Team Medallion, CFA Research Challenge'22, Final Round

CFA Institute Research Challenge
hosted by
CFA Society Bangladesh
Team Medallion
The CFA Institute Research Challenge is a global competition that tests the equity research and valuation,
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university students as part of this annual educational initiative and should not be considered a professional
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should not be considered to be a recommendation by any individual affiliated with CFA Society Bangladesh, CFA Institute, or the CFA
Institute Research Challenge with regard to this company’s stock.

CFA Research Challenge I Page 1
HOLD
RECOMMENDATION
PRICE MOVEMENT OF LAST TWO YEARS
RECENT HIGHLIGHTS
Recent increase in director shareholding of
+0.09% and increased shareholding of
Renata by SAJIDA Foundation in December
2021, as well as Renata’s inclusion in the
1st Frontier Market ETF which is listed as
$CUBS on the NYSE are great source of
confidence for the investors.
Renata has recently got the approval to
invest $2 mn in Ireland as part of
increasing the paid-up capital in its
already established subsidiary and make
an investment amounting to $5 mn in the
United Kingdom for the same target, which
shows future export potential.
KNOWING THE RISKS
We identify the top five investment risks for
Renata to be 1) Intense local competition,
(2) Supply chain disruption, (3) Capacity
overutilization, (4) Foreign regulations, (5)
Currency risks.
EXECUTIVE SUMMARY
Renata Limited is the 4th largest pharmaceutical company in Bangladesh in terms of sales
and the 7th largest publicly traded company in Bangladesh. The company primarily
operates in the segments of pharmaceutical products, animal health products, and
contract manufacturing.
RECOMMENDATION
We issue a ‘HOLD’ recommendation on Renata, with a target price of BDT 1323 for June
2022, a 0.36% potential upside including dividend yield from Renata’s closing price of BDT
1332 on January 31, 2022. The target price is based on a blend of Discounted Cash Flow
to Firm model and relative valuation based on PE and PEG ratio multiples. Despite having
a sustainable underlying business model and strong corporate governance, we believe
Renata’s current price level is not optimal for entry.
INVESTMENT THESIS
Our recommendation stems from the following key pillars:
Sustainable Revenue Growth in an Attractive but Competitive Local Market: Renata has
consistently outperformed the market growth rate in sales. With rising healthcare
expenditure, growing purchasing power, rapid urbanization, increased life expectancy and
the pandemic induced increased awareness about healthcare, Renata is set to pass
through an attractive phase of local pharmaceutical market growth. However, as 98% of
the domestic demand is already being fulfilled locally and top ten producers accounting
for almost 70% of the domestic market, gaining market share significantly will become an
increasingly difficult feat to achieve.
Shifting Product Focus while Losing Edge of Star Product: Chronic care diseases are
expected to occupy an increasing share of the market due to unhealthy diets, stressful
urban lifestyles, and increased lifespan. Renata is planning to shift focus from antibiotic-
dependent to the chronic care segment in the coming years. However, this appealing
segment is expected to attract numerous competitors, which is only a question of time.
Moreover, Maxpro, which is the top selling drug of Renata, is slowly losing ground due to
its competing product Sergel of Healthcare Pharma.
Strong Corporate Governance Leading to Lower Beta: Renata has one of the most unique
shareholding structures. The 51% stake of SAJIDA Foundation in the company allows the
company to give back the majority of its profit back to the community by design and
stands today as a unique example of social enterprise and corporate social responsibility.
Despite Good Fundamentals, Current High P/E Leads to a Precautionary Stance: In the
last 2 years, the share price of Renata has seen a significant price gain of +48.7%. While
this might not be a bad thing per se, it also enhances the danger of a too optimistic outlook
by the market on the potential revenue growth of Renata. At the current price, Renata is
trading at a P/E of 26.4x, which is considered overvalued based on our DCF which indicates
the share price of Renata should be trading at a P/E of 23.6 to reflect its intrinsic value.
High Export Potential but Low Overall Impact on Topline Growth: Renata has a large
pipeline of 11 products targeted at the EU and US markets, where the company’s driver
molecules in the EU pipeline targets 5-10% of a $9.9 bn market, backed by strong R&D, and
approvals from MHRA, ANVISA, and USFDA. However, given that export sales contribute
to ~3% of the company’s pharmaceutical revenue, this export potential will not have
significant impact on the revenue growth of Renata.
Date 31-Jan-22
Cuurent Price 1332
Target Price 1323
Upside / (Downside) -0.68%
Shares Outstanding 107,000,000
Market Cap 142 bn BDT
Free Float 48.73%
EPS 51.94
WACC 10.65%
Cost of Equity 11.23%
After tax cost of debt 6.87%
Growth to Perpetuity 4.47%
Beta 0.53
Market Risk Premium 7.80%
VALUATION SUMMARY
Method Weightage Price
DCF 50% 1,277
Relative Valuation 50% 1,369
Target Price 1,323
VALUATION METHOD
Key Financials 2018-19A 2019-20A 2020-21A 2021-22F 2022-23F 2023-24F 2024-25F
Revenue 22,809 24,675 29,971 34,397 39,495 45,167 51,670
EBITDA Margin 26.85% 28.31% 26.40% 27.46% 27.38% 27.76% 27.78%
Net Profit Margin 16.46% 16.26% 16.89% 16.89% 17.02% 17.47% 17.64%
NOCFPS 52.54 52.89 44.34 56.95 57.86 61.78 63.68
EPS 46.63 45.29 51.94 54.21 57.01 60.84 63.87
P/E 30.54 24.22 25.54 24.57 21.24 18.09 15.67
ROE 20.20% 18.44% 19.69% 19.25% 19.00% 19.02% 18.95%

Fig 1: Market Share of Top 5 Companies
Source: IMS Report, Q3’2021
Fig 2: Revenue by Segments
Source: Renata Annual Report
Fig 3: Prescription Share of Cardiovascular
Products of Renata
Fig 4: Local vs Export Sales (in bn BDT)
Fig 5: Market Size of Renata’s Driver
Molecules in the EU Market (in bn USD)
Source: Company Data
Fig 6: Partnerships with Local and Global
Governments and Organizations
BUSINESS DESCRIPTION
Renata Limited was established in 1993 after divestment of shareholdings by Pfizer
Laboratories (Bangladesh) Limited. Since then, with a long-term strategic plan and high
focus on R&D, Renata has grown into the 5th largest pharmaceutical company in
Bangladesh (Fig 1) and the market leader in animal health products. Along with investment
in 4 subsidiaries and marketing and distribution rights of 13 foreign pharmaceutical
corporations, the company is also a contract manufacturer of BRAC, SMC, UNICEF,
Bangladesh Government, and others. (Appendix 2) Pharmaceutical products, animal
health products and contract manufacturing generate 62.87%, 16.96% and 14.90% of
revenue respectively (Fig 2). With GMP certification from MHRA and ANVISA that allows
Renata access to UK and Latin American markets respectively and USFDA approval for 3
products, the company has a global presence in over 40 countries where export sales
contribute to ~3.00% of the company’s pharmaceutical revenue.
Shifting Domestic Strategy for Generic Products
In anticipation of the transformation of Bangladesh to middle-income status, Renata plans
to shift its domestic focus from antibiotics-dependent to chronic care products. In that
regard, Renata has recently added several specialty sales teams to improve focus on
cardiovascular, central nervous system (CNS), and oncology products. This has led to
increased prescription share of Renata’s cardiovascular products in the market (Fig 3).
Fueling Globalization Strategy with New Market Expansion
Renata’s globalization strategy is based on assumptions that (1) Having a large basket of
products is a must for performing well in the generic segment, while (2) Specialty products
lead to higher margins than pure generics. Consequently, Renata focuses on significant
investments in product development and R&D. Although export contributes to 3% of
Renata’s pharmaceutical sales, the company is recently looking for expansion into new
markets (Fig 4). Renata has a large pipeline of 11 products targeted at the EU and US
markets, where the company’s driver molecules in the EU pipeline targets 5.00-10.00% of
a $9.9 bn market (Fig 5). Subsidiaries in UK, Ireland with MA (marketing authorization)
approval of certain CNS and immunological molecules grant the added advantage to
explore international business, especially in the emerging markets (Appendix 3).
Quality Supply Chain in Contract Manufacturing
The business composition of contract manufacturing by Renata is driven by birth-control
pills, oral saline, and micronutrient powders. Presently, Renata is the largest global
supplier of micronutrient powders, and aims to be one of the largest suppliers of
contraceptive pills. Roughly 2/3rd of birth control pills under the family planning program
of Bangladesh government is supplied by Renata. With a capable institutional business
team, high-volume delivery capacity, and strong partnership with global NGOs and
organizations such as UNICEF, DKT Int. and country family planning organizations (Fig 6),
contract-manufacturing has become a highly successful segment of Renata.
Big Basket of Products with Revenue Concentrated to Few Products
Renata Ltd. has around 300 types of pharmaceutical products under 34 categories, 115
types of animal health products under 19 categories, 10 types of vaccines, and 13 aqua
products in their product portfolio. The top 5 products contribute to 44.00% and the top 25
products contribute to 79.00% of total revenue (IQVIA, 2018). Among the top sold drugs in
Bangladesh, Renata holds only one product in the top 10 and 7 products in the top 100,
which constitute 2.60% of total market share (EBLS and IQVIA). Maxpro is the top sold drug
of Renata, with 1.50% of total market share, having a market value of BDT 3.6 bn (IQVIA).
Multi-Product Plants with High-Capacity Utilization
Currently, Renata has 11 production facilities in 3 separate sites, 19 distribution centers,
and employs around 9000 people. By the end of 2022, Renata plans to begin operation in
three new factories and two new depots. Moreover, Renata has vaccines facility in the
pipeline, along with 1 PICS facility, 2 MHRA approvals, and is also expecting FDA and WHO
PQP Inspections. Renata has a high-capacity utilization in almost all of its major
production units (Appendix 4). While this shows the company’s well operational efficiency,
ability to increase production capacity can be a concern. However, as Renata operates
multi-product plants, plant utilization is not comparable with capacity due to variation of
product mix. Moreover, with negligible long-term debt, Renata can increase capital
expenditure for enhancement of production capacity.
17.39%
11.51%
8.94%
6.90%
5.37%
0.00% 5.00% 10.00% 15.00% 20.00%
SQUARE
INCEPTA
BEXIMCO
HEALTHCARE
RENATA
10.29
12.68
15.54
16.33
18.88
0.99 0.61 0.47 0.69 0.80
0.00
4.00
8.00
12.00
16.00
20.00
2016-17 2017-18 2018-19 2019-20 2020-21
Local Sales Export Sales
8.9
9.4
9.9
8
8.5
9
9.5
10
2018-19 2019-20 2020-21

