Why AGP Is the Smart Pharma Pick in 2025?

Pakistan’s pharmaceutical sector continues to present a compelling investment case, supported by strong earnings growth, favorable regulatory developments, and improving macroeconomic conditions. In light of these dynamics, JS Global reiterates its overweight stance on the sector, with AGP Limited (AGP) emerging as top pick.

Why We Remain Bullish on Pharmaceuticals?

The sector’s 1QCY25 performance already highlights the strength of its fundamentals. A 78% YoY earnings growth, led by higher drug prices following the deregulation of non-essential medicines, stable currency, and lower API costs, shows the improving margin trajectory. Gross margins across the sector rose to 39%, and operating margins are expanding as companies benefit from more favorable cost structures.

Looking ahead, several factors continue to support a positive view:

• Non-essential drug deregulation has given manufacturers more pricing flexibility, and further price adjustments for essential drugs (linked to 70% of CPI) are expected in 2HCY25.
• API prices are declining globally, improving cost efficiencies.
• The ongoing monetary easing is set to ease finance cost pressures, particularly benefiting highly leveraged companies.

AGP: Leading the Pack

With a market capitalization of Rs 49.1 billion, AGP is currently trading at a forward P/E of 12.3x and offering a dividend yield of 3%. While not the cheapest on paper, its performance and positioning justify the premium.

Key Investment Drivers:

1. Strong Non-Essential Product Mix
   Over 60% of AGP’s portfolio comprises non-essential drugs, which gives the company more pricing power and protects margins in a deregulated regime.
2. Consistent Margins
   With gross margins at 59%, operating margins at 30%, and net margins at 14%, AGP maintains one of the most stable profitability profiles in the sector.
3. Beneficiary of Lower Interest Rates
   As one of the most leveraged players, AGP stands to benefit significantly from the declining interest rate environment. This will ease finance costs and directly support net profitability.
4. Strong Organic Growth
   AGP’s growth trajectory is supported by an established brand portfolio and a continuous stream of new product launches, which help drive top-line and bottom-line expansion without heavy capex.
5. Robust Sales Growth
   The company delivered 27% sales growth over the last four quarters, reflecting healthy demand and pricing momentum.

Bottom Line

While the sector has underperformed the KSE-100 index CYTD, this underperformance presents a buying opportunity. The deregulation of drug pricing, stable input costs, and easing interest rates create a favorable backdrop for earnings growth.

AGP stands out as the best-positioned player to benefit from these tailwinds, with a superior product mix, margin strength, and leverage to the current macroeconomic cycle.

For investors seeking quality exposure in the pharmaceutical space, AGP is the stock to own.