The Acme Laboratories Ltd.

(Unsolicited)
Credit Rating Report

Valid From Valid Till Rating Long Term Short Term Outlook
Action Rating Rating
December 28, December 27, Initial AA- ST-2 Stable
2018 2019

Year of Incorporation : 1954

Chairman : Mrs. Nagina Afzal Sinha

Authorized Capital : BDT 5000.00 Million

Total Paid-Up Capital : BDT 2116.02 Million

Bank loan : Short Term BDT 5826.84 Million

Long Term BDT 3780.83 Million (As on June 30, 2018)

Contact Analysts : Mazruq Islam mazruq@emergingrating.com

Saami Alam saami@emerignrating.com

Emerging Credit Rating Ltd

CREDIT ANALYSIS
Unsolicited Rating
 2018 Initial Review
The ACME Laboratories Ltd.
Major Rating Factors
Strengths Experienced management team
ISO Certified
Strong local and global customer base
One of the Top Ten pharmaceutical manufacturers in Bangladesh
Fluctuation in exchange rates may cause raw material costs to increase
Challenge/
Highly competitive market and counterfeit look alike products
Risks
Impact of changes in government rules and regulations on revenue generation
High dependency on third party suppliers and vendors
Rationale Emerging Credit Rating Limited (ECRL) has assigned AA- (Pronounced as Double A
minus) long term credit rating and ST-2 short term credit rating to The Acme
Laboratories Ltd. (hereinafter referred as ‘ACME’ or ‘the concern’) based on published
audited financials for FY 2016 to 2018 and unaudited quarterly financials for 2019.
The outlook of the rating is Stable. The ratings are consistent with ECRL’s
methodology for this type of company. ECRL considered financial performance,
business operation, corporate governance, earning trends, profitability, management
experience and prospect of the industry while assigning the rating. This is an
unsolicited rating.
The assigned rating reflects the strengths of the company which are backed by
ACME’s experienced management team, good position in the market, alliances with
multinational companies, compliance status, and pharmaceutical sector’s favorable
outlook in the country. However, ECRL is concerned about the company’s low
profitability margin compared to other pharmaceuticals in the industry and
significantly high dependence on debt financing in a highly competitive market.
Presence of counterfeit or look-alike products in the market also pose a threat to any
organization in the pharmaceutical industry.
The ACME Laboratories Limited, one of Bangladesh’s top pharmaceutical companies
which holds approximately 5.00% shares in the pharmaceuticals industry of the
country. ACME is engaged in manufacturing of a wide range of Human, Ayurvedic,
Herbal and Neutraceutical, as well as Veterinary medicine products with holistic
approach since its inception. Presently, the company has six operational
manufacturing plants with the latest and sophisticated machineries and infrastructure
facilities complying with international standards.
Since its commencement in 1954 by Mr. Hamidur Rahman Sinha, an entrepreneur
and philanthropist in this region of the then British divided Indian sub-continent, The
concern has been committed to offering solutions to pressing health care needs. Over
the past few decades, the business has seen significant growth and success in the
pharmaceutical sector. With more than 60 years of expertise in medicine and science,
ACME draws upon a rich legacy of high quality formulations and a robust pipeline of
promising generic medicines at affordable prices to meet health care needs. ACME is
an ISO 9001:2015 certified company.
Keeping pace with the pharmaceutical industry’s growth, the concern has been
witnessing high trend of revenue generation over the years which stood at BDT
14,813.91 million in FY2018. Consistent market demand, increasing sales volumes

