MeCure Industries Limited (1) · 2020. 10. 24. · 2 Da aP o MeC e Ind ie Limi ed Z X Z Co oa e Ra...

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DataPro Limited Ground Floor, Foresight House

163-165 Broad Street By Marina Water Front �234-1-4605395, 4605396

Email:[email protected] [email protected]

Website:www.datapronigeria.net

April, 2020

2

DataPro MeCure Industries Limited 2020 Corporate Rating

SUMMARY

x Rating

BBB

x Report Type: Corporate Rating

x Client:

MeCure Industries Limited

x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

MECURE INDUSTRIES LIMITED

This report is provided by DataPro subject to the terms & condition stipulated in our Terms of Engagement

CORPORATE RATING REPORT

References Abiodun Adeseyoju, FCA. Abimbola Adeseyoju Oladele Adeoye

EVALUATION VALID TILL: April, 2021

Long-term Rating: BBB

Short term Rating A2 Previous Rating: N/A Rating Outlook: Stable Trend: Up

Currency: Naira

EXECUTIVE SUMMARY 2019 2018 201 7 2016 2015 N’000 N’000 N’000 N’000 N’000

Turnover 15,813,495 15,172,872 11,233,039 11,801,095 6,369,462

Pre Tax Profi t 815,371 901,723 527,509 4,326,041 1,548,014

Equity 4,024,393 3,720,480 3,292,939 4,468,629 2,538,093

Fixed Asset 3,378,555 1,186,919 724,933 3,911,677 4,023,035

Tota l Ass et 13,690,767 12,211,509 8,001,937 10,959,437 6,505,857

Long-term Debt 7,964,738 6,726,288 3,925,442 6,043,678 3,655,897

RATING EXPLANATION

The Short term rating ofA2 indicates Fair Credit Quality and adequate capacity for timely payment of financial commitments.

The Long term rating of BBB indicates Slight Risk. It shows fair financial strength, operating performance and business profile when compared to the standard established by DataPro. This company, in our opinion, has the ability to meet its ongoing obligations, but its financial strength is vulnerable to adverse changes in economic conditions.

This report does not represent an offer to trade in securities. It is a reference source and not a substitute for your own judgment. As far as we are aware, this report is based on reliable data and information, but we have not verified this or obtained an independent verification to this effect. We provide no guarantee with respect to accuracy or completeness of the data relied upon, and therefore the conclusions derived from the data. This report has been prepared at the request of, and for the purpose of, our client only and neither we nor any of our employees accept any responsibility on any ground whatsoever, including liability in negligence, to any other person. Finally, DataPro and its employees accept no liability whatsoever for any direct or consequential loss of any kind arising from the use of this document in any way whatsoever.

3


SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

RATING SYNOPSIS The rating took into consideration all relevant qualitative and quantitative factors to arrive at the assigned risk indicator. The qualitative information used was based on industry and market intelligence including public information. The quantitative information was obtained from the company’s audited and management accounts. The risk factors were assessed using the company’s Capitalization, Earnings Profile, Liquidity, Corporate Governance, Regulatory Risk and Sustainability of subject’s current healthy profile in the medium to long term period. Overall, the following were observed:

Strengths:

x Strong Brand Presence

x Stable Management

Weakness:

x High debt profile

4


SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

BACKGROUND

MeCure Industries Limited (“The Company”) was incorporated in March, 2005 as a Private Limited Liability company. The primary activities of the company involve the manufacturing and distribution of pharmaceutical and nutraceutical products. The company’s products and services include Acute Ailment Medication, Chronic Ailment Medication, Nutraceuticals, Multivitamins and Chemotherapy Medication. The company is the first company in Nigeria to introduce tropical packs, unit dosage and tablets in a capsule formation.

DISTRIBUTION OF EXISTING PRODUCTS AND SERVICES

Source: MeCure Industries Limited

MeCure Industries Limited presently operates in four (4) locations in Nigeria which are in Lagos, Abia, Anambra and Kano state. It serves its customers via a workforce of 758 employees. The company has a market share of 2.2% based on industry size of $2 billion. The company has subsidiaries and related companies in Healthcare, E Health and IT sector.

Acute Medicines

Chronic Medicines

Multivitamins

Nutraceuticals

Antibiotics

Analgesics/ Antipyretic

Antihelmintic

Antimalarial

Antacid

Expectorant

Hematinics

Anticuler Supplements Supplements

5


SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

Source: MeCure Industries Ltd MeCure Industries Limited currently has 20,000,000 shares which are owned by the Udani family. However, the company’s shareholdings are individually broken down as follows.