Fig 7: Healthcare Expense as a % of GDP
Source: World Bank Global Healthcare Exp. Database
Fig 8: Revenue of Bangladesh
Pharmaceuticals Industry (in mn USD)
Fig 9: Healthcare Expenditure per Capita
(in USD)
Source: Global Healthcare Expenditure Database, WHO
Fig 10: Shift in Global Disease Profile
Source: World Health Organization
Fig 11: Pharmaceutical Exports from
Bangladesh (in mn USD)
Source: Export Processing Bureau
INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING
Starting with a Global Outlook …
With a size of USD 1.23 Tn in 2020, pharmaceutical industry around the globe is in a current
state expecting both promises and challenges in next few years. Healthcare payers are
more cautious than before, scrutinizing the value of medicines more carefully, looking for
alternative treatments that are both clinically and economically better than the current
ones. Moreover, there has been a stagnancy in the discovery and development of new
products whereas historically the key driver of the industry was new products. Demand for
pharma’s products is rising dramatically, as the global population increases, ages, and
becomes more sedentary (PwC, 2019). Consequently, healthcare is consuming a greater
share of GDP in rich and poor countries alike.
DOMESTIC OUTLOOK: RISING DEMAND BOOSTING INDUSTRY GROWTH
The pharma industry of Bangladesh, backed by the policy support of the government, has
grown to be an USD 3 bn market (IQVIA) with 1.83% percent contribution to the GDP. Local
production caters to more than 98.00% of the local demand. According to IMS Plus (MAT)
Q3, 2021, the domestic pharmaceuticals market had a CAGR for the last five years of
10.20% to reach BDT 272 bn with 10.71% growth over last year, which is a very positive
outlook for the sector (Fig 8). The pharmaceutical market is expected to surpass BDT 500
bn by 2025 with an absolute growth of 114.00% from 2020 levels. Majority of this growth
will be contributed by local companies with a market share of more than 90.00% which is
like the past trends attained over the last two decades (Square Pharma Directors’ Report).
Reaping the Rewards of Demographic Shift
Rising healthcare expenditure, growing GNI per capita, rapid urbanization, increased life
expectancy and the pandemic induced increased healthcare awareness is set to boost the
local pharmaceutical market growth. By 2030, 22.40% of all residents in Bangladesh will
be 50+ years compared to 17.10% now (Appendix 13). Between 2008 and 2018, current
health expenditure per capita increased at a CAGR of ~7.00% (Fig 9). Out of total health
expenditure, 74.00% is met by households OOP (Out-of-pocket), which is the highest in this
region (WHO). Out of the OOP health expenditure in Bangladesh almost 65.00% is spent on
medicines: hence out of the total health spending in the country, almost half goes to
pharmaceutical products. About 33.00% of the population currently reside in urban
locations, but the share is expected to reach 50.00% by 2039, driven by migration (WHO).
These demographic shifts signify the deepening demand in the domestic pharmaceutical
industry.
Shifting Disease Profile Demands Shifting Product Focus
As Bangladesh graduates to middle-income status, the profile of the pharmaceutical
market shifts from being antibiotics-dependent to chronic care products (Appendix 26).
Over the last few years, just three closely related antibiotics from the Cephalosporin
category, have been driving the antibiotic market (Renata Directors’ Report). As the
widespread use of such antibiotics will lead to antibiotic resistance, patients are likely to
shift from expensive antibiotics to more economical ones. Respiratory care hints for a
strong growth in the long-term due to increasing respiratory illnesses stemming from
climate change, and poor air quality in the urban areas. Moreover, therapies for chronic
care (Cardiovascular and Anti-Diabetic medicines) are expected to occupy an increasing
share of the market due to unhealthy diets, stressful urban lifestyles, and increased
lifespan (Fig 10).
Big Local Pharma Competing for Dominance in the Market
The pharmaceutical industry in the country resembles an oligopolistic competition with
more than 50.00% of the market share attributed to top five companies. (Appendix 1) As
the share of generic drugs is expected to surpass 85.00% by the year 2025, the dominance
of local pharmaceutical companies will be further anchored on a big basket of generic
products. As long as the market retains its branded-generic characteristics, the market
leaders would continue to shape the market, while strongly competing against each other.
API is the Main Bottleneck of Domestic Pharma Value Chain
The domestic pharma industry mainly produces formulations (finished products) after
importing the APIs (raw materials). There is very little domestic backward linkage as of
now although API production plants are being set up. 90.00% of the APIs used in production
comes from China and India, which indicates a heavy reliance on these countries, exposing
the value chain to exchange risks and supply chain disruptions (Appendix 11B). To enhance
backward linkage, government created API parks, which is expected to begin operation in
2022 and rolled out tax incentives to API producers.
2.50%
2.46%
2.31%
2.28%
2.34%
9.51%
9.80%
9.95%
9.89%
9.86%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2014 2015 2016 2017 2018
Bangladesh Global
2,269
2,413
2,711
2,886
3,195
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2017 2018 2019 2020 2021
59.8
66.1
73.2
78.2 80.5
86.1
91.1 91.4
97.3
109.6
40
50
60
70
80
90
100
110
120
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
27%
9%
6%
2%
38%
10%
8%
30%
12%
10%
3%
26%
7%
12%
0%
10%
20%
30%
40%
Cardiovascular
Cancers
Respiratory
Diabetes
Communicable
Injuries
Other
NCDs
2008 2018
72.64
89.17
103.46
129.95
135.79
169.02
0
30
60
90
120
150
180
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Fig 12: Medicine Spending in 2020 by
Geography
Source: IQVIA,2020
Fig 13: Medicine Spending in 2020 by
Product Type
Source: IQVIA, 2020
Fig 14: Porter’s Five Forces Analysis
Source: Team Analysis
Fig 15: Number of New Formulations by
Renata
Source: Renata Annual Reports
Looming Threat of TRIPS Agreement Ending
Bangladesh is exempted from patent protection by WTO for an extended period until 2033
(from original 2016) due to the TRIPS agreement, which allows Bangladeshi
pharmaceuticals to manufacture patented drugs without any repercussions (Appendix
11A). While the benefit afforded by TRIPS is due to expire right after Bangladesh’s
imminent LDC graduation in 2024, the industry is not expected to be drastically affected
as 85.00-90.00% of all generic drugs that the local pharmaceutical firms produce are off
patent.
EXPORT OUTLOOK: A NEW FRONTIER FOR EXPANSION
At its nascent stage, the pharmaceutical industry was largely import-dependent for
finished medicines; and now, it exports around 2,000 types of products to 151 countries.
Pharmaceutical export from Bangladesh increased at a CAGR of ~16.00% between FY16
and FY2021, reaching an export value of USD 169 mn, with the top export destination being
Myanmar, followed by Sri Lanka, United States, Philippines, Kenya, Afghanistan (EPB). The
export receipts from the pharma sector grew by 22.5% YoY in the first half of the current
fiscal year (Fig 11). Anti-coronavirus drugs such as Remdesivir, Favipiravir and others
contributed significantly to this growth, aided by a 10.00% cash incentive from the
government. Oncology and antibiotics together contribute 50.00% to the export receipts.
Low Regulated Markets are the Top Export Destinations
Due to the low cost of labor, Bangladesh offers significant cost advantages compared to
major generic hubs such as India and China. The cost of production is currently 10.00-
15.00% lower than that of India and China, and the gap is expected to widen further (BIDA).
The lack of bio-equivalency testing facilities, weak regulation in the local market and lack
of technical know-how are major impediments for a burgeoning export market.
Growing Global Generic Market for Export
Driven by growth in China, BRI, & other emerging nations, the global generic segment is
expected to grow at 8.00% per annum compared to 5.00% growth of the global
pharmaceutical market. Increasing healthcare expenses will be the main driver of this
demand, and the demand for generics is forecasted to grow at 9.00% per annum in
emerging markets. Moreover, $150 bn worth of drugs has come off parent within 2021 and
another $251 bn will do so by 2023. Given Bangladesh’s expertise in generic drugs, this
anticipated patent-cliff will be a huge opportunity for Bangladeshi producers to tap into.
COMPETITIVE POSITIONING
Renata is the 5th largest pharma in the country in terms of sales, holding 5.37% market
share. Renata maintained its focus on prescription generation and brand-building, instead
of obtaining quick sales through deals and discounts (Fig 14). Maxpro, an Esomeprazole,
which is used in treating what is commonly known as “gastric problems”, is their most
selling product with 17.78% market share in the esomeprazole segment (IMS, Q3’2021).
Sustained Leadership in a Volatile Animal Health Segment
With a rich product pipeline of nutritional supplements, antibiotics, and vaccines, Renata
has successfully secured the leading position in the industry for the last 25 years. The
Animal Health industry goes through business-cycles. Positive outlook in this segment is
mainly due to 1) The ban on Indian beef has resulted in cattle farms emerging all over the
country 2) Bangladesh has become a large producer of fish resulting in increased demand
for aqua products 3) The demand for learning about best husbandry practices at the farm-
level is rising (Larive International B.V).
R&D is the Key Focus for Sustainability
Renata focuses on significant investments in product development and R&D. Currently,
Renata engages 4 R&D teams to expand their specialty drugs segment and there has been
significant enhancement of R&D infrastructure in Rajendrapur and Mirpur sites, while their
first factory built by Pfizer is now being converted into an R&D center. The focus on R&D is
evident from the fact that Renata introduced 47 new formulations during the year 2020-
2021 (Fig 15). Such focus on R&D, along with approvals from MHRA, ANVISA, USFDA for 2
manufacturing sites is Renata’s key strategic focus for sustainable growth.
Diminishing Market Share of Top Selling Product
The market share of Renata’s highest selling drug is slowly losing ground. Maxpro’s market
share in the esomeprazole segment stands at 17.78% while it was 21.68% in 2020 and
24.07% in 2019 and. This can be alarming for the company's financials as its highest
grossing product is losing ground in arguably the most important segment.
41%
13%
6%
3%
11%
8%
6%
12%
US
EU5
Japan
Other Major
Developed
China
Other Pharmerging
Brazil/Russia/India
Rest of the World
52%
21%
14%
13%
Original
Non-original
Unbranded
OTC
14
17
8
18
47
0
10
20
30
40
50
2016-17 2017-2018 2018-2019 2019-2020 2020-2021