Page 2 of 13
The ACME Laboratories Ltd.
 and strong relationships with customers are the key reasons behind the stable
growth of revenue. However, profitability margins like gross profit margin, operating
profit margin and net profit margin have decreased slightly than earlier year due to
higher growth of cost of goods sold and operating costs than revenue during FY2018.
The liquidity position of the company has been reflected by its ability to cover its
short term obligations, which are highlighted by the current asset ratio and quick
asset ratio during FY2018. In FY2018, current ratio and quick asset ratio of 1.11
times and 0.75 times respectively show that the concern maintains adequate current
assets to cover its short term obligations. However, in FY2018, the current and quick
asset ratios moved down slightly from FY2017 due to increased current liabilities
compared to decreased current assets during FY2018. It is noticeable from the
audited financials that the inventories of the concern had increased in FY2018 from
FY2017 which indicates stockpiling due to projected sales increases. Even though
inventory increased in FY2018, inventory turnover days were almost the same for
analyzed FY2016-FY2018. Similar values in the number of receivables days from
FY2016-FY2018 indicate that the amount of credit sales ACME offered to its
customers remained consistent in the analyzed years. As a consequence, cash
conversion cycle remains high which is could hamper the effectiveness of company’s
management, and consequently, the overall health of the company.
The Acme Laboratories Ltd. maintains banking relationship with Trust Bank Ltd.,
Dutch Bangla Bank Ltd., Eastern Bank Ltd., IDLC Finance Ltd., Dhaka Bank Ltd.,
IIDFC, IPDC, HSBC, United Finance Ltd., Lanka Bangla Finance Ltd., Lankan Alliance
Finance Ltd., Bay Leasing & Investment Limited, Prime Bank Limited, Standard
Chartered Bank and The City Bank Ltd. The company has the benefit of credit
facilities from the banks above to meet its working capital requirements. Total
outstanding liabilities of The Acme Laboratories Ltd. were BDT 9607.67 million as on
June 30, 2018.
The concern’s stable outlook is reflected by its business opportunities and by
considering its improvement in overall business. The future direction of the ratings
will depend on the concern’s ability to deal with competition in the market, service
debt obligations and effectively manage its cash flow/working capital.
Exhibit 1: Financial Highlights: The Acme Laboratories Ltd.
FYE 30 June 2019* 2018 2017 2016
Revenue (BDT in millions) 3,913.37 14,813.91 13,576.32 12,644.91
Revenue Growth (%) (73.58) 9.12 7.37 -
COGS (BDT in Millions) 2,381.93 8,942.40 8,039.83 7,770.61
COGS Growth (%) (73.36) 11.23 3.46 -
Gross Profit (BDT in millions) 1,531.44 5,871.52 5,536.49 4,874.30
Net Profit After Tax (BDT in 388.31 1,426.57 1,397.85 1,101.27
millions)
Gross Profit Margin (%) 39.13 39.64 40.78 38.55
Operating Profit Margin (%) 22.98 21.30 23.79 20.47
Net Profit Margin (%) 9.92 9.63 10.30 8.71
Current Ratio 1.04 1.11 1.25 1.35
Cash Conversion Cycle (Days) 686.00 171.00 162.00 153.00
Debt to Equity Ratio 0.72 0.66 0.60 0.61
ROA (%) 1.13 4.37 4.67 3.81
ROE (%) 2.15 8.08 8.24 6.73
CFO (BDT in Millions) 496.23 1578.32 1396.41 1322.80
2016 – 2018 (July-June) data obtained from audited financial statements
2019* (Jul –Sep) data obtained from unaudited financial statements

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The ACME Laboratories Ltd.
 A. BUSINESS DESCRIPTION
A.1. Company Background
The ACME Laboratories Ltd. is a leading company for manufacturing world-class and top-quality
pharmaceutical products in Bangladesh. They are currently producing more than 500 products in
different dosage forms covering broader therapeutic categories which include anti-infective,
cardiovascular, antidiabetics, gastrointestinal, CNS, respiratory disease, etc. among many others.
Local market success prompted ACME to explore the international market and over the years it
gained a firm presence in South East Asia, Africa and Central America. Through the outstanding
knowledge, professionalism and commitment of more than 7000 employees, ACME is consistently
building upon its facilities, capabilities and portfolio to meet the growing health care needs in both
Bangladesh and the rest of the world.
Since its commencement in 1954 by Mr. Hamidur Rahman Sinha, an entrepreneur and philanthropist
in this region of the then British divided Indian sub-continent, ACME has been committed to offering
solutions to pressing health care needs. Over the past few decades, the business has seen significant
growth and success in the pharmaceutical sector. With more than 60 years of expertise in medicine
and science, ACME draws upon a rich legacy of high quality formulations and a robust pipeline of
promising generic medicines at affordable prices to meet the health care needs. ACME is an ISO
9001:2015 certified company.
A.2. Global Operation
ACME’s success in the domestic market prompted it to explore the international market. The concern
started its international business operations in 1995 by exporting medicines to Bhutan. Since then,
ACME has developed a strong presence in the international market. At present, ACME is successfully
exporting its quality products to more than 20 countries in South Asia, South East Asia, Africa and
Central America. ACME’s current market includes Afghanistan, Belize, Botswana, Bhutan, Cambodia,
Fiji, Guatemala, Hong Kong, Iraq, Kenya, Nepal, Philippines, Papua New Guinea, Somalia, Sri Lanka,
Thailand, Uzbekistan, Vietnam, Ethiopia, Ghana, Lao PDR, Mongolia, Myanmar, Nigeria, Peru and
Tanzania.
A.4. Products and Production Capacity
The Acme Laboratories Ltd. is primarily engaged in manufacturing and distribution of high quality
pharmaceutical products. ACME mainly produces four categories of pharmaceutical products which
include; Human Medicine, Ayurvedic Products, Herbal and Neutraceutical Products and Veterinary
Products. The concern produces a wide range of pharmaceutical formulations in different dosage
forms. These include:

Pharmaceutical Formulations

Oral Liquid Tablet

Capsule Powder for Suspension
Injectable Vial Injectable Ampoule
Cream & Ointment Metered Dose Inhaler (MDI)
Dry Powder Inhaler (DPI) Suppository
Large Volume Parenteral

For FY2017-2018, production capacity of the company was 5,082,097 units for Human Products,
333,625 units for Veterinary Products and 88,102 units for Herbal and Ayurvedic Products. However,
ACME was only able to produce a total of 3,079,109 units of Human Products, 231,025 of Veterinary
Products and 30,792 of Herbal and Ayurvedic Products, utilizing 60.59 percent, 69.25 percent and
34.95 percent respectively, of their total production capacity.

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The ACME Laboratories Ltd.
 Product Name Production Capacity Production During The Percentage of total
Year 2017-18 Year 2017-18 production
Human 5,082,097 3,079,109 60.59
Veterinary 333,625 231,025 69.25
Herbal and Ayurvedic 88,102 30,792 34.95

A.4.i. Pharmaceutical Products

ACME’s pharmaceuticals business brings trusted brands to broader populations in both home market
and emerging markets outside Bangladesh. They offer a growing portfolio of high-quality, affordable,
branded generic medicines in the following therapeutic areas:
Antibiotic – Antimigraine
Antiprotozoal
Muscle Relaxant
Antibiotic –
Dermatological
Carbapenem
Erectile Dysfunction
Antibiotic –
Cephalosporins Vitamins & Minerals
Antibiotic – Antioxidants
Fluoroquinolone
Analgesics
Antibiotic –
Cough & Cold
Lincosamide
Preparation
Antibiotic –
Antihistamine
Macrolide
Antiasthmatic
Antibiotic –Penicillin
Antifibrinolytic
Antibiotic –
Quinolone Anti-hemorrhoidal
Antibiotic -Sulpha Nasal Products
drug
Opthalmic Products
Antibiotic –
Steroid
Tetracycline
Urogenital
Antibiotic –
Tetracycline
Antiviral
Antacid
Antiulcerant
Laxative
Antiemetic &
Gastroprokinetic
Antidiarrheal
Antispasmodic
Antidiabetic
Cardiovascular
Central Nervous
System

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The ACME Laboratories Ltd.
 A.4.ii. Ayurvedic, Herbal And Nutraceutical Products
After amendment of Drug Ordinance in 2005, modern herbal medicine, other than Unani and
Ayurvedic medicine, was included in the Ordinance and ACME stepped into the promising field of
herbal medicine. ACME was qualified to get the license for production of herbal medicine in 2007 and
production started in 2008. Within a short span of time, ACME’s Herbal and Ayurvedic products
became a staple in the medical field due to quality and efficacy. After gaining a solid presence in the
country, ACME is trying to explore the international market of herbal medicines.
A.4.iii. Veterinary Products
Success in manufacturing & marketing of human medicines and the significant role of the agro-
industry in Bangladesh’s national economy have encouraged the company to produce veterinary
medicine. ACME commenced the production of veterinary medicine in 1999 and since then, the
Animal Health Section of ACME has relentless in meeting the demands of a rapidly growing market.
The quality of veterinary products is uncompromising and has been given utmost attention.
ACME’s veterinary product line covers a wide range of therapeutic classes like anthelmintic,
antiprotozoal, anti-inflammatory, antibiotic, antihistaminic, appetizing & stomachic, electrolytic,
vitamin, mineral & amino acid premix. Quality & customer focused approach of the animal health
section have made ACME the leading veterinary medicine producing pharmaceutical company in the
country.
A.3. Manufacturing
ACME has six manufacturing units located in at Dhamrai, about 40 km N.W. of Dhaka. The units are
categorized below.

