Press Release

JCR-VIS Assigns Ratings to Aspin Pharma (Private) Limited

Karachi, October 18, 2017: JCR-VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A/A-2’ (Single A/A-Two) to Aspin Pharma (Private) Limited (APL). JCR-VIS has also assigned preliminary rating of ‘A’ (Single A) to the proposed Sukuk issue of Rs. 1,500m. Outlook on the assigned ratings is ‘Stable’.

Ratings assigned to APL take into account the inelastic demand nature of prescription drugs in the pharma sector, high relative market share & brand value enjoyed by major products, improving financial profile and enhanced debt servicing coverage post Sukuk issuance. Ratings are constrained by therapeutic area & product concentration in revenues and risk of margin attrition in case of significant rupee depreciation. The entity ratings are dependent upon timely issuance of Sukuk. Moreover, selling prices of drugs are controlled by Drug Regulatory Authority of Pakistan (DRAP).

Ratings take into account sponsor profile of APL with 70% shareholding vested with OBS Pakistan (Pvt.) Ltd (OBS). OBS is part of OBS Group, one of the largest pharmaceutical firms in Pakistan. Remaining stake is held by other shareholders. Majority of APL’s assets including production facility and marketing rights of its products were acquired in 2015 from Johnson & Johnsons Pakistan (Pvt.) Limited (J&J). Post-acquisition, the company has largely recouped its product market share and is working towards expanding its footprint through greater access to medical practitioners.

The company operates in seven prescription segments through 13 products. Leading revenue generating drugs are Motilium, Daktarin, Vermox, Imodium and Sibelium. The company plans to address revenue concentration and seasonality through product diversification, which is only expected to emerge over the medium term.

Profitability has improved on a timeline basis on account of healthy volumetric growth in sales and shift in product mix towards high margin products. Going forward, profitability is projected to grow on the back of higher turnover from both existing and new products. However, any adverse movement in raw material prices, including on account of rupee depreciation, beyond levels that can be passed on to customers may impact margins and cash flows. With an improvement in profitability, funds flow from operations has witnessed a noticeable increase with debt servicing coverage at around 1(x).

APL is in the process of issuing a Sukuk of up to Rs. 1,500m (inclusive of a Green Shoe Option of Rs. 250m). The funds will be used to refinance the existing long-term loan of the company and fund capital expenditure plans. Given projected increase in cash flows and extended repayment period on the Sukuk vis-à-vis existing loan, debt servicing is expected to improve post Sukuk issuance. Capitalization levels have improved on the back of higher equity and repayment of debt. While gearing is projected to increase post Sukuk issuance, the same is expected to decline overtime on account of retained profits and repayment of long-term debt.

For further information on this rating announcement, please contact the undersigned (Ext. 201) or Mr. Jamal Abbas Zaidi (Ext: 207) at 021-35311861-70 or fax to 021-35311873.

Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .