Beximco Pharma Analysis 2022

Executive Summary
Valuation is a must requirement for assessing an asset of a company in the market
before making any investment or other purposes. For valuation purposes, an analyst
needs to understand risk and return relationship, tailors required rate of return, uses
this rate as discount rate for assuming the value of a stock and determines a price
which might be different from market price.
Undiversifiable risk is the main concern of majority of people while deciding required
rate of return of a stock. BETA, measuring that risk, is 1.37 based on historical
monthly data of 5 years for BXPH stock, showing higher volatility corresponding to
market volatility. CAPM Method suggests that required return rate be 7.11%. Current
price of this stock is 120 Taka found using constant dividend growth model. Growth
rate is 5.93% found on the basis of 17% payout ratio and 7.14% ROE. Value per
share of Beximco Pharma is assumed through comparables methods. Using P/E
ratio, price of the share is 146 Taka. P/B ratio of 0.87 implies Beximco Pharma is
undervalued while P/S ratio of 1.49 says Beximco Pharma is overvalued. Calculated
price and market price do not match because constant growth rate model has
limitations like being inflexible with dynamic economy, disregarding non-dividend
factors. Quality of information disclosed by companies is also a factor for
mismatching calculation and market price.
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Table of Contents
Executive Summary......................................................................................................ii
Chapter One: Introduction............................................................................................1
1.1 Objectives of the Study.......................................................................................1
1.2 Description of the study......................................................................................1
1.3 Methodology........................................................................................................1
1.4 Limitations...........................................................................................................2
Chapter Two: Company overview................................................................................3
Chapter Three: Valuation Exercise..............................................................................4
3.1 BETA...................................................................................................................4
3.2 CAPM Method...................................................................................................12
3.3 Estimation of the constant dividend growth rate of Beximco Pharmaceutical..14
3.4 Estimation of Current Stock Price of Beximco Pharmaceuticals......................16
3.5 “Method of Comparables” stock valuation approach........................................17
3.6 Critical analysis of the difference between calculated price and market price of
Beximco Pharma stock...........................................................................................24
Chapter Four: Conclusion...........................................................................................27
References.................................................................................................................28
Appendix.....................................................................................................................30
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Chapter One: Introduction
Valuation is the analytical process of determining the current (or projected) worth of
an asset or a company. Business management, capital structure, earnings prospect,
market value, economic condition, business cycle are some important factors for
placing a value on any company. Although many methods are available for valuation,
no single method can suit every stock. Different methods can result in different
values which may suggest different price of an asset compared to market price. And
again, valuation can be changed frequently with the change in corporate earnings
and economic events, making Analysts remodeling their methods. Analyst has to
employ a suitable set of valuation methods complying each situation to find the
appropriate result before making or suggesting an investment decision.
1.1 Objectives of the Study
The report is mainly made for academic purposes. It serves for students to apply the
knowledge achieved throughout the course to calculate and understand the risk
associated, return movement with respect to market, price and value of a particular
company stock.
1.2 Description of the study
This report contains application of various valuation methods on the Beximco
Pharma stock. CAPM BETA and CAPM method are applied on market return and
Beximco Pharma stock return of 5 consecutive historical years' monthly data, horizon
and frequency have been carefully chosen based on our best judgement we
developed throughout the course lessons. Constant dividend growth model is used
to calculate the stock price of Beximco Pharma based on a growth rate derived from
using payout ratio of Beximco Pharma. P/E ratio, P/B ratio, P/S ratio of 'methods of
comparables' are calculated for Beximco Pharma using most recent historical data
from financial statements. Finally, calculated price and market price of Beximco
Pharma stock differed and the reasons have been critically evaluated.
1.3 Methodology
 Tasks were divided based on each team member’s skills and convenience.
 Everything learned during course F-203 were reviewed.
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 A listed company based on regular cash dividend payment history was
selected.
 Relevant information to required valuation methods was accumulated.
 Valuation methods were exercised on company stock by assigned group
member.
 Calculation and evaluation were structured in presentable manner with proper
reference.
1.4 Limitations
 Lack of experience.
 Lack of in-depth knowledge of valuation and market.
 Constraints due to pandemic.
 Complications in choosing the appropriate data set to use.
 Assumption for proxy components.
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Chapter Two: Company overview
Figure 1: Logo of Beximco Pharmaceuticals Ltd. Source: Ahamed, 2020
Beximco Pharmaceuticals Ltd (Beximco Pharma) is one of the largest
pharmaceutical companies in Bangladesh. The company was established in 1976 in
Bangladesh and started commercial drug production in 1980.
'Life's all about staying healthy and enjoying the good things in life! However, illness
is inevitable at all stages of life'- with this viewpoint, the company is an emerging
generic drug player committed to providing access to affordable medicines. Currently
they are producing more than 500 products.
Beximco Pharma is accredited by many renowned regulatory authorities of world.
Rising cost of healthcare and medicines is a global concern. In order to reduce cost
across the value chain, pharmaceutical companies from developed markets are
partnering with Bangladeshi drug player Beximco Pharma for outsourcing their
production, as our country possesses probably the lowest labor cost. Beximco
Pharma has so far exported medicines to more than 40 countries around the world
(Rahman and Saha, 2015).
For relevance of our study, Beximco Pharma was listed in Dhaka Stock Exchange
(DSE) in 1985, later in Chittagong stock exchange of Bangladesh and in alternative
investments market (aim) of London stock exchange. Their paid-up capital amounts
Taka 4,461.1 million, number of shareholders Around 56,000; total shares
446,112,089. Shares listed with local Stock Exchanges of Bangladesh (ordinary
share) are 346,074,100 (77.58%). No. of GDRs listed on AIM in London Stock
Exchange 100,037,989 (22.42%), these shares are not traded in DSE and CSE.
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