Fig 16: ESG Highlights
“Renata spent 2.95% of its net
profit in CSR activities in the last
financial year.”
Fig 17: CSR Activities of Renata
“The 51% stake of Sajida
Foundation in the company
provides the company to give
back majority of its profit back to
the community by design.”
Fig 18: Governance Scorecard
* The scorecard is further elaborated in Appendix 15.
Fig 19: % of Total Shares Held by Different
Investors
ESG (ENVIRONMENTAL, SOCIAL, AND GOVERNANCE) CONSIDERATIONS
Renata consistently delivers on its promise regarding ESG aspects and we expect this to
continue in the future due to sustainable effort from its strong corporate governance (Fig
16).
ENVIRONMENTAL CONSIDERATIONS
With a commitment to preserve environment and mitigate risks of climate change, Renata
started redesigning its processes even before the notion of fighting climate change started
gaining popularity. In 2017, the company won 'Climate Champion' award in '5th HSBC-
Daily Star Climate Awards'. It also reduced its CO2 emission by 2.7mn KG a year and
treated all liquids before releasing in environment through its ETP. The company laid out
principles, objectives, and responsibilities of itself in the 'Health, Safety, and Environment
Policy'. The headquarters of the company has become a role-model in the industry due its
environment friendly structure including a park and greeneries.
SOCIAL CONSIDERATIONS
Renata spent 2.95% of its net profit in CSR activities including financial assistance to COVID
treatment facilities, health program, and donation to charitable organizations in FY2020-
21. As per the laws, 5% of the profits of the company goes to Worker's Profit and Welfare
Fund. All production facilities have all the necessary local and international certifications
and accreditations. The company was listed in 'Asia's 200 Best Under a Bn' list by Forbes
(Fig. 17).
Giving Back to the Community by Design
Being one of the leading pharmaceuticals in the country, Renata has one of the most unique
shareholding structures. The 51% stake of Sajida Foundation in the company provides the
company to give back majority of its profit back to the community by design, which has
an annual budget of $637 mil spent for welfare activities (Appendix 12).
GOVERNANCE CONSIDERATIONS
The governance scorecard in Fig. 18 signals a strong corporate culture in Renata (Appendix
15). The company scores highly in executive management and protection of shareholder
rights. Its low score in compensation is rooted in the country wise culture of not including
stock options for executives. The strong corporate culture is further translated into a very
low Beta in the stock market. This shows that investors have high confidence in the
company.
Unique Shareholding Structure
51.00% of the company is owned by Sajida Foundation, and NGO found by the founding
Chairman of Renata (Appendix 12). Institutional and foreign holdings have increased in
recent years to constitute of 20.72% and 22.77% of the company (Fig 19).
Shareholder Rights
All price sensitive information is timely released, and all reporting are done in compliance
with local and international standards. No complaints regarding anything violating
shareholders’ rights have been reported as of now.
Board of Directors (BoD)
The BoD of Renata comprises of 8 directors including 2 independent directors (Appendix
14). The Board consist of individuals with expertise in various fields and include 3 females
and 5 male directors, and only 1 executive director. Half of the board has experience for
more than 5 years of working in Renata and all of them are highly experienced in their
fields. The other half of the board changes every 3-4 years. These ensure the inflow of new
ideas and the benefits of diversity. At least 1 independent director of the Board is also a
director of the subsidiary companies. Although 3 of the directors are from one family, they
represent a trust.
Executive Management
The executive management is highly experienced in the pharmaceutical sector, with
majority of them working in Renata for decades (Appendix 14). Independent audit, and
nomination, remuneration and compensation committees are formed with 3 members with
more than 10 years of experience (Appendix 14). All compensations and guidelines are for
compliance are clearly defined out and transparent. The executive management ensures
the compliance of the ‘Corporate Governance Code 2018’ by BSEC.
3.77
4
2.75
3.75
0 1 2 3 4
Executive Committee
Audit Committee
Compensation Committee
Protection of Shareholder Rights
Date
Sponsor/
Director
Institute Foreign Public
31-Jul-19 51.16 19.38 22.31 7.15
31-Dec-19 51.16 18.92 22.67 7.25
31-Jul-20 51.17 17.88 22.76 8.18
31-Dec-20 51.18 19.02 22.74 7.06
31-Jul-21 51.18 19.5 22.74 6.58
30-Nov-21 51.18 20.76 22.77 5.29
31-Dec-21 51.27 20.72 22.77 5.24
* No shares are held by the Government during the dates mentioned