Manufacturing Units

I. General Unit
II. Solid Dosage Unit
III. Cephalosporin Unit
IV. LVP, Liquid and Semi-solid Unit
V. Herbal and Ayurvedic Unit
VI. Veterinary Unit

B. INDUSTRY ANALYSIS
Bangladesh has achieved commendable success in the pharmaceutical sector, despite being one of
the Asia’s least developed countries. At present, the pharmaceutical industry is one of the most
technologically advanced sectors of Bangladesh. Before Liberation, there was hardly any
pharmaceutical enterprise in Bangladesh. The sector started to improve from the 1980s. The
development of the Bangladeshi pharmaceuticals industry accelerated after the promulgation of Drug
Control Ordinance- 1982. Since 2005, Bangladesh’s Pharmaceutical Industry has shown significant
improvements in both domestic and international export markets. One of the reasons of this gradual
improvement of the pharmaceutical sector is the TRIPS agreement, which is The Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS), an international
legal agreement between all the member nations of the World Trade Organization (WTO). Other
factors such as a large population, increasing health expenditure amongst this population and
increasing GDP have are also responsible. Knowledge and skills of the professionals as well as ideas
of the people involved in this industry are also contributing to the remarkable changes.
The country's medicine export crossed the USD 100-million mark during the last fiscal year, which can
be attributed to the growing recognition of Bangladeshi drugs in the global market. According to the

Page 6 of 13
The ACME Laboratories Ltd.
 state-run Export Promotion Bureau (EPB), the local pharmaceutical industry fetched USD 103.46
million during fiscal year (FY) 2017-18. Statistics available with the EPB revealed that this amount was
around 16 percent higher than the USD 89.17 million generated in FY 2016-17. The volume of export
was USD 18.77 million in the first two months of the current fiscal year, which is 19 percent higher
than that of the corresponding period of the last fiscal year. Bangladesh’s pharmaceutical sector is
expected to grow at a much higher rate in coming years as local companies are getting access to new
export destinations, aided by required policy support from the government. A strong manufacturing
base and skilled labor are playing a crucial role for the positive growth in the sector.
According to Bangladesh Bureau of Statistics, the industry has contributed 1.85 percent of the GDP in
2016-17. Pharmaceutical industry of Bangladesh is largely protected from external competition, as
there are restrictions regarding imports of similar drugs to the ones that are locally manufactured.
This industry is the second largest contributor to Bangladesh’s national exchequer. At the same time,
the industry provides the largest white collar intensive employment.
Propelled by high investments by local companies that seek to grab a bigger share of the global
market, Bangladesh's pharmaceuticals sector is projected to grow 15 percent annually to reach USD
5.11 billion by 2023. Bangladesh will soon become a major global hub for high quality, low-cost
generic medicine and vaccine and by 2022. During that time, the market size is projected to more
than double to USD 4.44 billion from USD 2.02 billion. Bangladesh's pharmaceutical industries aim to

Market Share of Top Pharmaceutical Companies In Bangladesh

Sanofi bangladesh Drug international
Ibn sina
3% 3%
Aristopharma 1%
Radiant pharma 6%
Square
3% 23%
Novartis
Novo nordisk 2%
2%

Acme
5%
A.C.I.
6%

Incepta Pharma
13%

Acme Reneta Beximco

5% 6% 11%
Opsonin Pharma
Eskayfe 7%
Source: IMS Health Report 20176%
Q2

capture 10 percent of the global generic market as 5 to 7 companies have received approval from top
regulatory bodies. These include the UK's Medicines and Healthcare products Regulatory Agency and
the United States Food and Drug Administration. Currently, Bangladesh has the facilities for producing
advanced medicine like active pharmaceuticals ingredients, biosimilars, vaccines, and oncology
products alongside medical devices. According to the chart above provided by IMS Health Report in
2017, Acme Laboratories Ltd. holds approximately 5 percent of Bangladesh’s pharmaceutical market
share.

Page 7 of 13
The ACME Laboratories Ltd.
 Market Share of Pharmaceutical Export of Pharmaceutical Products
Bangladesh Bangladesh
USD Million
120
96.6
100 89.82
82.11
14% 80 69.24 72.64
Top 10 companies
60
Companies ranked 40
18% 10-12
20
Others 0
68% FY 2013- FY 2014- FY 2015- FY 2016- FY 2017-
2014 2015 2016 2017 2018

Source: IMS Health Report 2017 Q2 Source: Directorate General of Drug Administration

