The Right Medicine
    Category: SOEs By : Shintya Felicitas Read : 112 Date : Tuesday, May 01, 2018 - 15:00:35

    Ahmad Zamroni For Forbes Indonesia

    PT Kimia Farma is the country’s biggest state-owned pharmaceutical company. In 2017, it recorded annual revenue growth of 5.4% to Rp 6.1 trillion, in line with the 5% national growth of the sector. In profits, however, the company is on a roll. Last year, net profit jumped 22% to Rp 332 billion. “Improvement of production operations had a big impact on efficiency. By focusing on our production system, we were able to maintain our cost of goods,” says Kimia Farma President Director Honesti Basyir. For example, Kimia Farma is now buying its raw material in bulk, with long-term contracts, to get them at lower prices.

    Despite the good results, Honesti wants to aim higher. He targets Kimia Farma to have revenue growth of at least 10%, and become one of the top three largest drugmakers in the country (it now ranks sixth, by revenue). To reach that goal, Honesti, who joined the company last year, aims to aggressively expand the firm, in part through M&A. He has allocated Rp 3.5 trillion for capital expenditure, some Rp 2.2 trillion of which will be used to acquire other companies in injection drugs, medical devices, hospitals and cosmetics.

    Honesti wants to grow the firm with a mixture of strengthening its core businesses as well as expanding into new areas. It currently makes about 400 products, ranging across generics, over-the-counter drugs, cosmetics and herbal products (it is also the only company licensed to import narcotics). Kimia Farma’s pharmacy business sells and distributes its own drugs, and operates clinics and diagnostic laboratories. The two biggest revenue contributors are the pharmacies (about 50%) and generic drugs (42% of the drugs it produces). Honesti says generics are low margin, below 10%, but the over-the-counter market has better margins but tougher competition.

    In new areas, Honesti wants to enter the markets for health food, beauty products and even beauty clinics. Its Marcks cosmetic brand is already growing 35% with double digit margin profit, says Honesti. For the core areas, Honesti is deploying the remainder of his Rp 3.5 trillion, about Rp 1.3 trillion for the construction of new factories, pharmacies (from 1,005 to 1,200), clinics (from 500 to 600), and diagnostic laboratories; all meant to be finished by the end of this year. He also wants to build a national distribution center in Cikarang, as well as three regional hubs in Indonesia. As for its factories, currently Kimia Farma has seven factories: Medan, Pulogadung, Bandung, Semarang, Subang, Watoedakon, and Bali. This year Kimia Farma will open two more plants: one in May in Cikarang for active pharmaceutical ingredients, and another in November in Banjaran to replace one in Bandung.

    This year’s capex came from 75% loans and 25% internal funds. For the capex and refinancing, Kimia Farma recently issued a second phase of medium term notes (MTN), valued at Rp 600 billion, following the first phase last year at Rp 400 billion. The second MTN is for three years with a coupon of 7.75%. The remaining funds for Kimia Farma’s 2018 capex come from syndicated loans such as from Bank Mandiri, Bank BNI and Bank BRI, leaving the debt to equity ratio of the company at a controllable level below 1.75 times.

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