Fig 28: Forecasted Renata Pharma Sales
Growth Rate vs Market Growth Rate
Fig 29: Forecasted Growth in Market Size
of Animal Health Local Producers
Source: Team Analysis and AHCAB
Fig 30: Loss of Subsidiaries in mn BDT
ASSUMPTIONS AND FINANCIAL ANALYSIS
CONSISTENT REVENUE GROWTH FROM CORE DRIVERS
Local Pharmaceutical Market
Renata has achieved a significant annual growth of 21.46% in its total revenues for FY21
resulting in annual sales of BDT 29,971 mn (Appendix 21). In fact, since 2017 the company
has generated a strong CAGR of 16.38% in local pharmaceutical revenue, compared to
industry CAGR of 11.55% (Fig 28). According to Research and Markets, and verified by the
director of Square Pharma, the local pharma market is expected to grow at a CAGR of
13.50% to become a $6bn market by 2025. With the focus shifted to chronic care products,
Renata has recently increased its prescription share in cardiovascular products from 7.30%
to 11.30% in the last two years and in 2021, Renata developed 37 new formulations for
human beings, among which 16 formulations tackle chronic diseases. With increasing
demand of chronic care products, we forecast that Renata will have a growth rate 14.50%
in the initial two years. But as other companies start to increase focus on this category,
the increasing competition coupled with losing market share of Renata’s star product
Maxpro, the growth rate will come down to the market CAGR.
Contract Manufacturing
Due to its strong partnerships and good corporate governance practices, 15.00% of the
revenue of the company comes from contract manufacturing. The highest increase in YoY
sales of 82.00% came from the contract manufacturing segment due to reopening of the
economy after lockdown in FY20, and since 2017, the highest CAGR of 29.65% came from
contract manufacturing sales. With increased efforts of the government and NGOs to
improve the healthcare sector, we forecast that the ratio of contract manufacturing to
local sales of Renata will remain constant at 23.71% in the forecasted years, which gives a
5-year forecasted CAGR of 13.90%. This can be further validated by Renata winning a
tender of supplying contraceptive pills to the government worth BDT 600 mn last month.
Animal Health
As the market leader in the animal health segment, Renata had a CAGR of 12.54% since
2017, compared to industry CAGR of 10%. In the forecasted years, according to AHCAB, the
animal health market is expected to grow at a CAGR of 10% and the local drug producers
have the capacity to increase their supply up to 95.00% of the local demand from the
current supply of 70% (Figure 29). Being conservative due to the cyclical nature of growth
of this sector, we forecast that the local supply will increase up to 85% in 6 years and the
market share of Renata will remain constant at 22.05%.
Loss-Making Subsidiaries Looking for a Turnaround
Two local subsidiaries of Renata include Purnava and Renata Agro, contributing 2.12% and
1.33% to total turnover, excluding intercompany sales. Purnava had an impressive CAGR in
sales of 41.34%, while Renata Agro had a poor CAGR of -8.17% since 2017. Both subsidiaries
have entered the positive profit territory for the first time in 2021 (Fig 30). According to
Larive, consumption of poultry meat and eggs are expected to have an absolute growth of
Renata: Key Financials FY2017-18 FY2018-19 FY2019-20 FY2020-21 2021-22F 2022-23F 2023-24F 2024-25F 2025-26F 2026-27F
Revenue Growth Rate 14.45% 19.73% 8.18% 21.46% 14.77% 14.82% 14.36% 14.40% 13.90% 13.92%
EPS 44.35 46.63 45.29 51.94 54.21 57.01 60.84 63.87 67.78 70.54
Payout Ratio 24.10% 23.17% 30.00% 30.00% 30.00% 30.00% 35.00% 35.00% 40.00% 40.00%
Profitability Ratios
Gross Margin 49.51% 49.61% 47.06% 47.32% 48.00% 48.00% 48.50% 48.50% 49.00% 49.00%
EBITDA Margin 26.67% 26.85% 28.31% 26.40% 27.46% 27.38% 27.76% 27.78% 28.20% 28.14%
Net Profit Margin 16.31% 16.46% 16.26% 16.89% 16.89% 17.02% 17.47% 17.64% 18.08% 18.16%
Return on Equity (ROE) 20.03% 20.20% 18.44% 19.69% 19.25% 19.00% 19.02% 18.95% 19.05% 19.01%
Return on Asset (ROA) 14.54% 15.22% 13.65% 14.56% 14.42% 14.50% 14.72% 14.83% 15.09% 15.19%
Return on Capital Employed (ROCE) 25.87% 26.44% 25.99% 25.41% 25.35% 25.15% 25.30% 25.29% 25.51% 25.51%
Leverage and Liquidity Ratios
Interest Coverage Ratio 49.33 44.65 39.32 65.75 36.80 38.42 39.58 40.63 42.13 43.40
Debt to Equity Ratio 0.16 0.14 0.14 0.19 0.18 0.17 0.17 0.16 0.16 0.15
Net Operating Cash Flow per Share 38.12 52.54 52.89 44.34 56.95 57.86 61.78 63.68 67.87 69.53
Net Asset Value per Share 221.45 230.90 245.65 263.85 281.57 300.01 319.84 337.10 355.73 371.10
Operational Ratio
Inventory Turnover 2.45 2.65 2.49 2.62 2.61 2.61 2.61 2.61 2.61 2.61
Receivable Turnover 7.29 8.28 7.84 8.14 7.93 7.93 7.93 7.93 7.93 7.93
Payable Turnover 7.45 8.42 7.15 10.30 9.13 9.13 9.13 9.13 9.13 9.13
Asset Turnover 0.95 0.99 0.91 0.93 0.92 0.91 0.90 0.90 0.89 0.89
Financial Analysis

Fig 31: Profitability Margins of Renata
Fig 32: Profitability Ratio Comparison with
Key Competitors in FY21
Source: Company Annual Reports
Fig 33: Forecasted Dividend Payout Ratio
Fig 34: Forecasted CapEx for Renata
Fig 35: Debt to Equity Ratio Comparison of
Renata with Key Competitors
Source: Company Annual Reports
34% and 49% in the next 5 years with a combined average CAGR of 9%. With the inflation of
the country expected to be around 5.50%, we forecast that the Agro market will grow at
14.50%, and so will Renata Agro. Purnava caters to middle to affluent class (MAC) which
is expected to triple to 34 mn from 2015 to 2025 (BCG). Due to this and lack of strong
competition, we forecast Purnava will have a growth of 30.00%, consistent with previous
years, initially and the rate will gradually come down to overall Renata’s growth rate.
Poor Track Record of Export Growth Expecting a Different Trajectory
Since 2017, Renata had a poor CAGR of -5.23% in export sales, although export sales grew
by 48.58% and 15.13% YoY in FY2020 and FY2021. A percentage of Renata’s export is largely
dependent on tender business. During 2018 and 2019, tender business was not significant
compared to previous years with lower country wide presence than now. As Renata
achieved MHRA, ANVISA, USFDA certifications, renewed focus to target 5-10% of a $9.9 bn
EU market, the company is looking for a greater contribution from export. With a CAGR of
18.82%, the pharma exports of Bangladesh are expected to hit $450mn by 2025 due to
government cash incentives in 37 product categories, duty free cash access to 52 countries,
and a 10-15% lower cost of production than India and China, according to BIDA. According
to company officials, Renata expects to have a 20% CAGR in the next 5-6 years. We
forecast Renata will have a 20% export growth as the company has gotten the permission
to invest $7mn in EU markets to cut down 10-30% commission on current sales.
STABLE PROFITABILITY RATIOS EXPECTED TO CONTINUE
Renata Limited has been moderately consistent in profitability ratios over the years. In the
span of the last 5 years, the gross margin and operating margin have dropped slightly to
47.32% and 22.90%, from 50.13% and 24.80% respectively due to the recent increase in price
of raw materials caused by the pandemic. However, the net margin still increased to
16.89% from 16.09%, for cutting down finance costs by eliminating long-term loans from
the capital structure (Fig 31). With the global economy opening up and supply chain issues
starting to ease, we forecast that the COGS will gradually decrease, but still be 1% higher
than previous rates due to inflationary pressure. API manufacturing will not have a
significant impact on COGS since 80% of the drugs produced locally are not linked to API.
IMPROVING OPERATIONAL RATIO, WITH HIGH-CAPACITY UTILIZATION
The operational ratios of Renata have improved over the years, with improving days in
inventory, receivables, and payables. This shows Renata’s improving operational
efficiency. After increases in inventory, receivables, and payables in days ratios in 2019-
20 due to the impact of Covid, the net working capital ratios have recovered back to
previous ratios in 2020-21. We forecast that the ratios will remain consistent with historical
ratios and the net working capital will grow with the increased sales. Moreover, Renata’s
average capacity utilization is higher compared to its peers. Despite multi-modal
production capacity, this shows the need for high capital expenditure.
RISING CAPEX FOR FURTHER BUSINESS EXPANSION, AT THE COST OF LOW PAYOUT RATIO
Renata had a YoY growth of 71.20% in capital expenditure in FY2021 due to 2x growth in
plant and machinery CapEx (Fig 34). The work of 3 new factories and 2 depots are
expected to finish by 2022 and major costs have already been incurred. Thus, we forecast
that the company will have a growth CapEx consistent with the figures prior to 2020-21
and the maintenance CapEx will remain constant as per previous years. Most of these
capital expenditures have been anchored on retained earnings with a low payout ratio less
than 30.00% until recently. Moreover, companies that fail to report at least 30.00% of their
net profits for the year as dividends are subject to a penalizing tax provision. In line with
the previous years, we forecast that the dividend payout ratio will initially be 30.00%. With
a strong cash position and better EPS, the company will increase its payout ratio to 40.00%.
HEALTHY LEVERAGE PAVING THE WAY FOR TOP LINE GROWTH
Renata had zero long-term debt since FY2019. This shows a healthy balance sheet and
makes Renata well-equipped to capture topline growth from business expansion. Due to
significant increase in CapEx, the company increased its debt-to-equity ratio to 19% in
2020-21 (Fig 35). Consistent with the current company policy, we forecast that the
34%
24% 24%
31% 30% 30% 30%
35% 35%
40% 40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%