The domestic market is highly concentrated and competitive and entry barriers are higher due to
large capital investment and legislative bindings. With an approximate market share of 90%, local
manufacturers dominate the industry, while multinationals contribute to the remaining portion.
Square Pharmaceutical is the market leader having 23.00 percent of market shares, followed by
Incepta and Beximco, who hold 13.00 and 11.00 percent respectively. Multinational companies hold
approximately only 9.39% of market shares.
Meanwhile, Bangladesh has been transformed into an exporting country for pharmaceutical products.
Different brands of medicine and raw materials are exported to 127 countries of the world including
the UK and USA. Currently 267 pharmaceutical manufacturing units are producing 26,910 brands of
medicine of worth Tk. 2,2470.5 million annually. According to Bangladesh Association of
Pharmaceutical Industries (BAPI), approximately 1,200 pharmaceutical products received registration
for export over the last two years.
According to the Bangladesh Export Promotion Bureau, Bangladesh exported pharmaceutical products
to 107 countries in the fiscal year 2016-17. Among 107 exporting countries, top 7 countries
(Myanmar, Sri Lanka, Philippines, Vietnam, Afghanistan, Kenya and Slovenia) constitute
approximately 60.32 percent of total pharma export, with approximately 39.68% coming from other
countries. During this period, Bangladesh has exported pharmaceutical products worth USD 89.17
million, which is much higher compared to USD 82.11 million in 2015-16. The for
Key Drivers localGrowth
pharmaceutical
of
industry fetched USD 103.46 million during fiscal year (FY) 2017-18, showing significant growth.
Pharmaceutical Industry
Bangladesh has entered the socio-economic classification of Lower  Middle
EconomicIncome
Growth of Group.
the It is
targeted that Bangladesh will reach the Higher Middle Income Group and Higher
country Income Group by
2021 and 2041 respectively. As GDP growth is higher than population growth, per capita
 Population Growth rate income is
likely to rise. This will lead to higher health care expenditure by bothindividuals and the government.
Growing Income level of
According to World Bank and World Meter, from 2008 to 2017 average population growth rate of
people
Bangladesh is 1.1% annually. This drives the growth of the Pharmaceutical
 Increasesector of Bangladesh.
in modern
Average income has grown by 9.4% from 2015-16 to 2016-17. Thus, healthcare people havefacilities: money to
more
allocate for medical expenditure.  Health awareness of mass
people has reduced the price
Pharmaceutical industries are influenced by price regulation. This regulation
 ChangingisLife
capacity of companies. The DGDA (Directorate General of Drug Administration) Style
the authority that
decides the various parameters of price determination and sets theprices
Highof
Lifedifferent drugs, which
Expectancy
leads to lower or higher profitability for companies. Companies, which are the lowest-cost producers,
have advantages, while those that cannot produce must stop production or suffer losses. This sector
is affected by the lack of product patents which prevents global pharmaceutical companies from
introducing new drugs into the country. This discourages our innovation and drug discovery.

Page 8 of 13
The ACME Laboratories Ltd.
 The pharmaceutical market in Bangladesh is one of the least penetrated markets in the world; most
companies depend on exports for growth. Some of the pharmaceutical companies are in a low
financial position, which is why they cannot introduce the latest technology in their facilities. Some
companies have unskilled labor, for which they cannot minimize their production costs. Sometimes
the unit cost of drugs is higher than the purchase price of imported medicines. This creates a
situation of imbalance in the internal market. Competition in the pharmaceutical industry increases
day by day. For this reason, all companies faceCompetitive Structure
great competition in of
thethe Pharmaceuticals
market due to decreasing
Industry
market shares. Increasing the interest rate reduces the opportunity for pharmaceutical companies to
expand into a huge market. Since competition is huge
 Threat of newin entrants:
the market,
Low some companies are
implementing questionable sales practices or producing drugs
 Threat of belowproduct:
substitute the standard
High to expand their
market shares.  The bargaining power of buyers: Very Low
The pharmaceutical industry of Bangladesh is heavily
The bargaining power of the supplier: High
dependent on imported raw materials for
 Rivalrycompanies
manufacturing drugs. 15 of the major pharmaceutical among the exiting competitors:
of Bangladesh, High
including Square
Pharma, Beximco Pharma, Active Fine, ACI Limited, Globe Pharma, Gonosastha Pharma, Opsonin
Pharma, Drug International and Eskayef, produce 40 APIs. Among those, Active Fine is the only
company which is fully involved in producing API i.e. the company does not produce any finished
medicine. Ganashastha Pharmaceuticals Limited (GPL) alone accounts for about 60% of the raw
materials manufactured in Bangladesh. Main suppliers of raw materials for pharmaceuticals are India,
China, Italy and Germany. According to DGDA, there are 2,805 valid sources of raw materials from
where pharmaceutical manufacturers of Bangladesh can procure raw materials. Large sums of money
spent on importing raw materials create an upward pressure and barriers for the development of
Bangladesh’s pharmaceutical industry.
Taking advantage of government support through the drug policy and the World Trade Organization’s
(WTO) waiver of patent rights for generic drug production under the Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS), the Bangladeshi Pharmaceutical sector has been
growing steadily over the past twenty years. The government has undertaken a project to establish
an Industrial Park to produce Active Pharmaceutical Ingredients (API) that will help the local
manufacturers reduce expenses, as well as increase sales and production volumes.

C. BUSINESS RISK ANALYSIS

C.1. Operating Risk
ACME relies on suppliers for ingredients and various third parties for certain manufacturing-related
services to produce materials that meet appropriate content, quality and stability standards of the
company products. After approval, the products are being released for commercial distribution. The
concern may not be able to produce its drug substance or drug product to appropriate standards
without the required support from its suppliers and vendors. If AMCE fails to maintain important
manufacturing and service relationships, the concern may not find replacement suppliers and required
vendors or develop capabilities. Such problems can delay or impair the company’s ability to obtain
regulatory approval for its products and substantially increase the company’s costs or deplete profit
margins, if any.
C.2. Competitive Risk
There are over 250 other manufacturers of pharmaceutical products in Bangladesh which ACME has
to compete with. The concern is also a direct competitor of industry leaders like Square, Beximco,
Incepta, Eskayef, Renata etc. and there exists strong competition among these players as the market
is oligopolistic. Competing with such large players is a major challenge for the company. ACME has to
constantly develop and introduce new products into the market in order to maintain or improve its
position in the market. The company also has to survive in a market filled with counterfeit and look-
alike products from smaller companies which is a threat to the market of ACME.
C.3. Interest Rate Risk
Interest rate risk is the risk that company faces due to unfavorable movement in the interest rates.
Changes in the government’s monetary policy, along with increased demand for loans/investments
tend to increase the interest rates. Such rises in interest rates mostly affect companies having floating
rate loans or companies investing in debt securities.

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The ACME Laboratories Ltd.
 C.4. Exchange Rate Risk
Exchange rate risk occurs due to changes in foreign currency exchange rates. Companies that have
taken foreign currency loans, import major raw and packing materials from abroad and earn most of
their revenue in local currency, unfavorable volatility or fluctuation may affect the profitability of the
company. On the other hand, if exchange rate decreased against local currency opportunity will be
created for generating more profit/surplus.
C.5. Market Risk
Market risk refers to the risk of adverse market conditions affecting the sales and profitability of the
company. Mostly, the risk arises from falling demand for the pharmaceutical products which would
harm the performance of the company. On the other hand, strong marketing and brand management
would help the company increase their customer base. Political unrest is a major factor adversely
affecting the market of pharmaceutical products. As the pharmaceutical companies are highly
dependent on distribution of products, political unrest causes severe damage to their businesses.
C.6. Technology Risk
Technology always plays a vital role for each and every type of business. Better technology can
increase productivity and reduce costs of production. Firms are exposed to technology risks when
there are better technologies available in the market than the one used by the company which may
cause operational inefficiency.

D. FINANCIAL RISK ANALYSIS

The rating process was based on qualitative aspects which are based on the company’s policies in
relation with the operating strategies, financial leverage, and ultimate financial goals of the
companies. For this purpose of the overall financial risk assessment of the company, ECRL divided the
financial portion into five different criteria which are Profitability Analysis, Liquidity Analysis, Cash flow
Analysis, Asset Management, Capital Structure, and overall Financial Flexibility. Detailed analysis is
presented below:
D.1. Profitability
Exhibit 2: Selected Indicators: The Acme Laboratories Ltd.
FYE 30 June 2019* 2018 2017 2016
Revenue (BDT in millions ) 3,913.37 14,813.91 13,576.32 12,644.91
Revenue Growth (%) 5.67 9.12 7.37 -
COGS (BDT in Millions) 2,381.93 8,942.40 8,039.83 7,770.61
COGS Growth (%) 6.55 11.23 3.46 -
Gross Profit (BDT in millions) 1,531.44 5,871.52 5,536.49 4,874.30
519.80 1,954.8 2,035.55 1,402.10
Profit before Tax (BDT in millions)
4
388.31 1,426.5 1,397.85 1,101.27
Net Profit After Tax (BDT in millions)
7
Gross Profit Margin (%) 39.13 39.64 40.78 38.55
Operating Profit Margin (%) 22.98 21.30 23.79 20.47
Net Profit Margin (%) 9.92 9.63 10.30 8.71
ROA (%) 1.13 4.37 4.67 3.81
ROE (%) 2.15 8.08 8.24 6.73
2016 – 2018 (July-June) data obtained from audited financial statements
2019* (Jul –Sep) data obtained from unaudited financial statements

