH
Operating Cycle
Asset Conversion
Cycle
Gross
Plant
Turnover
Net Plant Turnover
Total
Assets
Turnover
Plant Life

Historical
2011
29,084,488
49.41%
135days
103 days
5 days

2012
31,356,034
36.34%
105 days
66 days
3 days

25 days
--243

21 days
--175

218

154

28
33

44
52

1.3
6.4

1.6
6.5

Working Investment:
The companys management maintained positive working investment values throughout
the years under study which proves their strength in keeping a solid liquidity position in
the years under study and ensuring that current liabilities are met without facing any
difficulties.
The companys working investment/ Sales decreased to record 36.34% in 2012 down
from 49.41% in 2011, mainly due to the following:

A/R DOH:
The companys policy is to grant its clients facilities up to 180 days. That said, 2012 A/R
DOH decreased to record 105 days down from 135 days in 2011. Such a decrease is
considered an improvement in the companys management.

Inventory DOH
Decreased to record 66 days in 2012 down from 48 days in 2011, this decrease
however does not reflect the companys inventory policy of 4 months to avoid hindering
the companys operations, but it is a mere snap shot which does not actually reflect the
true situation.
A/P DOH:
Accounts payable in absolute terms increased by 29%, however this increase was
offset by the boom in COGS absolute figure by 57% to accommodate for the increase in
quantities sold, all of which resulted in the decrease in A/P DOH to record 21 days in
2012 down from 25 days in the previous year.
Interest Expense: the companys interest expense in 2012 increased to reach EGP
1,285,634, however, the relevant short term debt has been paid off prior to the balance
sheet date.
Liquidity
Historical
2011
Current Ratio
1.79
Quick Ratio
1.27
Financial Leverage 0.70

2012
2.23
1.70
0.51

Current Ratio
The company maintained a current ratio above 1 which shows the companys ability to
repay its short term debt through current assets.
Leverage
Below 1 leverage reflects the companys strength in managing its liabilities and the
strong management performance in 2012 by relying on the companys internal
resources rather than liabilities.

Operating Cycle
Asset conversion cycle

Year 2011
243 days
218 days

Year 2012
175 days
154 days

Operating Cycle:
Operating cycle rate has decreased mainly due to the decrease in inventory , this
doesnt reflect the true operating cycle as actually this is a mere snapshot of inventory
the company keeps on average inventory at 4 months therefore if we assume that the
inventory 4 months normal 7aykun operating cycle 222
Dupont Analysis:
Historical
2011
35.28%
20%
15.35%
1.76
0.79

2012
30.16%
20.55%
12.82%
1.47
0.79

ROE
ROA
ROS
Asset Leverage
Tax Burden
Financing and Inv.
Burden
0.97
NOP Margin
20%
Asset Turnover
1.3

0.92
18%
1.6

Return On Equity= NPAT/ Equity = ROA * Asset Leverage

Return On Assets = NPAT/ Assets = ROS * Asset Turnover
Return On Sales= Tax Burden * Financing and Investment Burden * NOP Margin
The companys Return On Sales decreased from 15.35% in 2011 to be 12.82% in 2012
as a result of the decrease in both the financing and investment burden from 0.97 to
0.92 in 2012 which was due to the increase in interest expense by 257%, along with the
decrease in NOP margin from 20% in 2011 to 18% in 2012 which was due to the
increase in COGS/Sales from 54.6% in 2011 to 58.3% in 2012. The tax Burden
however remained unchanged in the years under study.
That said, the companys management utilized available assets in 2012 in a better
manner than 2011 resulting in a slight increase in return on assets in 2012 recording
20.55% versus 20% in the preceding year despite the fact that ROS decreased in 2012.
Such an improvement was mainly on the back of the amelioration in the asset turnover
which reflects the companys sound management, showing that although assets
7

increased by only 19.18% in 2012, managements decisions resulted in an increase in

sales by 46.56%.
The decrease in asset leverage in 2012 recording 1.47 down from 1.76 in 2011 is
mainly caused by the non distribution of dividends in 2012. This indicates that the
portion of assets in 2012 funded by equity has increased over 2011.
As a result of all of the aforementioned, ROE which measures the return earned on the
owners investment in the firm has decreased in 2012 to record 30.16% down from
35.28% in 2011, and is evidently controlled by the three determinants; profit margin,
asset turnover, and financial leverage.
Tenor matching:
As evident by the companys above 1 current ratio in 2011 and 2012, the management
has been successful in tenor matching as shown in the graph below for the year 2012.
Current Assets
EGP 12,671,284

Current Liabilities
EGP 12,671,284

Working Capital
EGP 35,425,036

Due to Shareholders
4,486,656
Equity EGP 36,675,909

EGP

Fixed Assets EGP 5,737,529

Total Assets EGP 53,833,849

Total Liabilities and Net Worth

EGP 53,833,849

As shown above, and due to the lack of long term liabilities, the companys current
assets successfully covered its current liabilities rendering EGP 35,425,036 in working
capital to fund the due to shareholders along with 84% of 2012 equity.
Asset management Activity Ratios are used to measure the speed in which various
accounts are converted into sales or cash.
Analyzing the debt position of a firm indicates the amount of other peoples money
being used in attempt of generating profits. Basically, the more debts a firm uses in
relation to its total assets, the greater its financial leverage.

