India Ratings & Research, a Fitch Group Company, has revised the credit rating of Strides Arcolab on expectation of a sustained improvement in the company’s financial leverage in the medium.
While upgrading Strides Arcolab's long-term issuer rating to 'IND BBB+' from the earlier 'IND BBB-, India Ratings said the financial leverage of the pharmaceutical company would be driven by an expected improvement in cash-flow generation on account of higher operating cash-flows coupled with limited capex spends.
It said the financial leverage of the company would also improve as Strides has reduced its consolidated gross debt to Rs 1400 crore as at end of September 2012 from Rs 2,500 crore as at end of March 2012. The debt reduction has happened following the redemption of the $116 million foreign currency convertible bonds and repayment of other debts.
It also said that the higher operating cash flows would be guided by positive earnings prospects from the sterile segment which is a major revenue driver for the company. Stride’s operating margins in the sterile product business is also stable due to limited competition, it added.
According to the report, Strides is well-placed to capitalise on its readily available US FDA-approved basket of products and manufacturing facilities as well as its marketing agreements with Pfizer. For its sterile products, the company had received about 77 abbreviated sterile and oncology new drug approvals. It has also commercialised 50 products using its US FDA-approved production facilities, as at end-September 2012.