During FY2018, the concern had higher revenue of BDT 14,813.91 million and a growth rate of
9.12% due to increasing sales volumes and market demand. However, at 11.23% the growth rate of
cost of goods sold surpassed the growth rate of revenue. Higher cost of goods sold was due to
increases in costs of raw and packaging materials, wages, utilities, contributions to RPF, carriage
inward, repairs, printing, research and canteen expenses. Hence, the gross profit margin decreased
from FY2017 to FY2018.

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The ACME Laboratories Ltd.
 In FY 2018, growth of operating cost was 13.03%, which was much higher than earlier year and as a
result the concerns operating profit margin slightly decreased. Main drivers contributing to increasing
operating costs in FY2018 are postage, telephone, TA/DA, seminar, sales promotion, export
expenses, welfare and renewal fees. Although decreasing operating profit margin is not necessarily
ideal, the concern’s increased operating costs indicate that ACME is spending more money in
marketing, which will most likely pay off in the long run. Decreasing net profit margin represented the
consistency in profitability of the concern. The concern has reported lower ROA and ROE in FY2018
from FY2017. ROA decreased due to lower operating profit and higher total assets. Decreased ROE in
FY2018 can be attributed to higher shareholder’s funds due to increased retained earnings.
D.2. Liquidity Analysis:
Exhibit 3: Selected Indicators: The Acme Laboratories Ltd.
FYE 30 June 2019* 2018 2017 2016
Current Ratio (x) 1.04 1.11 1.25 1.35
Quick Assets Ratio (x) 0.71 0.75 0.89 0.99
Days Receivables (days) 36 34 28 26
Days Payables (days) 9 9 14 18
Inventory Turnover (days) 145 146 148 146
Cash Conversion Cycle (days) 172 171 162 153
2016 – 2018 (July-June) data obtained from audited financial statements
2019* (Jul –Sep) data obtained from unaudited financial statements
In FY2018, current ratio and quick asset ratio of 1.11 times and 0.75 times respectively shows that
the concern maintains adequate current assets to cover its short term obligations. However, in
FY2018, the current and quick asset ratios moved down slightly from FY2017 due to an 11.26%
increase in current liabilities compared to a 1.79% decrease in current assets during FY2018. It is
noticeable from the audited financials that the inventories of the concern had increased in FY2018
from FY2017 which indicates stockpiling due to projected sales increases. Even though inventory
increased in FY2018, inventory turnover days were almost the same for analyzed FY2016-FY2018.
Similar values in the number of receivables days from FY2016-FY2018 indicate that the amount of
credit sales ACME offered to its customers remained constant in the analyzed years. As a
consequence, cash conversion cycle remains high which is could hamper the effectiveness of
company’s management, and consequently, the overall health of the company. For FY2019, which is
the first quarter of the current financial year, the indicators above have remained consistent with the
previous financial years analyzed.
D.3. Cash-flow Coverage
Exhibit 4: Selected Indicators: The Acme Laboratories Ltd.
FYE 30 June 2019* 2018 2017 2016
CFO (BDT in millions) 496.23 1578.32 1396.41 1322.80
CFO Debt Coverage (x) 0.04 0.13 0.14 0.13
CFO Interest coverage 1.40 1.43 1.38 1.19
2016 – 2018 (July-June) data obtained from audited financial statements
2019* (Jul –Sep) data obtained from unaudited financial statements
The concern’s CFO has been fluctuating in recent years, with ACME showing cash outflow in FY2016,
but cash inflow in FY2017, FY2018 and partial year FY2019. The main reason for cash outflow in
FY2016 is changes in working capital balances being more than operating profit balances. Changes in
working capital for FY2016 were high due to increased inventories and receivables in the mentioned
years.
In FY2016, inventories of the concern were high due to stockpiling and additional purchases. Reasons
for stockpiling include anticipated increase in sales volume and inability to offload present stock with
sales. Since ACME has shown increasing revenue trend during the analyzed financial years, it can be
concluded that the concern is able to offload present stock with sales and is expecting increased sales
volumes, hence stockpiling inventory.
In pursuit of increasing revenue the company has provided extended credit facilities to its customers
which increased receivables for FY2016.

