S&P Upgrades Glenmark To BB+ On Expected Debt Repayment

S&P Global Ratings upgraded Glenmark Pharmaceuticals Ltd.’s long-term issuer credit rating to BB+ from BB, citing expected debt payment by the company.

Glenmark is expected to repay about 80% of its total debt over the next 12 months with proceeds from the sale of its subsidiary Glenmark Lifesciences Ltd., S&P said in a statement.

The company will likely repay all its long-term debt of 39.5 billion rupees ($477 million), which represented about 80% of its total outstanding debt as of 31 December 2023, it added.

S&P said Glenmark completed the divestment of its 75% stake in the active pharmaceutical ingredients (API) making subsidiary to Nirma Ltd. earlier this week and will fund the accelerated repayment with sale proceeds of about 56.5 billion rupees.

FINANCIAL POSITION

S&P, which has a stable outlook on Glenmark, said the company’s financial position will materially improve following the debt repayment and its capital structure will consist mainly of short-term working capital borrowings.

The Mumbai-based drugmaker’s ratio of funds from operations (FFO) to debt could rise above 90% by the fiscal year 2025 and stay high, given management's commitment to maintaining low leverage, it noted.

S&P said its stable outlook reflects that Glenmark will maintain its strengthened financial position over the next 12 to 24 months, with help from a stable operating performance and limited investment requirements.

EARNINGS GROWTH

The rating agency said healthy revenue growth and lower research and development (R&D) costs will support the company’s earnings. It expects Glenmark's revenue to increase about 7% in FY25 on the back of new product launches and steady performances from its core portfolio.

S&P said good revenue visibility for nasal spray Ryaltris in Australia, South Africa, and other European markets, and entry into new markets such as China and Brazil will also support growth.

The rating agency also expects Glenmark to lower its R&D expenses. The company, which plans to consolidate all its investments in new drug discovery and novel drugs under its subsidiary Ichnos Sciences Inc., expects this subsidiary to self-fund through partnerships and external fund raising.

S&P expects the company’s annual R&D expenditure to decline by about 2.5 billion rupees, starting FY25.

The rating agency said Glenmark's EBITDA margin may improve to 15%-16% in FY25 from about 10% in FY24, absent sizable remediation costs. R&D savings and revenue growth could partly offset the impact of the company's exit from Glenmark Lifesciences, a higher-margin API business, and higher input costs of 6 billion-7 billion rupees when the company purchases API from Glenmark Lifesciences as an external party, it added.

S&P said Glenmark previously sourced 15%-20% of its API needs from Glenmark Lifesciences and the company is likely to maintain this arrangement after the transaction.

Note: $1 = 82.7883 Indian rupees

(Send feedback to editor@cornerofficejournal.com)