ANALYSIS OF SHAREHOLDING STRUCTURE

Source: MeCure Industries Ltd

DIRECTORS PROFILE

The following served as directors during the year under review; Mr. Samir Udani, Mr. Arjun Udani, Mrs. Avni Udani, and Mrs. Dukor Andrenaline. The Directors’ profiles are as follows. 1. Name: Samir Udani

Position: Chairman Years of Experience:35years Education: xUniversity Institute of Chemical Technology, India

xB.Sc. Mumbai University, India Job Experience: xMeCure Industries Limited Board Membership: Since 2005

Avni Udani 19%

Amy Udani 20%

Arjun Udani 20%

Samir Udani 20%

Anderline Dukor 1%

Unallocated shares 20%

Udani Family

MeCure Industries

100%

Health Dekho

100%

MeCure SmartBuy

100%

MeCure Healthcare

100%

Others

Adebowale’s

KTH

38.3%

10%

21.7%

30%

6


SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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2. Name: Arjun Udani Position: Executive Director Years of Experience:9 years Education: yB. Sc – Mumbai University

yStanford University, California Job Experience: yMeCure Industries Limited Board Membership: Since 2011

3. Name: Avni Udani Position: Executive Director Years of Experience: 15 years Education: yB. Sc – University of Mumbai

yM. Sc – University of Mumbai Job Experience: yMeCure Industries Limited Board Membership: Since 2008

4. Name: Dukor Andrenaline Ndidi Position: Executive Director Years of Experience:23 years Education: yB. Pharm – University of Nigeria, Nsukka

yM. Sc-University of Lagos Job Experience: yMeCure Industries Limited Board Membership: Since 2007

FINANCIAL PERFORMANCE

x EARNINGS PROFILE

REVENUE GROWTH (2015 – 2019)

Source: MeCure Industries Limited

-202468

1012141618

2015 2016 2017 2018 2019

Revenue PBT Operating ProfitN`b

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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MeCure Industries Ltd grew its earnings by 4% from N15.2b (Yr.18) to N15.8b (Y.19).The growth was due to the increase in the sales of its finished goods. The company derives its revenue from the sale of pharmaceutical and neutraceutical products.

COMPOSITION OF REVENUE


The company’s earning is wholly generated in Nigeria. Geographically, about 44% of the company’s earning was generated from sales to distributors from the company’s Kano depot while the balance was generated from sales to distributors in Lagos and Onitsha. The breakdown of the revenue is as indicated.

COMPOSITION OF REVENUE BY LOCATION


Cost of sales increased by 5% from N10.2b (Yr.18) to N10.7b(Yr.19). The growth was due to the increase in Work in Progress (WIP) and other direct expenses. The distribution of cost of sales is as presented.

Pharmaceuticals 88%

Nutraceuticals 12%

Lagos 30%

Kano 44%

Onitsha 26%

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

COMPOSITION OF COST OF SALES


In view of the similarities in the growth rate of both direct Cost and Revenue, Gross profit margin remained relatively same at 33% for the years 2019 and 2018. Total expenses grew by 5% in the year 2019. It increased from N4.1b (Yr.18) to N4.3b (Yr.19). The growth was driven by increases in all segments of operating expenses during the year 2019. The major component was Administrative expenses. It increased from N2.1b (Yr.18) to N2.2b(Yr.18). Administrative expenses were largely concentrated in Personnel costs (23%) and Amortization (44%).

COMPOSITION OF OPERATING EXPENSES

Source: MeCure Industries Ltd Finance cost constituted 26% of total expenses. It comprised of bank interest and bank commission & charges. Bank interest accounted for the biggest chunk of finance cost at 85% (Yr.19) as against 83%(Yr.18).

Products sold 93%

Other direct expenses

7%

Administrative 30%

Marketing 44%

Finance Cost 26%

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

The growth in finance cost pushed up total expenses during the year 2019. Consequently, Pre-tax profit dropped by 10% from N902m(Yr.18) to N815m(Yr.19). Therefore, all profitability indices declined during the year under review. x CAPITALIZATION Shareholders’ fund grew by 8% in the year 2019. It increased from N3.7b(Yr.18) to N4b(Yr.19). The growth in retained earnings accounted for the increase. Retained earnings grew from N3.7b(Yr.18) to N4b(Yr.19). Total assets however increased by 12% from N12.2b(Yr.18) to N13.7b(Yr.19). The growth in total assets is largely driven by increased spending on capital expenditure of about N2.8b during the year 2019.