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The ACME Laboratories Ltd.
 Cumulative impact of aforementioned actions caused the concern to generate cash outflow from
operations of BDT 6,075.38 million in FY2016.
The concern displayed positive cash inflow from operations during FY2017 and FY2018. The Acme
Laboratories Ltd. was able to generate higher cash from operation in FY2017 and FY2018 which was
BDT 2,637.11 million and BDT 2,699.10 respectively. This outcome was due to higher profit during
FY2017 and FY2018, and can assist the concern in reducing the dependency on debt finance. Low
CFO debt coverage was displayed by the concern in FY2017 and FY2018 which shows that the
concern can barely cover their debt with the cash generated. Sufficient CFO interest coverage
reflected the concern’s ability to meet up its finance cost through its cash flow.
D.4. Leverage & Capital Structure
Exhibit 5: Selected Indicators: The Acme Laboratories Ltd.
FYE 30 June 2019* 2018 2017 2016
Debt-to-Equity 0.72 0.66 0.60 0.61
Interest Coverage ratio 2.54 2.86 3.18 2.32
Long Term Debt Ratio (x) 0.23 0.21 0.18 0.22
Short Term Debt Ratio (x) 0.50 0.45 0.42 0.39
Total Liabilities to Total Assets (x) 0.48 0.46 0.43 0.43

Details Outstanding in BDT Million

Long Term Loan:
Trust Bank Ltd. 575.75
Dutch Bangla Bank Ltd. 628.10
Eastern Bank Ltd. 450.00
IDLC Finance Ltd. 206.86
Dhaka Bank Ltd. 42.15
Standard Chartered Bank- Foreign Loan (Net of foreign -
currency gain/loss)
IIDFC 257.50
IPDC 467.50
HSBC- Foreign Loan (Net of foreign currency gain/loss) 1.34
HSBC Term Loan 34.66
United Finance Ltd. (UFL) 250.00
Lanka Bangla Finance Ltd. 150.00
Lankan Alliance Finance Ltd. 212.45
Bay Leasing & Investment Limited 140.00
Prime Bank Limited 364.52
Total Long Term Loan 3780.83
Short Term Loan:
Dutch Bangla Bank Ltd. 484.13
Standard Chartered Bank 705.76
Dhaka Bank Ltd. 681.02
HSBC 1135.33
Eastern Bank Ltd. 1168.19
Trust Bank Ltd. 447.33
The City Bank Ltd. 1109.14
Prime Bank Limited 95.94
Total Short Term Loan 5826.84
Grand Total (BDT in Millions) 9607.67

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The ACME Laboratories Ltd.
 The Acme Laboratories Ltd. maintains banking relationship with Trust Bank Ltd., Dutch Bangla Bank
Ltd., Eastern Bank Ltd., IDLC Finance Ltd., Dhaka Bank Ltd., IIDFC, IPDC, HSBC, United Finance Ltd.,
Lanka Bangla Finance Ltd., Lankan Alliance Finance Ltd., Bay Leasing & Investment Limited, Prime
Bank Limited, Standard Chartered Bank and The City Bank Ltd. The company has the benefit of credit
facilities from the above banks to meet its working capital requirement and for import facilities. Total
outstanding liabilities of The Acme Laboratories Ltd. were BDT 9607.67 million as on June 30, 2018.

E. MANAGEMENT AND OTHER QUALITATIVE FACTORS

The Acme Laboratories Ltd. maintains a Board with seven current members who oversee the overall
success of the company, strategic directions, values and governance. It provides the leadership
necessary for the company to meet its business objectives within the framework of its internal
controls, while also discharging the company’s obligations to its shareholders. The Board comprises
an admixture of executive and non-executive directors from diverse professional backgrounds with
wealth of experience, skills and expertise.
A supportive workforce helps to maintain the overall production functions of the company. The
businesses functions are managed through procedures implemented from the top which are strictly
followed by the management.
E.1. Share Holding Position
Exhibit 6: Shareholder Position: The Acme Laboratories Ltd.

Name Designation
Mr. Nasir-ur Rahman Sinha Promoter and Former Chairman
Mrs. Nagina Afzal Sinha Chairman
Mr. Mizanur Rahman Sinha Managing Director
Dr. Jabilur Rahman Sinha Deputy Managing Director
Mrs. Jahanara Mizan Sinha Director
Mr. Kazi Sanaul Hoq Nominee Director
Mrs. Fouzia Haque Independent Director
Mr. Syed Shahed Reza Independent Director

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The ACME Laboratories Ltd.