Press Release

JCR-VIS Reaffirms Entity Ratings of Aspin Pharma (Private) Limited

Karachi, December 14, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Aspin Pharma (Private) Limited (APL) at ‘A/A-2’ (Single A/A-Two). Rating of APL’s secured Sukuk issue of Rs. 1,500m has also been finalized and reaffirmed at ‘A’ (Single A). Outlook on the assigned ratings is ‘Stable’. The long term rating of ‘A’ signifies good credit quality; protection factors are strong. Risk factors may vary with possible changes in the 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. The previous rating action was announced on October 17, 2017.

Ratings assigned to APL take into account the inelastic demand nature of prescription drugs in the pharma sector along with high relative market share and brand value enjoyed by major products. While financial profile has weakened, reaffirmation of ratings incorporates commitment to prepay a sizeable chunk of the outstanding debt prior to June’2019 through funds from the holding company. In 2017, OBS Pakistan (Private) Limited (the Holding Company) (OBS) increased its shareholding in APL from 70% to 100% by acquiring remaining shares from the other shareholder.

Ratings continue to factor in therapeutic area & product concentration in revenues. Currently, the topline is largely driven by treatments for acute therapeutic classes. Therefore, to further enhance stability and achieve projected growth in sales, management envisages launch of drugs within diverse chronic therapeutic category (diabetes, hepatitis-C and cardiovascular diseases) and line extension within existing product lines. Going forward, several new products are planned to be launched. Management also plans to launch products in proton pump inhibitors, anti-biotic and pediatric segments. JCR-VIS believes that a more diversified pharma business profile is only expected to emerge over the medium term.

Profitability declined during the ongoing year despite revenue growth and improved margins on account of high expenses pertaining to launch of new products and significant jump in finance cost. Going forward, higher volumetric sales (from both existing and new products) and negotiation of competitive active pharmaceutical ingredient rates with suppliers is expected to support profitability profile. Translation of projected improvement in revenues and margins into bottom line and cash flow growth in order to ensure adequate coverage is considered important from a ratings perspective. Capitalization and liquidity indicators have weakened significantly due to sizeable debt undertaken to fund investments and lower than projected cash flows. Cash flow from investments is projected to remain limited vis-à-vis debt repayments. Sizeable prepayment of outstanding debt along with improved cash flows is expected to result in capitalization and liquidity profile remaining commensurate with the assigned ratings.

For further information on this rating announcement, please contact the undersigned (Ext. 201) or Mr. Talha Iqbal (Ext: 213) 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 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited