 "Glenmark Pharma soars 10% after S&P Global upgrades outlook to positive")
The proposed stake sale in GLS by Glenmark could accelerate the latter's deleveraging and strengthen its financial position, according to S&P Global’s view.
The rating agency said Glenmark is likely to maintain resilient operations despite the stake sale. It expect the company's EBITDA to recover to the fiscal 2023 (ended March 31, 2023) level over the next 12-24 months, absent any significant remediation costs.
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“Reflecting the above, we revised the rating outlook on Glenmark to positive from stable. At the same time, we affirmed our 'BB' long-term issuer credit rating on the India-based pharmaceutical company. The positive outlook on Glenmark reflects our view that we could raise the ratings upon successful debt repayment,” S&P Global said in research update.
The rating agency expects Glenmark will significantly reduce debt on completion of the GLS sale and maintain healthy earnings. It also reflects our view that the debt reduction will more than offset the company's weakened business position, following the divestment, S&P Global said.
Shares of Glenmark had hit a 52-week high of Rs 879.15 on September 21, after the company inked a pact to sell 75 per cent stake in GLS to Nirma for Rs 5,652 crore at Rs 615 per share. Glenmark will own 7.84 per cent in GLS after the divestment. The company had about Rs 4,440 crore of debt outstanding as of June 30, 2023. The transaction is subject to regulatory and shareholder approval.
The stake sale removes the debt-related concern for Gelnmark Pharma. In fact, it would have additional cash to recalibrate innovative pipeline and improvise branded generics business. However, it would be earnings neutral as we believe the net reduction in EBITDA from API business (Rs 550 crore) would be offset by a reduction in interest cost and higher other income, Motilal Oswal Financial Services said in company update.
According to CRISIL Ratings, the proceeds from the sale are expected to be utilised to pay off a substantial portion of the debt, thereby improving the debt protection metrics. Significant reduction of debt using the sale proceeds will be a key monitorable.
The rating agency further said that the company’s business risk profile could be marginally impacted in the near term, with expected moderation in revenue and operating profit, given that GLS contributed to about 11 per cent and 25 per cent of consolidated revenue (after adjusting for intercompany transactions) and operating profit, respectively. CRISIL Ratings will continue to monitor progress on the transaction and will remove the rating from watch and take a final rating action post the conclusion of the transaction, receipt of funds and higher certainty on debt reduction plans.