BREAKDOWN OF THE TOTAL ASSET

ITEM 2019 % Current Asset 8,605,242 62.9

Non Current Asset 5,085,525 37.1

Total Asset 13,690,767 100.0

Equity as a proportion of total asset was 29% (Yr.19) as against 30% (Yr.18). This implied that 71% of the company’s total asset is financed by liabilities as against 70% (Yr.18). However, borrowings accounted for 81% of the total liabilities. The company borrowings for the year 2019 are largely in long term with a significant proportion (over 90%) of the debt obligations maturing in the year 2020 and the outstanding balance maturing in the year 2021.

CAPITAL FUNDING PROFILE


2.5 4.5 3.3 3.7 4

1.1

1.1 0.8

1.8 1.7

0

5

10

15

2015 2016 2017 2018 2019

Equity Curr. Liabs Non-Curr. Liabs

N’b

10


SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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x ASSET UTILITY The company produces medicines in three main forms. These are tablets, capsules (beta lactum capsule and general capsule) and syrup (dry and liquid syrup). MeCure is yet to fully utilize its installed capacity. Its current capacity utilization is as presented.

PRODUCTION CAPACITY UTILIZATION AS AT 2019


Total assets consisted of current (63%) and non-current assets (37%) in the year 2019. The current assets constituted the largest chunk and it increased from N8.4b(Yr.18) to N8.6b (Yr.19). The marginal growth recorded was due to the increase in Trade and other receivables while the other components recorded a decline. Trade and receivables constituted24%of the current asset and it increased from N1.7b(Yr.18) to N2b(Yr.19).

COMPOSITION OF CURRENT ASSETS


Non-current assets increased from N3.8b(Yr.18) to N5.1b(Yr.19). It comprised of Property, Plant & Equipment and Intangible assets. The

69

56 55 45

20

01020304050607080

Tablet Beta Lact. Gen. Caps. Liquid Syrup Dry Syrup

%

Inventorories 76%

Trade and other receivables

24%

Cash &Cash equivalent

0%

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

major component was Property, Plant and Equipment. This increased in value from N1.2b (Yr.18) to N3.4b (Yr.19). The increase was a result of the additions made during the year under review.

COMPOSITION OF NON CURRENT ASSETS


The effective utilization of assets to generate revenue declined from 124% (Yr.18) to 116% (Yr.19). Similarly, ability to utilize assets to generate profit reduced from 7% (Yr.18) to 6% (Yr.19)

RETURN ON ASSET (2015 – 2019)


x LIQUIDITY MeCure Industries limited total liabilities grew by 14% from N8.5b(Yr.18) to N9.7b(Yr.19). The liabilities are largely concentrated in long term as shown:

Property , Plant and Equpment

67%

Intangible assets 33%

23.79

39.47

6.59 7.38 5.96

0

5

10

15

20

25

30

35

40

45

2015 2016 2017 2018 2019

N’b

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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COMPOSITION OF TOTAL LIABILITIES AS AT 2019


Current liabilities constituted 18% of the total liabilities. It shrank from N1.8b(Yr.18) to N1.7b (Yr.19). It comprises of bank overdraft, trade and other payables and tax liabilities. Tax liabilities constituted the highest portion of 46% in the year 2019.

COMPOSITION OF CURRENT LIABILITIES


Non-current liabilities summed up to N8b (Yr.19). This is an increase of 18% compared to N6.7b recorded in the year 2019. Longterm borrowings accounted for 92% of the longterm liabilities while the balance represented deferred tax liabilities.

Current 18%

Non current 82%

Trade & other payables

26%

Bank Overdraft 28%

Tax Liabilities 46%

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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COMPOSITION OF NON CURRENT LIABILITIES


The company’s debt obligations as at February 2020 were Loans and Advances contracted from banks in Nigeria. The interest rate of the company’s borrowings ranges from 16%-24% with a weighted average of 18.75%. However, 91% of the debt obligations will mature in the year 2020 with the outstanding balance maturing in the year 2021.

DEBT OBLIGATION SCHEDULE AS AT FEBRUARY, 2020

Credit facility available/type Bank Currency Term

Interest Rate /

Pricing

Date of Maturity

Overdraft Facility

Standard Chartered Bank NGN 12 Months 16% 2020

Import Facility Standard Chartered Bank USD 12 Months 16% 2020

Inventory Finance Facility ECO Bank Ltd. NGN 12 Months 18% 2020

Overdraft Facility ECO Bank Ltd. NGN 12 Months 18% 2020

Overdraft Facility

Union Bank of Nigeria NGN 12 Months 18% 2020

Trade Line Union Bank of Nigeria NGN 12 Months 18% 2020

Term Loan Zenith Bank PLC NGN 24 Months 22% 2021

Term Loan Sterling Bank Plc USD 36 Months 24% 2021

Source: MeCure Industries Ltd MeCure Industries Limited generated a positive cash flow from its operation in the year 2019. Cash generated from operation was N2.2b(Yr.19) as against a negative balance of N56m recorded in the year

Term Loan 59%

Unsecured Loan 29%

Deferred Tax 12%

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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2018.Ability to settle short term obligations as they fall due increased from 474% (Yr.18) to 506% (Yr.19).

