Fitch Ratings has today affirmed India's Aurobindo Pharma Ltd's (APL) National Long-term rating at 'A+(ind)'. The Outlook remains Stable. At the same time, Fitch has affirmed and assigned ratings, as follows: -
- INR1,083m outstanding long-term bank loan: affirmed at 'A+(ind)';
- INR5,750m interchangeable fund based working capital limit: affirmed at 'A+(ind)/F1+(ind)';
- INR1,875m interchangeable fund based and non-fund based limits: affirmed at 'A+(ind)/F1+(ind)';
- INR4,750m non-fund based limit : affirmed at 'F1+(ind)';
- INR3,000m Commercial Paper/Short term debt programme (carved out of working capital limits): affirmed at 'F1+(ind);
- INR2000m additional long- term bank loans: assigned rating of 'A+(ind)';
- INR3,048m interchangeable fund based working capital limit: assigned rating of 'A+(ind)/F1+(ind)'; and
- INR1,328m non fund-based limit: assigned rating of 'F1+(ind)'.
The affirmations reflect APL's realisation of anticipated de-leveraging on the back of higher capacity utilisations of its pharmaceutical manufacturing formulation units. During Q1FY10 an increase in the contribution of APL's formulation business and income from the sale of dossiers/licenses resulted in total operating income increasing 25% to INR8.5bn yoy. Operating profitability increased to INR2bn from INR1.1bn yoy, while interest coverage remained comfortable at 8.8x.
The ratings also take into account Fitch's expectation of an improvement in APL's capacity utilisations and continuance of a strong top-line growth given its agreement with Pfizer Inc and its strong product pipeline. In March 2009, Pfizer Inc entered into a 15 year expanded collaboration with APL to commercialise off-patent products for the US and Europe and emerging markets. In addition to revenues from commercialisation, Pfizer Inc will also provide an upfront licensing fee for the products licensed. As of June 2009, APL's Abbreviated New Drug Application filings were 155 out of which APL has received 96 approvals (includes 26 tentative approvals).
Fitch expects leverage metrics to continue to improve. A positive rating trigger would be a steady improvement in financial metrics along anticipated lines. However, any additional significant debt-led capex or acquisition limiting the extent of leverage metric improvement could limit the rating's upward movement and a net debt/ebitda exceeding 3.5x could be a negative trigger. Fitch notes that APL has approved a proposal to acquire a 100% stake of Trident life Sciences Limited (TLSL) valued at INR1349.5m. The total expected expenditure for the acquisition including capex would be INR1800m.
TLSL had a Clinical research Organizations (CRO) business and was in the process of implementing a liquid injectibles facility near Hyderabad. However, due to management's intention to focus on its core business of CRO, it demerged the CRO business into a separate company, leaving it with just the injectible plant; this will be used to meet APL's injectible requirements.
Fitch notes that during FY09 APL saw an increase in working-capital debt due to increased working capital requirements and adverse currency movements. Nonetheless, APL's short-term liquidity position remained comfortable with positive cash from operations; the agency expects it to remain comfortable in the short-to- medium term with the inflow of licensing income from Pfizer Inc and sufficient working capital limits.
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Founded in 1986, APL is a Hyderabad-based generic pharmaceutical company with a wide portfolio of products covering major therapeutic segments. APL exports to around 125 countries and derives around 65% revenues from international operations. It has a wide global marketing network through 38 subsidiaries.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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