Reuters logo
Fitch Revises Glenmark's Outlook to Stable; Affirms at 'BB'
July 14, 2017 / 10:10 AM / 5 months ago

Fitch Revises Glenmark's Outlook to Stable; Affirms at 'BB'

(The following statement was released by the rating agency) SINGAPORE/MUMBAI, July 14 (Fitch) Fitch Ratings has revised Glenmark Pharmaceuticals Ltd's (Glenmark's) Outlook to Stable from Positive, and affirmed the Long-Term Issuer Default Rating (IDR) at 'BB'. The agency also affirmed the rating on Glenmark's USD200 million 4.50% senior unsecured notes due 2021 at 'BB'. The revision in the Outlook reflects Fitch's expectation that Glenmark's free cash flow will be largely neutral over the next two years, and its credit ratios will not improve as previously forecast. Glenmark's free cash flow remained negative in the financial year ended 31 March 2017 (FY17) as profitability was lower and cash taxes higher than Fitch expected. In Fitch's view, the high cash taxes and sustained working capital investments will curb free cash generation, even as profitability is likely to narrow after the end of the exclusivity period in 1QFY18 for Glenmark's generic version of Ezetimibe, which is used to treat high cholesterol. Glenmark's rating incorporates its geographically diversified profile, a demonstrated track record of regulatory compliance and a healthy product pipeline. Glenmark is smaller than other global generic drug makers, but it has achieved healthy growth rates in the US and India and benefits from its in-house R&D capabilities, which support its novel drug development programme and generic business. KEY RATING DRIVERS Financial Profile to Remain Stable: Glenmark's financial leverage, measured by adjusted net debt/operating EBITDAR, improved to 2.0x in FY17 from 2.7x at end-FY16. This was because negative free cash flow and the resultant increase in debt were offset by the 44% increase in EBITDA following the launch of the generic version of Ezetimibe in December 2016 and growth in the base business. Fitch now expects Glenmark's EBITDAR margin to narrow to 18.5% by FY19 (FY17: 23%), after the six-month exclusivity period for Ezetimibe ended in 1QFY18. The downward revision to our forecasts also reflects the ongoing pressure on generic drug prices in the US. Fitch believes Glenmark's financial profile will remain well-positioned for its rating, with financial leverage of around 2.0x-2.3x and fixed-charge coverage of above 5.0x over the medium term, even though lower profitability, sustained high cash taxes and working capital investments will result in neutral free cash flow. Small but Diversified: Glenmark's revenue and operating EBITDAR are small compared with those of global major generic drugmakers, but the risk of its small size is counterbalanced by its good diversification in products and geographies. Scale and diversification are important for generic drug companies to maintain stable and durable margins. The company also has a strong competitive position in its core therapy areas of dermatology and respiratory. Robust Domestic Position: Glenmark is the 15th-largest player by value in the highly fragmented Indian market, with a market share of 2.2% in FY17. Glenmark has continued to strengthen its market positions in its focus areas of respiratory (fifth largest versus sixth in FY16), cardiovascular (seventh largest versus eight) and dermatology (second largest, unchanged). The Indian market continues to remain physician-driven and focused on branded generics. Pharmaceutical companies tend to compete through focused marketing efforts in certain therapies rather than using a volume-based strategy. Strong Product Pipeline: Glenmark received 17 abbreviated new drug application (ANDA) approvals (including tentative nods) from the US Food and Drug Administration (FDA) in FY17. The company has nearly 65 ANDAs in various stages of the approval process with the US FDA, 25 of which are Paragraph IV applications (implying a challenge to existing patents). In Fitch's view, Glenmark's healthy product pipeline will enable a steady flow of new product launches, particularly in the US, which will support sales growth and protect margins, amid ongoing pricing pressure in the generic pharmaceutical market. Strong Production Base: Glenmark has continued to remain compliant with the standards set by various regulators over the years; the company has successfully cleared all inspections with major regulatory agencies (such as US FDA and the UK's Medicines and Healthcare products Regulatory Agency). This has helped Glenmark to avoid any disruptions in its business as well as in getting new ANDA approvals in a timely manner. DERIVATION SUMMARY Glenmark's 'BB' rating reflects its smaller scale and diversification compared with large generic pharmaceutical companies such as Teva Pharmaceuticals Industries Limited (BBB/Stable) and Mylan N.V. (BBB-/Stable). Large players like Teva and Mylan also benefit from their deeper and more-complex product pipelines, which mitigate the price erosion risk. Although similar in scale to Glenmark, Ache Laboratorios Farmaceuticos S.A. (BB+/ Negative) benefits from higher margins and a stronger financial profile although Brazil's Country Ceiling constrains its rating. Glenmark's bigger scale, diversified geographic presence and stronger regulatory track record supports its higher rating compared with Jubilant Pharma Limited (BB-/Stable). Glenmark's leverage compares well against that of larger peers such as Teva and Mylan, given their acquisitive focus. Nonetheless, Glenmark's weak free cash generation constrains its financial profile relative to peers. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Consolidated revenue to increase by 8% to 12% annually over FY18-FY20 - Average EBITDAR margin to reduce to about 18.5% by FY19, reflecting completion of the exclusivity period available to Ezetimibe by 1Q FY18 - Annual capex of INR7 billion-9 billion in FY18-FY20 - Annual dividend payout of up to 10% of net income RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Maintaining EBITDAR margin in excess of 21% - Sustained free cash flow generation - Financial leverage (adjusted net debt to EBITDAR) sustained at less than 1.5x (FY17: 2.0x) Developments That May, Individually or Collectively, Lead to Negative Rating Action - Weakening of competitive position or any adverse US FDA action - Deterioration in financial leverage (adjusted net debt to EBITDAR) to more than 3.0x LIQUIDITY Robust Liquidity: Glenmark's readily available cash balance as of 31 March 2017 of INR10.6 billion was more than sufficient to meet INR1.9 billion of debt maturing in FY18 and the small FCF deficit. There are no material debt maturities before FY22. FULL LIST OF RATING ACTIONS Glenmark Pharmaceuticals Ltd -- Long-Term IDR affirmed at 'BB'; Outlook revised to Stable from Positive -- Rating on USD200 million 4.50% senior unsecured notes due 2021 affirmed at 'BB' Contact: Primary Analyst Akash Gupta Associate Director +65 6796 7242 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Snehdeep Bohra Associate Director +91 22 4000 1732 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email:; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below