RISK FACTORS

In the course of our review, we observed the following significant risks. x Exchange Rate Risk This is the risk of loss to income as a result of adverse movement in the exchange rate between the Nigeria Naira and US Dollars. Based on our review, we observed that the company imports one of its most significant raw materials from outside Nigeria. This therefore exposes it to exchange rate risk.

x Interest Risk This is the risk of loss to income arising from changes in interest rates. Based on our review, the company incurred interest bearing borrowings of which 91% are in the short term. x Credit Risk This is the risk arising from the inability of counterparties to honour their obligations as at when due. Based on our review, Trade and other receivables represent 15% of the company’s total asset. x GOVERNANCE RISK

This is the risk arising from the company inability to continue to operate due to board related challenges. We observed that the company is legally owned by the Udani family with no shareholder’s agreement. The appropriate checks and balances may not be fully attained as expected in organizations of this nature. CORPORATE GOVERNANCE & RISK MANAGEMENT

The company’s governance framework comprises of two (2) organs which are the Board of Directors and the Executive Committee. The Board of

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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Directors consists of four (4) Executive Directors and a Non-Executive Director while the Executive Committee is comprised of the Executive Director and the senior management team. The company’s corporate organogram structure is as highlighted.

ORGANISATION STRUCTURE


REGULATORY ENVIRONMENT

The products and affairs of the company are subject to the regulations of Federal Ministry Of Health (FMOH),National Agency for Food Drug Administration and Control (NAFDAC), Standards Organisation of Nigeria (SON) and Pharmacists Council of Nigeria (PCON).

FUTURE OUTLOOK

The company intends to increase production capacity and manufacture new molecules. It also intends to increase the number of its distributors from 100 to 230 by 2022. The company is also targeting a 5% market share in the next 3-5 years.

CONCLUSION

The rating of the company is supported by its strong brand presence, experienced management team and diversified income sources.

Managing Director

Administration, Finance, Marketing

Superintendent Pharmacist

QA/QC General Manager

Plant Manager

Production Pharmacists Team

Maintenance Engineering

Quality Control Manager

Quality Assurance Manager

Quality Analyst Team

Microbiologist

QA Officers Team

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

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However, it is constrained by its high debt profile. Consequently, we assigned a rating of “BBB”

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

FINANCES

Financial Position as at

Dec, 2019 Dec, 2018 Dec, 2017 N’000 '% N’000 '% N’000

Capital Employed

Ordinary share capital 20,000 - 20,000 - 20,000

Retained Earning s 4,004,393 8.21 3,700,480 13.06 3,272,939

Total equity 4,024,393 3,720,480 3,292,939

Represented by:

Non-current assets 5,085,525 32.12 3,849,282 117.42 1,770,444

Current assets 8,605,242 2.91 8,362,227 34.19 6,231,493

Non-current liabilities (7,964,738) 43 (6,726,288) 165 (3,955,442)

Current liabilities (1,701,637) 86 (1,764,741) 329 (753,556)

Net assets/(liabilities) 4,024,392 3,720,480 3,292,939 Net assets/(liabilities) per share (Naira) 201.22 186.02 164.65

Revenue 15,813,495 4.22 15,172,872 35.07 11,233,039

Gross profit 5,159,904 3.65 4,977,962 48.30 3,356,783

Net operating expenses (3,024,159) 3.88 (2,911,081) 72.88 (1,683,831)

Operating profit 2,135,745 3.33 2,066,881 156 1,672,952

Finance cost (1,320,374) 13.32 (1,165,159) 277 (1,145,443)

Profit before tax ation 815,371 (9.58) 901,723 70.94 527,509

Tax (expense)credit (511,458) 7.86 (474,181) 7.40 (441,509)

Profit for the year 303,913 (219.63) 427,541 356 86,000 Basic and diluted earnings/(loss) per share (Naira) 15.20 21.38 4.30

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

Signed: Name: Oladele Adeoye Designation: Chief Rating Officer Date: 17th April, 2020 For and on behalf of: DataPro Limited Ground Floor, Foresight House By Marina Water Front 163/165 Broad Street, Lagos Island, Lagos. Tel: 234-1-4605395, 4605396 Cell: 0805-530-3677 Email: [email protected],[email protected] Website: www.datapronigeria.net

©

DataPro 2020 All right reserved.

