Pakistan’s Pharmaceuticals Sector Sees Strong Profits Amid Deregulation and Cost Declines

Karachi: Pakistan’s listed pharmaceuticals sector reported a significant increase in earnings, rising by 30% year-on-year to reach Rs10.4 billion in the first quarter of fiscal year 2026. The surge in profitability is largely driven by increased net sales, enhanced gross margins, and a reduction in finance costs.

Net sales for the sector climbed by 14% compared to the previous year, totaling Rs94.0 billion. This growth was predominantly fueled by a rise in drug prices following the deregulation of non-essential drugs in February 2024. Major pharmaceutical companies such as ABOT, SEARL, AGP, FEROZ, and HPL spearheaded the sector’s sales growth.

The deregulation of drug prices contributed to improved gross margins, which rose to 42% in the first quarter of FY26, up from 37% in the same period last year. A decline in raw material prices and currency stability further bolstered these margins. AGP achieved the highest gross margins, reaching 62% during this period.

Finance costs for the sector saw a substantial decrease of 52% year-on-year, falling to Rs1.0 billion. This decline is attributed to a reduction in the average KIBOR lending rate, which dropped from 18.5% to 11.0%, alongside lower borrowing levels.

On a sequential basis, earnings increased by 35% quarter-on-quarter, driven by improved gross margins and a one-off adjustment in SEARL. Excluding SEARL, the sector’s growth remained at 8% quarter-on-quarter.

The outlook for the pharmaceutical sector appears positive, with expectations of continued strong profitability. Companies are in the process of launching new products, and declining active pharmaceutical ingredient prices, linked to reduced crude oil costs, are anticipated to support gross margins.

In a recent strategy report, JS Global identified GlaxoSmithKline Pakistan Limited (GLAXO) and Highnoon Laboratories Limited (HINOON) as standout stocks within the sector, highlighting their high-quality product mix, low leverage, strong gross margins, and attractive valuations.