Fig 20: Growth Rate of Top 5 Pharma
Companies in Bangladesh (2020-21)
Source: IMS Report, Quarter 3’2021
Fig 21: New Chronic Disease Formulations
of Renata in 2020-21
Fig 22: Growth Rate of Maxpro vs Sergel
Source: IMS Report, September’2021
Fig 23: Price Movement of Renata vs DSEX
Source: Dhaka Stock Exchange
company will not issue any long-term debt and will gradually decrease its debt-to-equity
ratio to the average of previous years.
INVESTMENT SUMMARY
We issue a ‘HOLD’ recommendation on Renata, with a 5-month target price of BDT 1323,
a 0.69% expected capital loss and a 1.05% dividend yield from Renata’s closing price of
BDT 1332 on January 31, 2022. The target price is based on a 50%/50% blend of a
Discounted Cash Flow to Firm model and a relative valuation based on PE and PEG ratio
multiples. Despite having a sustainable underlying business model and strong corporate
governance, we believe Renata’s current price level is not optimal for entry.
SUSTAINABLE REVENUE GROWTH IN AN ATTRACTIVE BUT COMPETITIVE INDUSTRY
Renata is the 5th largest pharmaceutical company in Bangladesh, where the
pharmaceutical industry resembles an oligopolistic competition as the top ten producers
account for almost 70.00% of the domestic market. Despite such competition, Renata has
consistently outperformed the market growth rate in sales, with a CAGR of 16.4% compared
to 11.60% local pharmaceutical market CAGR in the last 5 years (Fig 20). With rising
healthcare expenditure, growing purchasing power, rapid urbanization, increased life
expectancy and the pandemic induced increased awareness about healthcare, Renata is
set to pass through an attractive phase of local pharmaceutical market growth. However,
as 98% of the domestic demand is already being fulfilled locally, gaining market share
significantly will become increasingly difficult feat to achieve. The intensity of the
competition can be understood from the fact that 60% of the market for esomeprazole, the
highest selling segment of almost every pharma, is concentrated among 3 players. With
an attractive but competitive local pharmaceutical market, we are expecting Renata to
sustain a forecasted 5-year local pharmaceutical revenue CAGR of 14.00%.
SHIFTING PRODUCT FOCUS WHILE LOSING EDGE OF STAR PRODUCT
Chronic care diseases are expected to occupy an increasing share of the market due to
unhealthy diets, stressful urban lifestyles, and increased lifespan. In 2021, Renata
developed 37 new formulations for human beings, among which 16 formulations i.e.,
37.00% tackle chronic diseases in CNS, cardiovascular, oncology and anti-Inflammatory
sectors (Fig 21). This development is in line with the company's goal to shift focus from
antibiotic-dependent to the chronic care segment in the coming years. However, this
appealing segment is expected to attract numerous competitors, which is only a question
of time. Consequently, this will cause fierce price competition, and flattens bullish
expectations concerning potential market shares. Moreover, Maxpro which is the top sold
drug of Renata, with 1.50% of total market share, is slowly losing ground due to its
competing product Sergel of Healthcare Pharma, which has received increasing traction in
the market (Fig 22). Losing share of such star product exposes Renata to risk of lower
topline growth than expected.
STRONG GOVERNANCE LEADING TO LOWER BETA AND GREATER CONFIDENCE
Being one of the leading pharmaceuticals in the country, Renata has one of the most unique
shareholding structures. The 51.00% stake of SAJIDA Foundation in the company provides
the company to give back majority of its profit back to the community by design, which
has an annual budget of $637mn spent for welfare activities. SAJIDA emerged as an
extraordinary gesture of corporate philanthropy and stands today as a unique example of
zero long-term debt since FY2019 and in FY2021, its book D/E ratio was 19.00%, leading to
a strong balance sheet. Added to that, recent increase in director shareholding of +0.09%
and increased shareholding of Renata by SAJIDA Foundation in December 2021, as well as
Renata’s inclusion in the 1st Frontier Market ETF which is listed as $CUBS on the NYSE are
great source of confidence for the investors, leading to a lower beta (Fig 23).
HIGH EXPORT POTENTIAL BUT LOW OVERALL IMPACT ON TOPLINE GROWTH
Renata has a large pipeline of 11 products targeted at the EU and US markets, where the
company’s driver molecules in the EU pipeline targets 5-10% of a $9.9 bn market, backed
by strong market research and R&D. In that regard, Renata has recently got the approval
to invest $2 mn in Ireland as part of increasing the paid-up capital in its already
established subsidiary and make an investment amounting to $5 mn in the
13.53%
9.60%
14.58%
21.84%
14.24%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00%
SQUARE
INCEPTA PHARMA
BEXIMCO
HEALTHCARE PHARMA
RENATA
8
2
2
3
1
0 2 4 6 8 10
CNS
Anti-Diabetic
Cardiovascular
Oncology
Anti-Inflammatory
2.56%
4.89%
12.86%
28.39%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
Sep'2021
Sep'2020
Sergel Maxpro

Fig 24: Historical PE Ratios of Renata
Fig 25: Key Assumptions Related to WACC
Fig 26: List of Peer Companies
Fig 27: Peers and Competitors
Fig 28: Monte Carlo Simulation
United Kingdom for the same target. Subsidiaries in UK, Ireland with MA (marketing
authorization) approval of certain CNS and immunological molecules grant the added
advantage to explore international business, especially in the emerging markets.
Consequently, we expect Renata’s export sales to have a CAGR of 20% in the forecasted
years. However, given that export sales contribute to ~3% of the company’s
pharmaceutical revenue, this export potential will not have significant impact on the
revenue growth of Renata in the forecasted years.
DESPITE GOOD FUNDAMENTALS, A PRECAUTIONARY STANCE DUE TO HIGH PE
In the last 2 years, the share price of Renata has seen a significant price gain of +48.70%.
Since the reopening of the stock market of Bangladesh after the lockdown imposed due to
Covid-19, the market has been very bullish. In the last 2 years, the DSEX index has
increased by +54.6%. While this might not be a bad thing per se, it also enhances the danger
of a too optimistic outlook by the market on the potential revenue growth of Renata. At
the current price, Renata is trading at a P/E of 26.4x, which is considered overvalued based
on our DCF which indicates the share price of Renata should be trading at a P/E of 23.6 to
reflect its intrinsic value (Fig 24).
VALUATION
We used a DCF valuation using the Free Cash Flow to the Firm methodology and relative
valuation to arrive at a 5-month target price of BDT 1323, a 0.36% upside including
dividend yield from Renata’s closing price of BDT 1332 on January 03, 2022 (Appendix 20).
WACC
We estimate a WACC of 10.65% for Renata (Appendix 22). By adding Renata’s high interest
coverage ratio implied corporate spread of 0.75% to the risk-free rate and adding a country
risk premium of 1.02%, we arrive at the cost of debt 8.87%. Using 10-year Bangladesh
government treasury bond, we arrive at a risk-free rate of 7.10%. With a tax rate of 22.5%,
we arrive at an after-tax cost of debt of 6.87%. The cost of equity of 11.23% is calculated
with the CAPM formula, reflecting Bangladesh’s equity risk premium of 7.80%, the risk-free
rate and a 10-year monthly levered beta based on company's common stock price
volatility relative to DSE index volatility for a 10-year duration using a least squares linear
regression line. We use a target market D/E ratio of 15% indicating our long-term
expectations for Renata’s debt level.
TERMINAL GROWTH
We expect the terminal growth rate to stabilize at 4.47% after 2025 based on (1) projected
real GDP growth of 4.8% for Bangladesh (PwC), (2) average real growth per capita of 4.1%,
(3) long term inflation goal of 4.5% according to 2021-2041 Bangladesh perspective plan
RELATIVE VALUATION
For our relative valuation, we have used PE and PEG ratios. 2 companies from Bangladesh,
2 from India, 1 from Pakistan and 1 from China (Fig 26) were selected based on core
business, revenue, net profit margin, and market share. With a median PE of 26.33, we
derived at a price of BDT 1243. With a median PEG of 120.78, we derived at a price of BDT
1494. With equal weightage to both, our final relative valuation for Renata is BDT 1369
(Appendix 25).
SENSITIVITY ANALYSIS
We conducted a sensitivity analysis to evaluate the impact of changes in key inputs on our
valuation. Price is very sensitive to small changes in WACC, Terminal growth rate, and
COGS (Appendix 23). A 5% change in COGS leads to changing our recommendation. Given
the global momentum of increased health awareness and expenditure, we believe terminal
growth is more likely to pose an upside potential than downside threat, while supply chain
disruption leading to significant increase raw material price poses a significant risk.
SCENARIO ANALYSIS
We performed a Monte Carlo simulation with 50k iterations by flexing key variables in
order to gain a more holistic view on Renata’s share price trajectory under uncertainty. By
16.53
18.5
19.87
21.38
19.47
0
5
10
15
20
25
2015-16 2016-17 2017-18 2018-19 2019-20
Risk Free Rate 7.10%
Beta 0.53
Equity Risk Premium 7.80%
Before Tax Cost of Debt 8.87%
After Tax Cost of Debt 6.87%
Target Debt to Equity Ratio 15%
WACC 10.65%
Terminal Growth Rate 4.47%
Beximco Pharmaceuticals
Square Pharmaceuticals
Pfizer India
Sanofi India
Zhangzhou Pientzehuang Pharmaceutical
Abbott Laboratories

