| Alembic Pharmaceuticals Limited | ||||||||
| Rated amount enhanced | ||||||||
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| 1 crore = 10 million | ||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its ratings on the bank facilities and debt instruments of Alembic Pharmaceuticals Limited (Alembic) at 'CRISIL AA+/Stable/CRISIL A1+'. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has fully consolidated the business and financial risk profiles of Alembic, its three subsidiaries, and six step-down subsidiaries, which are strategically important to, and have a significant degree of operational integration with, Alembic. CRISIL had applied a moderate consolidation approach for four associate companies and one joint venture, for which the share of profit and any incremental investment required is factored in. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strong position in the domestic formulations market: The company is among the top 20 players in the domestic formulations market: revenue was Rs 1,382 crore in fiscal 2019. Growth in the branded formulations segment should maintain pace with the industry, backed by increased contribution from the chronic therapeutic segment and regular product launches, leading to volume growth. * Increasing presence in the regulated generics market: On account of greater focus on the US, the company has gradually stepped up its ANDA filings in the last few years: 29 in fiscal 2019 from 8 in fiscal 2016. R&D expenditure should remain high, forming about 13% of the net sales. Revenue from the international market (including bulk drugs) was 65% of the total revenue in fiscal 2019 (59% in fiscal 2018). Turnover saw a sharp increase in fiscal 2019 on account of a one-time opportunity and may remain steady in fiscal 2020 because of base effect. However, revenue growth may recover in the medium term, with regular ANDA filings and entry into specialised generics. Recent capex includes setting up units for injectables (oncology and general), oncology oral solids, dermatology products, oral solids, ophthalmology, and bulk drugs for regulated markets, primarily the US. * Healthy financial risk profile Financial risk profile is healthy: gearing and networth were 0.46 time and Rs 2,448 crore, respectively, as on March 31, 2019. The company has nearly completed its large capex of around Rs 2,000 crore towards specialised generics, which commenced in fiscal 2016. In fiscal 2020, the company plans to incur capex of Rs 600 crore for additional lines. After fiscal 2020, annual capex is expected at Rs 400-450 crore over the medium term. Any larger-than-expected capex or acquisition remains a key rating sensitivity factor. Gearing, which increased to 0.46 time as on March 31, 2019, against 0.05 time as on March 31, 2017, should remain at around 0.5 time over the medium term because of incremental borrowings to fund the capex. Weaknesses * Moderate profitability due to high R&D expenditure While the share of the high-margin international segment has been increasing over the past few fiscals, operating profitability stood at 20% because of high R&D expenditure. Spends on R&D have been stepped up, particularly in the past three fiscals, to capitalise on differentiated generics opportunities in the US. Ramp-up of new facilities in differentiated generics will be critical for maintaining profitability. * Exposure to intensifying pricing pressure and regulatory risks The company is exposed to regulatory changes in the Indian and global markets. These are reflected in increasing scrutiny and inspections by authorities, including the US Food and Drug Administration (FDA), European Medicines Agency, and TGA Australia. However, the track record has been relatively clear so far, particularly with the US FDA. In October 2018, the formulations facility in Panelav, Gujarat, received four procedural observations under form 483. These observations were subsequently cleared with no action indicated. In the domestic market, the regulatory impact of drug price control order (DPCO) and ban on some Fixed Dose Combinations (FDC) adversely affected revenue and profit in the past and may continue to do so over the medium term. * High share of acute therapeutic segment in the domestic formulations market Therapeutic coverage in the domestic formulations market is dominated by the acute therapy and the anti-infective segments. The portfolio remains significant in the acute segment (40% of domestic formulation sales in fiscal 2019), with the top five brands accounting for nearly 40% of the domestic revenue. Significant share of revenue from this slow-growing segment exposes Alembic to pricing pressure, as several players compete in a mature segment. With a quarter of domestic revenue under DPCO, turnover and profitability remain susceptible to regulatory changes. |
| Liquidity |
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Liquidity is adequate, backed by healthy net cash accrual and prudent working capital management. Liquid surplus was Rs 199 crore as on March 31, 2019, and net cash accrual was healthy at Rs 700 crore in fiscal 2019. Low gearing and large networth provide strong financial flexibility. Bank limit utilisation was moderate, averaging 65% over the nine months through May 2019. Cash accrual saw a spike in fiscal 2019 due to a one-time opportunity and is expected at Rs 500-600 crore annually over the medium term, sufficient to cover maturing debt of around Rs 200 crore and 300 crore in fiscals 2020 and 2021, respectively, and fund the incremental working capital requirement. The company will, likely, fund its Rs 600 crore capex in fiscal 2020 through a mix of funds from liquid surplus, cash accrual, and proceeds from non-convertible debentures. |
| Outlook: Stable |
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CRISIL believes Alembic will sustain its business risk profile over the medium term, as increasing contribution from the global market and the domestic chronic therapeutic segment should lead to steady increase in scale of operations and profitability. |
| About the Company |
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The pharmaceuticals business of Alembic Ltd (AL), consisting of domestic formulations, international generics, and active pharmaceutical ingredients, was transferred to Alembic following the latter's demerger from AL effective from April 1, 2010. Vadodara-based Alembic, promoted by the Amin family, manufactures a range of formulations and bulk drugs for the domestic and international markets. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
@Not yet placed Annexure - List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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