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Fitch Affirms APL; Rates Commercial Paper/Short-Term Debt Programme

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Announcement Banking

Fitch Ratings has today affirmed India's Aurobindo Pharma Ltd's (APL) National Long-term rating at 'A+(ind)'. The Outlook remains Stable. The agency has also affirmed APL's INR1,083m outstanding long-term loan at 'A+(ind)', its INR5,750m interchangeable fund based working capital limit and INR2,425m interchangeable fund based and non-fund based limits at 'A+(ind)/F1+(ind)' and INR4,750m non fund-based limit at 'F1+(ind)'. At the same time, Fitch has assigned an 'F1+(ind)' rating to APL's INR3,000m proposed Commercial Paper/Short Term Debt Programme (to be carved out of working capital limits).

The rating affirmations reflect the realisation of anticipated de-leveraging, on the back of higher capacity utilisations of formulation units and a favourable USD/INR rate. In addition, an increase in the contribution of APL's formulation business together with an increase in income from the sale of dossiers resulted in margins expanding to 18% from 14% a year ago. During FY09, the company earned revenues of INR29.7bn, a 22% growth yoy, while operating profitability increased to INR5.4bn from INR3.5bn yoy, and interest coverage increased to INR5.8x from 5.1x yoy.

 

Despite the improved operating profitability, forex losses totaling to INR2.5bn resulted in a decline in net profitability to INR999m in FY09 (FY08: INR2.4bn). Fitch notes that of the total forex loss, cash losses of INR315m crystallised during the FY09, with the rest being non-cash due to the higher restatement of APL's USD denominated Foreign Currency Convertible (FCCB) debt payable in FY11-FY12. A part of the adverse forex impact was offset by the company's FCCB buyback of USD61m during FY09.

The affirmations also reflect the completion of a major portion of the company's capex and sustained de-leveraging due to APL's strong product pipeline. In addition, the company's agreement with Pfizer Limited could provide it with potentially higher revenues due to increased capacity utilizations. Nonetheless, any additional significant debt-led capex resulting in net Debt/EBITDA exceeding 3.5x could result in negative rating impact. As of May 2009, the company had a total product pipeline of 305 products; Abbreviated New Drug Application filings were 148 out of which APL has received 68 final approvals and 27 tentative approvals.

The agency also notes that during the FY09, the company did see an increase in working-capital debt due to increased working capital requirements and adverse currency movements. However, despite the increase in the cash conversion cycle, APL's short-term liquidity position remained comfortable with positive cash from operations. As of FY09, the company had fund based limits totaling to INR8.8bn and non-fund based limits of INR6.1bn. In addition, the company has additional fund based limits of INR5.3bn. Fitch expects short-term liquidity to remain comfortable in the short-to- medium term.

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 its 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.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including over 3,200 banks and 2,200 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings’ financial institution coverage universe.

Fitch India has Five rating offices located at Mumbai, Delhi, Chennai, Kolkata and Bangalore. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

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First Published: Jul 07 2009 | 7:34 PM IST

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