Press Release
VIS Assigns Initial Entity Ratings to The Searle Company Limited
Karachi, December 09, 2019: VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to The Searle Company Limited (SCL). Outlook on the assigned ratings is ‘Stable’. Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions. Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors.
Ratings assigned to SCL incorporate the Company’s strong market position & franchise, diversified product portfolio & therapeutic area coverage and high relative market share of top 10 products vis-à-vis competing brands. Ratings also reflect low business risk profile of the pharmaceutical industry where revenues of the sector will continue to be supported by growing population and increasing life expectancy (implying increase in elderly population) and continuous emergence of diseases. Ratings also reflect sound financial profile of SCL with low leveraged capital structure and healthy cash flow coverages. While remaining within manageable levels, cash flow coverages and leverage indicators are expected to weaken over the next one year as additional debt is undertaken. However, VIS expects healthy internal capital generation over the rating horizon to result in gradual reduction in leverage indicators and improvement in cash flow coverages. Ratings remain dependent on reduction in leverage indicators over the rating horizon, maintaining healthy cash flow coverages and sound debt servicing ability.
SCL’s product portfolio is well diversified comprising 100+ products catering to over 19 therapeutic segments with overall 93% therapeutic area-wise coverage. Top five leading revenue generating therapeutic areas are alimentary tract & metabolism, cardiovascular, respiratory, nervous and musculo-skeletal system which represented four-fifth of topline during FY19. Product concentration risk is considered on the lower side with top five brands accounting for around two-fifth of total revenue. SCL’s established distribution network along with extensive doctor and pharmacy coverage supports sales growth.
Recently, board of directors of SCL gave approval for acquisition of 100% shareholding in Luna Pakistan (Private) Limited which indirectly owns 100% of the issued share capital of OBS Pakistan (Private) Limited (OBS Pakistan) from Universal Ventures (Private) Limited (UVPL). Once the acquisition is complete, OBS Pakistan will become a wholly owned subsidiary of SCL. The acquisition is projected to translate into higher consolidated profitability where cost synergies within group along with healthy sales growth is expected to result in turnaround in profitability of OBS Pakistan.
For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext: 201) at (021) 35311861-66 or email at info@vis.com.pk
Javed Callea
Advisor
Applicable Rating Criteria: Industrial Corporates (May 2016)
http://www.vis.com.pk/docs/Corporate-Methodology-201605.pdf