Fitch Ratings has affirmed Glenmark Pharmaceuticals Ltd's long-term issuer default rating at BB after its active pharmaceutical ingredient (API) business completed an initial public offering (IPO). The outlook is stable, it said.
Glenmark retains 82.8 per cent stake in the API business held under subsidiary Glenmark Life Sciences (GLS) after the IPO. Glenmark intends to use most of the nearly Rs 1,100 crore of net proceeds from the IPO to repay debt. The debt reduction and Glenmark's intention to keep its growth and R&D strategy unchanged is likely to support an improvement in consolidated net debt to EBITDA to below the positive rating sensitivity level of 1.5x.
Nonetheless, Glenmark's scale is unlikely to rise to 2 billion dollars over the next two years which is a key rating sensitivity Fitch uses to measure improvement in Glenmark's business profile. Fitch will adjust Glenmark's consolidated EBITDA for the minority shareholding at GLS.
Glenmark's geographical diversification and satisfactory record of regulatory compliance mitigate the business risk arising from its small size and support its rating relative to larger global generic drug makers.
The affirmation also factors in Glenmark's adequate product pipeline and robust long-term growth prospects in India which limit the impact on profitability from continued pricing pressure in US generic pharmaceutical market.
Glenmark's strategy to cut risks in its novel drug development programme will preserve its financial flexibility, said Fitch.
The pharmaceutical company is focused on branded and generic formulations, and API and novel drug development business