Fig 37: Risks and Mitigations
Fig 36: Risk Matrix
varying WACC, terminal growth rate, COGS, revenue growth rate for core segments, we
arrive at a 25.51% probability of reaching prices with a minimum of 10% upside.
INVESTMENT RISKS
OPERATIONAL RISK
B1. Capacity Overutilization Probability: High, Impact: Moderate
In FY2021, 7 out of the company's 10 major product groups were utilizing more than
100.00% of their capacities. Mitigation: Renata has a history of effective reinvestment of
capital and capital expenditure had a 71.00% YoY growth in FY2021. Having zero long-
term debt has enabled it to maintain a healthy debt-to-equity ratio of 0.19 and capacity
expansion can be banked on strong balance sheet.
B2. Underperforming Subsidiaries Probability: Moderate, Impact: Low
Renata Agro and Purnava have been loss making entities until FY2020-21. Purnava has
been spending a lot on marketing expenses, making it a loss-bearing entity. As the brand
is getting established, the marketing and promotions expense is gradually coming down.
Regarding Renata Agro, there has been a change in business strategy to focus only on
branded poultry products which experience less price volatility and garner brand loyalty.
POLITICAL RISK
P1. Graduation from LDC Status Probability: High, Impact: Low
As Bangladesh is expected to move upward from LDC status in 2024, it may not be able
to manufacture patented drugs for free under the TRIPS agreement. However, among the
portfolio of Renata, the patent has already expired for around 80% of the products meaning
that TRIPS ending would not have a major impact on overall profitability.
P2. Stringent Regulatory Requirements for Export Probability: High, Impact: Moderate
Renata will have to face stringent regulatory measures in the EU where ease of market
entry is very hard. However, Renata’s regulatory approvals from MHRA for 2
manufacturing sites and a strong track record with government organizations, global NGOs
such as UNICEF, WHO may provide the goodwill and the experience to navigate through
such stringent regulatory territory.
FINANCIAL RISK
F1. Foreign Exchange Probability: High, Impact: Moderate
The pharmaceutical industry of Bangladesh is highly dependent on imported raw materials
as almost 90% of total raw material is imported. Therefore, the foreign exchange risk of
Renata is very high. Moreover, the currency of Bangladesh is continuously depreciating
against the US Dollar and the value dropped by more than 10% over the last 5 years.
MARKET RISK
M1. Steep Local Competition Probability: High, Impact: High
The pharmaceutical industry of Bangladesh resembles an oligopolistic competition as the
top ten producers account for almost 70% of the domestic market. However, as per capita
health expenditure is gradually increasing in the country Renata still has the scope to
experience growth in the local market by targeting products with high growth potential.
M2. Supply Chain Disruption Probability: Moderate, Impact: Moderate
Weak backward linkage is a major concern for the overall sector due to the high
dependency on foreign countries for raw materials. Any supply chain disruption due to any
natural disaster will lead to deterioration of margins. Renata has shown strong resilience
even during the pandemic in 2020 when there was significant supply chain disruption and
has 20 different countries from where raw materials can be sourced. Due to the lifesaving,
necessity nature of pharmaceutical products, it is fair to assume the pharmaceutical
segment, which is the major contributor of Renata’s sales, will not have drastic change.
Risk Mitigation
Effective capital
reinvestment and
high capital
expenditure
Healtht D/E ratio in
favor of expansion
Declining marketing
and promotions ecost
of Purnava
Change in business
startegy
Focus on generic
drugs
80% products with
expired patents
Regulatory
approvals from
MHRA
Goodwill with
UNICEF, WHO
USD-denominated
receipts from
increasing export
Average lower net
exposure
Targeting high
growth products
Focus on R&D
Diversification of
sourcing
Utilizing API park
Political Risk
P1. Graduation from LDC
Status
P2. Stringent Regulatory
Requirements for Export
Financial Risk
F1. Foreign Exchange
Market Risk
M1. Steep Local Competition
M2. Supply Chain Disruption
Operational Risk
B1. Capacity Overutilization
B2. Underperforming
Subsidiaries
M1
M2
B1
P2
F1
B2 P1
Probability
Impact

Appendix 1: Market Share of Top 10 Companies
Appendix 2: Brief Description of Subsidiaries
Name
Shareholdin
g
Investment
Amount in
BDT
Description
Renata Agro
Industries Ltd.
99.99% 60,570,476
The principal activities of the company are to carry out business for production and
sale of various agro based products and poultry breeding & hatching and sale of
poultry products. Currently, the main revenue-driving products include Omega-03
egg, Vitamin-E egg, commercial broiler chicken, deshi-bird, and day-old-chick (DOC).
At the beginning of 2020-21, Renata reoriented its business strategy to focus only on
Omega-3, Vitamin-E eggs, and free-range Deshi chicken (Lal Jhunti) on behalf of
Purnava Limited. This resulted in an increase in turnover of 32.1% and also made a
modest net profit of Taka 1.67 crores for the first time. Renata expects this strategy
to help the subsidiary stay at a break-even level.
Purnava Limited 99.99% 2,499,900
The principal activities of the company are to carry on the business of marketing and
distribution of all kinds of consumer goods, consumer durables, food items, sugar
confectioneries, etc. Nearly 70% the turnover of Purnava Limited originates from
prescriptions of doctors. Purnava Ltd. was a loss-making entity until FY2020-21,
when the subsidiary made a profit of Taka 1.07 crores.
Renata (UK Ltd.) 100% 110
EU regulations stipulate that only European corporate entities may conduct medicines
business within its borders. Accordingly, Renata set up Renata UK to export
pharmaceutical products. In 2021, Renata conducted 16 studies and successfully
demonstrated bioequivalence for 14 products. Renata expects to file these products
in Europe throughout 2021 and 2022.
Renata
Pharmaceuticals
(Ireland) Ltd.
100% 9,610
In the event of Brexit, Renata's UK entity was no longer be sufficient to carry out
operations within the EU. Therefore, Renata established a subsidiary company in the
name of Renata Pharmaceutical (Ireland) Limited to fulfill the regulatory requirement.
The company has not made any financial transaction yet.
Source: Renata Annual Report 2021
Appendix 3: Global Presence of Renata
Market Type of Engagement
Sri Lanka, Myanmar, Nepal, Cambodia, Kenya Dedicated Sales Team for Renata Products
Philippines, Vietnam, Malaysia, Hong Kong, Laos, Thailand, Afghanistan Sales and Marketing Distributors
African, South American, and Central American countries NGOs and Distribution Partners
Burundi, Pakistan, Ghana, Mozambique, Benin, Morocco Connection with Governments
UK, Ireland Subsidiaries and Distribution
Source: Renata Representatives
17.39%
11.51%
8.94%
6.90%
5.37%
5.06%
4.35%
3.93%
3.62%
3.57%
16.96%
11.63%
8.64%
6.27%
5.20%
5.35%
4.21%
3.91%
3.78%
4.10%
16.65%
11.13%
8.17%
5.66%
5.26%
5.19%
4.01%
4.13%
3.86%
4.36%
0.00%
5.00%
10.00%
15.00%
20.00%
Q3'2021 Q3'2020 Q3'2019

Appendix 4: Capacity Utilization of Renata
Category Capacity (in '000) 2020-21 2019-20
Sterile dry fill (injectable) / Vials 8,155 124% 123%
Sterile liquid (inj) / Vials / Ampoules 15,350 142% 150%
Ointments / Tubes 1,500 40% 52%
Capsules and tablets / Cap / Tab 2,116,800 141% 135%
Oral liquid & dry syrup / Bottles 19,650 150% 172%
Water for injection / Ampoules 9,400 118% 118%
Premix feed supplement / Kg 6,500 91% 125%
Premix feed supplement / Sachets 11,800 127% 123%
Oral saline / Sachets 540,000 91% 128%
Potent Products / Tablets 2,650,000 158% 112%
Appendix 5 Top Sold Drugs in Bangladesh
Product Manufacturer Market Value in Billions Tk
SERGEL HEALTHCARE PHARMA 6.9
MAXPRO RENATA 3.7
NAPA BEXIMCO 3.3
SECLO SQUARE 2.9
PANTONIX INCEPTA PHARMA 2.6
MONAS ACME 1.6
FINIX OPSONIN PHARMA 1.4
LOSECTIL ESKAYEF 1.3
M-KAST DRUG INTERNATIONAL 0.6
RABE ARISTOPHARMA 0.5
Appendix 6: Major Product Group Production CAGR
Major Product Group 5-year production CAGR
Sterile dry fill (injectable) / Vials 15.1%
Sterile liquid (inj) / Vials / Ampoules 13.0%
Ointments / Tubes 5.4%
Capsules and tablets / Cap / Tab 16.0%
Oral liquid & dry syrup / Bottles 9.5%
Water for injection / Ampoules 17.1%
Premix feed supplement / Kg 0.2%
Premix feed supplement / Sachets 29.8%
Oral saline / Sachets -16.0%
Potent Products / Tablets 10.2%
Source: Team Analysis of Renata Annual Report
Appendix 7: Chronic Care Formulations by Renata in 2020-21
In 2020-21, Renata introduced 47 new formulations and among them 35 formulations were developed for human beings. Among the 35
formulations, 16 formulations tackle chronic diseases in CNS, Cardiovascular, Oncology and Anti-Inflammatory sectors. This development is in line
with the company's goal to focus on the chronic care segment in the coming years.
Drug Category Drug Category
Bisoprolol Cardiovascular Empagliflozin Anti-diabetic
Amantadine Hydrochlorid CNS Levetiracetam CNS
Risperidone CNS Clonazepam CNS
Rivaroxaban Cardiovascular Metformin Anti-diabetic
Sertraline Hydrochloride CNS Lapatinib Oncology
Deflazacort Anti-inflammatory Nilotinib Oncology
Levetiracetam CNS Escitalopram Oxalate CNS
Palonosetron Oncology Ticagrelor CNS

