Press Release

VIS Reaffirms Ratings of Macter International Limited

Karachi, January 15, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Macter International Limited (Macter) at ‘A/A-2’ (Single A/ A-Two). The long term rating of ‘A’ signifies good credit quality; protection factors are strong. Risk is modest but may vary with the possible changes in economy. The short term rating of ‘A-2’ signifies good certainty of timely payment; liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on September 17, 2019.

The assigned ratings incorporate low business risk profile of the pharmaceutical sector in the long run given the relatively non-elastic nature of the demand. However, delays in regulatory approvals for increase in product prices and introduction of new products, along with rupee depreciation continue to remain common risks affecting the industry. The ratings also incorporate low market share and moderate diversity in therapeutic areas coverage of the company.

Macter is present across 39 therapeutic segments through its 92 products. Product wise concentration in portfolio has increased on a timeline basis as top five products accounted for approximately 45% of the company’s net sales in FY20. Going forward, brand building is a key component of the management’s strategy. Management launched five new products in FY20 as a part of this strategy and further new products are in pipeline. Creation of new brands may help reduce the product wise concentration in sales. Ability of the firm to compete in its existing product segments and achievement of budgeted growth would remain important rating drivers.

Sales of the company witnessed 35% growth in FY20 primarily on account of increase in institutional sales. However, gross margins were reported lower as average margins in case of institutional clients are less than those of prescription sales. Moreover, increase in the prices of raw materials and disruption in supply chain of imported active pharmaceutical ingredients due to COVID-19 also contributed to lower gross margins. Higher utilization of borrowings due to increased working capital requirements resulted in significant increase in the finance costs. Hence, net margins and net profits both decreased vis-à-vis the preceding year. Recovery in net margins and net profitability has been observed in Q1’FY21. Continuation of the improvement trend in profitability is considered important from the ratings perspective.

Higher working capital requirements due to increase in institutional sales resulted in increase in utilization of borrowings. As equity base remained at approximately similar level, leverage indicators were reported higher at end-FY20. With decrease in profitability, FFO in relation to long term debt and debt service coverage ratio has also declined on timeline basis. Leverage indicators are on the higher side vis-à-vis peers. Improvement in cash flow and capitalization indicators, especially gearing and leverage ratios, is warranted from the ratings perspective.

For further information on this rating announcement, please contact the undersigned (Ext: 201) of Mr. Narendar Shankar Lal (Ext: 306) at 021-35311861-70 or email at info@vis.com.pk.



Faryal Ahmad Faheem
Deputy CEO


Applicable Rating Criteria: Industrial Corporates (April 2019)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf

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