Common
(vertical)

Size Horizontal
Analysis

Item Description

2011

2012

2011

2012

2011

2012

Total Sales

58,866,859

86,277,808

100%

100%

100%

147%

Less: Cost
Goods Sold

of 31,896,072

50,060,328

54%

58%

100%

157%

Depreciation

254,309

223,677

0.43%

0.30%

100%

88%

Gross Profit

26,716,478

35,993,803

46%

42%

100%

135%

Less: SG&A

14,424,085

20,059,302

25%

23%

100%

139%

Less :admission 71,951

depreciation

73,755

0.1%

0.08%

100%

103%

Less:
amortization

475,900

499,168

0.8%

0.6%

100%

105%

NOP

11,744,542

15,361,578

20%

18%

100%

131%

Less
: 359,959
Interest Expense

1,285,634

0.6%

1.5%

100%

357%

NPBT

14,075,944

19%

16%

100%

124%

15,056

4%

0.01%

100%

Less:
Taxes

11,384,583
Deferred 2,358,039

Less: Taxes

9,514

3,000,165

0.01%

3%

100%

315%

NPAT

9,036,058

11,060,723

15%

13%

100%

122%

Common Size Analysis (Balance Sheet)

Common Size
(vertical)

Horizontal
Analysis

Assets

2011

2012

2011

2012

Cash

2011

2012

855,952

3,610,584

2%

7%

100%

422%

Accounts
receivables

21,812,797

24,774,456

48%

46%

100%

114%

Inventory

9,035,568

9,060,451

20%

17%

100%

100%

Advance
payments

479,394

440,049

1%

1%

100%

92%

Due from affiliated

companies

8,944,634

10,210,780

20%

19%

100%

114%

Total current
assets

41,128,345

48,096,320

91%

89%

100%

463,541

432,923

1%

1%

100%

93%

Tools and
equipment

117%

Vehicles

1,038,240

859,917

2%

2%

100%

83%

Furniture and
office supplies

613,953

652,385

1%

1%

100%

106%

1%

1%

100%

91%

(accumulated
depreciation )

(326,260)

(297,432)

Net plant

1,789,474

1,647,793

4%

3%

100%

92%

Staff loans

5300

5355

---

----

100%

-----

SUNDRYN
CURRENT
ASSETS

176,865

332,034

0.4%

0.6%

100%

187%

Prepaid taxes

451,572

852,974

1%

2%

100%

189%

Intangibles

1,598,436

2,894,080

4%

5%

100%

10

181%

Deferred taxes

20,349

5,293

----

-----

100%

----

TOTAL ASSETS

45,170,341

53,833,849

100%

100%

100%

119%

Liabilities and
equity

2011

2012

2011

2012

2011

2012

Notes payables
(bank overdraft)

5,233,856

4,290,543

12%

8%

100%

82%

Account payable

2,223,271

2,869,465

5%

5%

100%

129%

Accrued expenses 20,000

49,457

---

100%

247%

Taxes payable

2,479,516

3,142,916

5%

6%

100%

128%

Dividends payable 3,426,306

2,318,903

8%

4%

100%

68%

Total current
liabilities

13,382,949

12,671,284

30%

24%

100%

95%

Common stock

1,000,000

1,000,000

2%

2%

100%

100%

Legal reserves

837,921

1,390,957

2%

3%

100%

166%

Retained earnings 16,051,436

opening

23,777,265

36%

44%

100%

148%

Plus:net income

9,036,058

11,060,723

20%

21%

100%

122%

Less: dividends

858,426

2%

100%

Other adjustments 451,803

553,036

1%

1%

100%

122%

Retained earnings 23,777,265

closing

34,284,952

53%

64%

100%

144%

Net worth

25,615,186

36,675,909

57%

68%

100%

143%

Total liabilities
and net worth

45,170,341

53,833,849

100%

100%

100%

120%

11

Overall analysis.
The company has shown to be profitable during the last historical years and is showing
great potential for growth given the nature of the industry. Accordingly, it would be
beneficial for the bank to grant Al Andalous a short term facility supported by
assignment of contract.
Cash flow
NPAUI
Interest expense
Deferred taxes
Taxes

11,060,723
1,285,634
15056
3000165

NOP

15,361,578

-3000165+663400
+15056
NOPAT

(2321709)