Appendix 8: Renata’s Pharmaceutical Value Chain
Appendix 9: PEST Analysis
POLITICAL
Domestic policies had a major contribution to the pharma industry. Drug Control Ordinance 1982 banned foreign
companies from selling imported drugs in the country to protect the nascent pharma industry. Foreign companies were
prohibited to import drugs and were told to set up manufacturing plants if they wanted to exist in the market. The
policies ensured investment in and protection of the pharma sector whilst slowly preparing it for achieving growth.
ECONOMIC
Though thought otherwise, pharmaceutical industries around the globe were quite depressed during the pandemic.
This was mainly because people wary of being infected lowered their visits to hospital, clinics, and private chambers.
On top of that, countries like Bangladesh, which is largely reliant on private practice of doctors, experienced this fall as
soon as the doctors closed their chambers due to covid (2019-20).
In spite of the sharp rise in raw materials, medicine prices remained stable and affordable throughout the time.
However, a strict lockdown in India halted the shipment of basic chemicals, leading to supply shortages. Locally, with
the shutting down of small packaging industries severe disruptions in the supply chain for the pharmaceutical industry
occurred (2019-20).
SOCIAL
People in Bangladesh’s rural areas still rely on traditional forms of medicines administered by “kaviraj”. Allopathic
drugs are yet to reach certain social strata due to high prices, rural traditions, general disbelief of the efficacy of
allopathic drugs and the inadequacy of the public healthcare infrastructure. The pharma industry, being highly
regulated, is not allowed to do direct marketing of their products which keeps a lot of people in the dark about what
allopathic medicine has to offer. (Covid increased awareness of medicines).
TECHNOLOGICAL
In the healthcare industry, most of the innovative solutions are services which cater to the general people i.e., the
front-end. The startups in the healthcare industry specialize in niches such as: Scheduling appointments, tele-
medicine, testing facilities and insurance service. At the back end i.e., manufacturing, there are very few local
disruptive technologies as our country still does not have expertise in capital machine manufacturing and relies on
import of technologies from developed countries. Blockchain has the potential to be used in pharma supply chains to
track products, maintain records, recall products and other facilities. However, there is still no implementation of
blockchain in the pharma sector yet.
Appendix 10: Porter’s Five Forces
THREAT OF NEW
ENTRANTS
Due to high barriers of entry the threat of new entrants is low. Pharma is both a capital and knowledge-based industry
which significantly deters new entrants. Healthcare pharma have made their way into the top 5 list, but they entered
the market almost 25 years ago. Intense competition among local players demotivates new pharmaceuticals from
entering the market. In the chart we notice that 90% of the market is controlled by 6 major players. In such an
oligopolistic market, new players find it very difficult to compete and profit so they are demotivated to enter.
Therefore, the threat of new entrants is low.
THREAT OF
SUBSTITUTES
In the medicine industry there are three broad categories of medicines. They are allopathic, herbal, and homeopathic
medicines. Renata and other drug producers operate primarily in the allopathic category. A large percentage of the
population is however, not under the coverage of the allopathic drugs which causes patient spillage into ayurvedic,
herbal and homeopathic segments. These segments are low priced and both urban and rural areas place a lot of faith
in the efficacy of these traditional medicines. Due to these factors, there is a moderate threat of substitutes.

BARGAINING
POWER OF BUYERS
The bargaining power of the buyers are low as they are mostly reliant on the doctors who are prescribing medicines.
The laws of Bangladesh prohibit pharma companies from marketing their products, so patients have to rely on doctors
for medical information. The flow of information travels from the pharmaceutical company to their medical
representatives who in turn inform the doctors and subsequently the doctors pass on the information to the final
consumers i.e., the patients. Due to this long chain of information and prohibition of direct communications between
the company and consumer, the bargaining power of buyers is very low.
BARGAINING
POWER OF
SUPPLIERS
The lion’s share of the raw materials of pharmaceutical products are imported from India and China. This gives the
exporters of APIs and other materials a lot of control over the prices of the raw materials and over the buyers in
general. Local production of APIs can reduce the dependence by a small margin. The other raw material required in the
production is excipients and the industry does not face a huge power imbalance when sourcing excipients.
COMPETITIVE
RIVALRY
There is high rivalry among the existing players and the fact that the prices of the products are regulated by DGDA,
increases the competition. The companies have fierce competition in broad segments such as ophthalmic,
gastroenterology etc. The top 5 companies collectively dominate 50% of the market. The intensity of the competition is
also illustrated here as we see that 60% of the market for esomeprazole, the highest selling segment of almost every
pharma, is concentrated among 3 players.
Appendix 11: Prospects and Impacts of External Factors to be Considered
11.A: TRIPS Agreement
The TRIPS program was developed by WTO to ensure that IP rights are protected. The program creates IP guidelines for WTO member nations.
Bangladesh’s pharma industry can produce patented drugs by reverse-engineering, which otherwise would’ve been very costly. However,
Bangladesh is set to graduate from LDC status and lose the benefits of TRIPS agreement. Therefore, Bangladesh will not be able to produce
patented drugs without approval of patent holder and this is set to increase costs of production. The usual patent period for a drug is 20 years;
after which the drug becomes off-patent, and anyone can produce off-patented drugs. Since almost 80% of the drugs in Bangladesh are off patent
so the graduation from LDC status should not be a huge impediment for the pharma industry
11.B: API Manufacturing
A drug has two components: an active pharmaceutical ingredient (API) and the excipient. The API is the component that creates the required effect
of the drug. The global API market is around 187.3 billion USD with a CAGR of 5.8%. There are ample opportunities to export APIs but in Bangladesh,
90% of the APIs need to be imported since a high level of technical know-how is needed for API manufacturing. Facilities such as VAT waiver, loan
period extension, creation of API parks etc. are provided under the new policy. The API plant is set to reduce raw materials costs by almost 70%.
11.C: The Future of Pharma: Biotech
Bio-tech products differentiate themselves from traditional medicines in the sense that the bio-tech products are derived from the manipulation
of living organisms while traditional allopathic medicines are derived from chemical synthesis. Globally the biotech market has a size of USD 752.88
billion and is expected to have a CAGR of 15.8% from 2021 to 2028. The CAGR of the global market of bio-tech products is the same as the growth
rate of our local pharmaceutical market. Almost 4 out of every 10 drugs has a biotech derivation associated with it
11.D: Bio-Equivalency Testing
Bio- equivalency testing is a test that is undertaken to compare the effects of two brands of drugs with the same genetic makeup. In order to
export to developed countries, a brand of drug must show its bioequivalence results but sadly Bangladesh does not possess the infrastructure
required to conduct bioequivalence testing. As an alternative, some pharma conducts in vitro testing as an alternative to bioequivalence testing
Appendix 12: Shareholding Structure as of 30.06.2021
No. of Shares % Holding Shareholder Description
49,698,141 51.00% Sajida Foundation
Founded in 1993 by Syed Humayun Kabir, Sajida Foundation is an NGO
that maintains a portfolio comprising of financial products and services,
specialized social enterprises, and community-centric development
programs.
21,189,081 21.74%
Business Research
International Corp Inc.
Business Research International Corporation Inc. (BRIC) is a
Panamanian registered investment company registered in 1987. The
company primarily engages in Public Equity investments across multiple
industries across multiple markets.
6,315,972 6.48% ICB Unit Fund
Sponsored by the Government of Bangladesh, ICB Unit Fund was
established on April 10, 1981. Its main objective is to mobilize savings
through sale of its units to small investors and invest these funds in
marketable securities.
4,263,329 4.37%
Sadharan Bima
Corporation
Founded in 1973, Sadharan Bima Corporation is the one and only state-
owned non-life insurer and reinsurer in Bangladesh under the Ministry of
Finance, Government of the People's Republic of Bangladesh.
15,981,643 16.40% Other Shareholders

Appendix 13: Shift in Demographic Dividend of Bangladesh
Source: United Nations Population Fund
Appendix 14: Description of Board of Directors of Renata
Position
Appointed
in
Name Present/Past Experience (present exp. in italic)
Shares
Held
Chairman 2015-16 Dr. Sarwar Ali
Trustee, Liberation War Museum
5.386
Managing Director, Renata Limited
Secretary General, Bangladesh Medical Association
Chairman, Board of Management, BIRDEM Hospital
Managing
Director
2011 Kaiser Kabir
Director, BRAC Bank Limited
125,934
Managing Director, BRAC-Renata Agro Industries Limited
National Macroeconomist, Financial Sector Reform Project
Consultant, The World Bank, RMB
Director 2013
Zahida Fizza
Kabir
CEO, Sajida Foundation
28,292
Board Member, Action Aid Bangladesh
Chairperson, Psychological Health & Wellness Clinic Ltd.
MD, Home and Community Care and Inner Circle Pvt. Ltd.
Director 2015-16
Sajeda Farisa
Kabir
Safeguarding and External Relations Consultant, Sajida Foundation
14,171
Associate Director, Human Rights and Legal Services Program, BRAC
Founding Partner, Vertex Chambers, Dhaka, Bangladesh
Director 2019-20
Mridul
Chowdhury
Founder and CEO, mPower Social Enterprises Limited
0
ICT4D Consultant, UNDP, Bangladesh
ICT Consultant, Bangladesh Enterprise Institute, Bangladesh
e-Governance Consultant, Ministry of Planning, Gov. of Bangladesh
Director 2019-20
Tanya Tazeen
Karim
Architect Partner, Tanya Karim NR Khan & Associates
0
Managing Director, Urban Bangla Ltd.
Chairman, Rupos Agro Tech Ltd. (RATL)
Member, Bangladesh Womens’ Chamber of Commerce & Industry
Independent
Director
2018-19 Nehal Ahmed
Director, A-CUBED PTE Ltd., Singapore
0
Advisor, Sheba.xyz and Amartaka.com
Senior Director (Head of Communications), Grameenphone
Independent
Director
2019-20 Ejaj Ahmed
President and Founder, Bangladesh Youth Leadership Center
2,607
Global Council Member, Asia Society, USA
Principal Consultant, National Youth Policy 2017
Appendix 15: Corporate Governance Scorecard
Criteria Description Rating Company Policy
Executive Committee
Independence
Boards must be willing and able to effectively
scrutinize strategy and management performance and
set reasonable compensation.
4
The board comprises of mostly independent and non-
executive directors. 2 out of 8 directors are
independent. 3 directors hold no share in the
company.