This report is provided for your internal business use only and may not be reproduced or re-distributed in any manner whether mechanical or without the permission of DataPro. Whilst DataPro attempts to ensure that the information provided is accurate and complete, however due to the immense quantity of detailed matter used in compiling the information and the fact that some of the data are supplied from sources not controlled by DataPro, we will not be responsible for any omission therefrom.

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

USER GUIDE

DataPro’s credit rating is an opinion of an issuer’s overall creditworthiness and its capacity to meet its financial commitment. Our short-term ratings have a time horizon of less than 12 months in line with industry standards reflecting risk characteristics. The ratings place greater emphasis on the liquidity to meet financial commitment in a timely manner. The long-term risk indicator is divided into 8 bands ranging from AAA through DD. Each band could be modified by + or –. With + representing slightly less risk than –. Such suffixes are not added to the ‘AAA’ long –term rating category and to categories below ‘CCC’. Or to short-term rating older than A1+.

LONG-TERM RATING Investment Grade

Indicator Meaning Explanation AAA Lowest Risk (Superior) Assigned to issuers which have

superior financial strength, operating performances and profile when compared to the standards established by DataPro Limited. These funds, in our opinion, have a Excellent ability to meet their ongoing obligations.

AA Lower Risk (Excellent) Assigned to issuers which have

excellent financial strength, operating performance and profile when compared to the standards established by DataPro Limited. These funds, in our opinion, have a very strong ability to meet their ongoing obligations.

A Low Risk (Very Good) Assigned to issuers which have

very good financial strength, operating performance And profile when compared to the standards established by DataPro Limited. These funds, in our opinion, have a strong ability to meet their ongoing obligation.

BBB Slight Risk (Fair) Assigned to issuers which have fair

financial strength, operating performance and profile when compared to the standards established by DataPro Limited. These funds, in our opinion, have an ability to meet their current obligations, but their financial strength is vulnerable to adverse changes in economic conditions.

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

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Non-Investment Grade

Indicator Meaning Explanation BB Moderate Risk (Marginal) Assigned to issuers which have,

marginal financial strength, operating performance and profile when compared to the standards established by DataPro Limited. These funds, in our opinion have an ability to meet their current obligation, but their financial strength is vulnerable to adverse changes in economic conditions.

B High Risk (Weak) Assigned to issuers which have, weak

financial strength, operating performance and profile when compared to the standard established by DataPro Limited. These funds, in our opinion have an ability to meet their current obligation, but their financial strength is vulnerable to adverse changes in economic conditions.

CCC Higher Risk (Poor) Assigned to issuers, which have poor

financial strength, operating performance and profile when compared to the standards established DataPro Limited. These funds, in our opinion may not have an ability to meet their current obligation and their financial strength is extremely vulnerable to adverse changes in economic conditions.

DD Highest Risk (Very Poor) Assigned to issuers, which have

very poor financial strength, operating performance and profile when compared to the standards established by DataPro Limited. These funds, in our opinion may not have an ability to meet their current obligation and their financial strength is extremely vulnerable to adverse changes in economic conditions.

SHORT-TERM RATING Indicator Meaning Explanation A1+ Highest credit quality Indicates the strongest capacity for

timely payment of financial commitments. May have an added “+” to denote any exceptionally strong credit feature.

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SUMMARY

x Rating

BBB


x Client:


x Date Compiled

17-Apr-20

Dat

aPro

@ 2

020

A1 Good credit quality A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.

A2 Fair credit quality The capacity for timely payment of financial

commitments is adequate. However, near term adverse changes could result in reduction to non investment grade.

B Speculative Minimal capacity for timely payment of financial

commitments, plus vulnerability to near term adverse changes in financial and economic conditions.

C High default risk Default is a real possibility. Capacity for meeting

financial commitments is solely reliant upon a sustained, favorable business and economic environment.

Indicates an entity that has defaulted on all its financial obligations.

MeCure Industries Limited (1) · 2020. 10. 24. · 2 Da aP o MeC e Ind ie Limi ed Z X Z Co oa e Ra...

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Transcript of MeCure Industries Limited (1) · 2020. 10. 24. · 2 Da aP o MeC e Ind ie Limi ed Z X Z Co oa e Ra...