Depreciation
Amortization
COPAT

297432
499168
13806357

Change in WI
Change CA,CL
CACO

(2271546)
(1,266,146)
10268665

FP
CBLTU

(1285624)
8983031

NPE
Intangibles
LTI
CBF

(155751)
(1794812)
(541570)
64908998

OVD
Change in grey area
Dividends paid
NW
(+/-) in Cash

(943313)
(1685550)
(1107403)
0
2754632

13009757

12

Sources /uses
All amounts in EGP
NOPAT: 11,423,961
Depreciation: 326,260
Amortization: 499,168

TOTAL: 13,806,357

NOPAT : 94 %
DEPRECIATION : 2%
AMORTIZATION: 4%

TOTAL 100%

WI: 2,271,546
FP: 1,285,634
NPE: 155,751
OVD :943,313
INTANGIBLES : 1,794,812
LTI :541,570
GREY AREA :1,685,550
DIVIDENDS: 1,107,403
Change in cash: 2,754,362
Change in CA,CL: 1,266,146
TOTAL: 13,806,357

WI: 16%
FP: 10%
NPE: 1%
OVD: 7%
INTANGIBLES: 13%
LTI: 4%
GREY AREA: 12%
DIVIDENDS : 8%
CHANGE IN CASH: 20%
CHANGE IN CA.CL: 9%
TOTAL 100%

During 2012, the company was able to generate sufficient NOPAT to cover most of its
expenses as follows:
NOPAT can cover financial payments and dividends with remaining 76%.
Working Investment, OVD, remaining intangibles, Grey Area, Change in Cash,
and 8% in CA, CL.
13

Whilst the remaining noncash items such as depreciation can cover Net Plant
Expenditures with remaining 1% in addition to the remaining 1% of change in CA, CL
whereas amortization can cover 4% of intangibles.
Free Cash Flow: NOPAT (Financial Payments + Dividends) = EGP 10,616,720
The companys business generated enough cash to pay for debt and equity obligations,
leaving it with LE 10,616,720 in excess cash to pay for its remaining non operating
activities.
Debt Service Ratio: NOPAT/ (Financial Payments + Dividends) = 5.4
In 2012, the companys DSR recorded 5.4, which is very favorable showing that NOPAT
was more than sufficient to cover financial payments and dividends.
Discussion:
Having sufficient NOPAT to pay the financial payments and dividends is a good sign; it
means that the operations of the company are sufficient to cover required obligations.
As for depreciation, being larger than NPE makes us assume that this is maintenance
expenditure or small expansion

14

Projection Assumptions for the year 2013

Income Statement
Sales: Although sales in 2011 and 2012 increased by 30% and 46%, respectively, and
despite the fact that the company introduced 3 new products to the market in 2012, our
sales are only projected to increase by 10% over 2012 being inflation rate.
COGS/ Sales: projected at 56.1% being the average of last 2 historical years.
Depreciation Expense: projected at 17.3% of Machinery and Vehicles for the year
2013 being the same as last historical
SG&A: projected at 23.875% of Sales being the average of last 2 historical years.
Admin Depreciation: projected at 11.52% of furniture and office supplies, being the
average of last 2 historical years.
Interest Expense: projected according to new money need calculations.
Taxes: projected at 25% of NPBT.
Deferred Taxes: projected same as last historical.

Balance Sheet: Assets:

Current Assets:
Cash: Projected at Zero given the nature of the account.
Accounts Receivable: Projected at 120 days being the average of last 2 historical
years.
Inventory: Projected at 85 days being the average of last 2 historical years.
Advance Payments: Projected at 4 days being the average of last 2 historical years.
Fixed Assets:
Tools and equipment: projected to increase by 3% over the previous year, being
maintenance
Vehicles: projected to increase by 3% over the previous year, being maintenance
Furniture and Office supplies: projected to increase by 2% over the previous year,
being maintenance.
15

All Other items projected straight lined same as last historical

Current Liabilities:
Accounts Payable: Projected at 23 days being the average of last 2 historical years.
Accrued Expenses: Projected at 0.29 days being the average of last 2 historical years.
All other items projected straight lined same as last historical
Grey Area:
Due To Shareholders: projected to be the same as year 2012.
Equity:
Common Stock: Projected at EGP 1,000,000
Legal Reserves: Projected to increase by 5% of Net Profits for the year 2013.
Dividends: Projected to be nil.

16

Obligor Risk Rating:

Risk rating 5
Facility Structure:
The following facility structure is proposed:
The company has sufficient cash to manage its own operations internally ,however,
however, short-term facility amounting EGP 10MM supported by assigned contracts to
finance Accounts Receivable with a shrinkage margin of 20% on each assigned
contracts or if the company decided to pay dividends to shareholders.

17