Accountability
Governance practices should reflect a board that is
answerable to its owners.
4
Board and Board Committees evaluation is done by
the Board through self-assessment and group
discussions. There are 5 criteria for this. Evaluation of
the Directors is done by the Board (excluding the
Director whose evaluation is being done). There are 7
criteria for this.
Responsivenes
s
Directors must be responsive to the wishes of its
shareholders as expressed through elections or votes
on shareholder proposals and respond accordingly.
3
The company's policy outlines shareholder rights and
the responsibility of the directors.
Competence
Directors should add value through skills or expertise
in a particular field.
3
The directors come from a diverse field of academic
and experience. Both the Chairman and MD have
worked in the pharmaceutical sector for an extensive
period.
Elections Annually elected directors 4
Directors are elected through an elaborate process in
the annual stockholder meeting.
Board
Attendance
Annually elected directors, adequate attendance at
board and committee meetings.
4
All directors were present in all the board meetings of
the company held during the year.
Directorship Reasonable number of board directorships. 4
There are 8 directors in the board including 2
independent directors.
Elections Majority voting in director elections. 4
Directors are elected through a plurality of votes using
the cumulative voting method.
Related Party
Transactions
Absence of material related party transactions. 3
Related party transactions are evaluated objectively
by external consultants and recorded accordingly.
Board
Members
Board of at least 5 but no more than 15 members. 4
There are 8 directors in the board including 2
independent directors.
Independent
Members
Board must have greater of 2 independent directors or
20% independent members of the board.
4 There are 2 independent directors in the board.
Role
Delegation
Role of CEO and chair should be separate 4
The Chairman is Dr. Sarwar Ali and the CEO is Kaiser
Kabir.
Committees
Established Executive, Audit, Compensation,
Nominating, and Compliance Committee
4
The company has established independent Audit and
NRC committees with 3 members each.
Average 3.77
Audit Committee
Independent
Audit
Auditor should provide an impartial and professional
opinion. Independence is compromised when the
author receives significant payments for non-audit
work.
4
Auditor's role, responsibilities, and remuneration are
clearly defined and overseen by an audit committee
comprising of 3 members.
Independent
Audit
Board's Audit Committee should be independent 4
The audit committee comprises of 3 members and is
chaired by independent director Nehal Ahmed.
Integrity of
Financials
Company’s financials should have integrity. (Items
that raise concerns include changes in auditors,
irregularities over many years, material weaknesses in
the company’s controls, certain restatements, and
excessive fees paid for non-audit work)
4
The external auditor is duly accredited by the local
overseeing body. All statements are accompanied by
notes. No concerns have been raised by any
associated bodies.
Selection of
Auditor
Company should allow shareholders to ratify the
selection of the auditor
4
The appointment, reappointment, removal, and fees
of the external auditor is recommended by the audit
committee, approved by the board and ratified by
shareholders.
Average 4
Compensation Committee
Performance
Metrics
Performance metrics should encourage
executives to make decisions that benefit
shareholders
3
5% of the net profit goes to the worker's profit and
welfare fund, however, there are no direct
management incentives.
Performance
Metrics
Performance Metrics should be
communicated to shareholders
4
The NRC committee discloses the remuneration policy
and evaluation criteria during the year at a glance in
the annual report.
Performance
Metrics
A portion of executive compensations
should be in the form of equity
2
The company does not offer compensation in the form
of equity to executives or directors.
Performance
Metrics
Shareholders should have an advisory vote on
executive compensation
2
Only the members of the NRC committee have votes
on executive compensation, however advisors can be
appointed.
Average 2.75
Protection of Shareholder Rights
Election One share, one vote, 4 Each common shareholder has 1 vote for 1 share.
Shareholder
Rights
Right to Dividend 4
Shareholders are entitled to dividends subject to the
discretion of the board.
Shareholder
Rights
Right of shareholders to call special meetings 4 Shareholders have the right to call special meetings.
Shareholder
Rights
Information 3
Shareholders are entitled to access corporate books,
records, and reports without restrictions
Average 3.75

Appendix 16: Comparison of Peer Companies
Source: Team Compilation from Annual Reports of 2021 of the Mentioned Companies
Appendix 17: Balance Sheet
* All figures in millions BDT
Appendix 18: Income Statement

Appendix 19: Cash Flow Statement
Appendix 20: DCF Valuation
DCF Valuation *all figures in mn BDT
2021-22F 2022-23F 2023-24F 2024-25F 2025-26F 2026-27F
EBIT 7,998 9,241 10,840 12,510 14,591 16,690
Depreciation and Amortization 1,448 1,572 1,700 1,843 2,003 2,178
Taxes -1,970 -2,279 -2,675 -3,090 -3,607 -4,129
Changes in NWC -1,153 -1,471 -1,577 -1,870 -1,990 -2,351
Capital Expenditure -3,452 -3,805 -4,171 -4,565 -4,964 -5,386
Unlevered FCFF 2,871 3,258 4,116 4,829 6,034 7,002
Discount Period (years) 1 2 3 4 5 6
Discount Factor 0.90 0.82 0.74 0.67 0.60 0.54
PV of Unlevered FCFF 2,595 2,661 3,039 3,222 3,638 3,816
DCF Valuation Price Weightage
WACC 10.65% 1,277 50%
Growth to Perpetuity 4.47% 1,369 50%
Terminal Value at 2027F 197,210
PV of Terminal Value 107,475 1,323
1,332
Enterprise Value 126,446 -0.69%
Less: Debt 4,802 1.05%
Add: Cash 1,406 0.36%
Equity Value 123,050 HOLD
Shares Outstanding 107
Price Per Share (2020-21) 1148
Price Per Share (2021-22) 1277
Expected dividend yield
Total potential upside/(downside)
Recommendation
DCF
Relative Valuation
June 2022 target price
Current Price, 31 Jan 2022
Expected capital gain/(loss)

Appendix 21: Revenue Assumptions
Appendix 22: Calculation of WACC
Appendix 23: Sensitivity Analysis
23.A: Terminal Growth vs WACC
Cost of Equity Cost of Debt Computation
Risk-free Rate 7.10% Cut Off Yield of Bangladesh Govt. 10 Year T-bonds
Beta 0.53 10 year monthly Beta of Renata
Equity risk premium, Bangladesh 7.80% Source: Aswath Damodaran
Cost of Debt
Interest Coverage Ratio, Renata (2020-21) 50.4 Renata Annual Report
Spread 0.75% Source: Synthetic Calculation from Spread
Tax Rate 22.50% Bangladesh Government Coverage Ratio Rating Spread
Country Default Spread 3.06% Source: Aswath Damodaran > 12.5 AAA 0.75%
Before Tax Cost of debt 8.87% 9.5-12.5 AA 1.00%
After-tax cost of debt 6.87% 7.5-9.5 A+ 1.50%
6-7.5 A 1.80%
Target Market Debt/Asset Ratio 13% 4.5-6 A- 2.00%
WACC 10.65% 3.50-4.5 BBB 2.25%
3-3.5 BB 3.50%
2.5-3 B+ 4.75%
Terminal Growth Rate 2-2.5 B 6.50%
Average Real Growth Per Capita, Bangladesh 4.10% PwC, The World in 2050 Summary Report 1.5-2 B- 8.00%
Long Term Inflation Goal 4.50% 2020-2041 perspective plan 1.25-1.5 CCC 10.00%
Projected Real GDP Growth, Bangladesh 4.80% PwC, The World in 2050 Summary Report 0.8-1.25 CC 11.50%
Terminal Growth Calculation 4.47% 0.5-0.8 C 12.70%
<0.5 D 14.00%
Since Renata does not issue bonds nor have credit ratings, we estimated its
cost of debt based on the current interest rate environment. Our
methodology uses a synthetic credit rating based on the company’s interest
coverage ratio to determine the appropriate spread over the long term
government bond of the same maturity. With Renata’s AAA synthetic rating,
we get a spread of 0.75%, close to the historical spread in its previous
borrowing. Adding this spread to the 10Y Bangladesh Gov’t T-bond yield
and country default spread gives us a cost of debt of 8.87%.

23.A: COGS vs WACC
Appendix 24: Monte Carlo Simulation
Appendix 25: Relative Valuation
Appendix 26: Bangladesh Pharmaceuticals Market Segments by Share
Source: MAT Q3’2021, BAPI
36.51%
14%
11.45%
10.47%
9.45%
5%
3.50%
9.42%
Alimentary T. & Metabolism
Systemic Anti Infectives
Cardiovascular System
Nervous System
Respiratory System
Musculo Skeletal System
G.U. System & Sex Hormones
Others

Team Medallion, CFA Research Challenge'22, Final Round

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