Fitch Ratings has today assigned a National Issuer rating of ‘BBB+(ind)’ to Nectar Lifesciences Limited (Neclife). At the same time, Fitch has assigned a ‘BBB+(ind)’ rating to its INR1000 million long-term bank loans and ‘F2+(ind)’/’BBB+(ind)’ ratings to its INR3325m fund-based working capital facility (interchangeable between Working Capital Demand Loans/Cash Credit). The agency has also assigned a ‘F2+(ind)’ rating to its non fund-based working capital facility of INR1890.5m. The Outlook is Stable.

The ratings reflect the company’s demonstrated growth over the past year, driven by its investments in capacities for new products such as cephalosporins and phytochemicals and its focus on new products and areas. Fitch notes that Neclife periodically enters new product categories which have recently gone off-patent internationally, providing higher margins during the initial years before tapering off. The ratings factor in Neclife’s proven ability to manage large scale expansions, and its R&D skills as demonstrated by its ability to successfully enter into new products. The company faced difficulties in the past due to delays in entry into new products, which resulted in fluctuating margins.

Although market opportunities remain substantial, the company faces risks on account of the size and scale of competition from both domestic and international players. These competitive pressures could result in declines in the price of these pharmaceutical products and hence affect Neclife’s margins. The ratings remain constrained by the company’s high leverage, relatively small scale of operations compared with the main line of pharmaceutical players and the comparatively high dependence on a few products. The company’s liquidity also remains under pressure due to its high working capital requirements, which is characteristic of the industry. Neclife`s large scale capex plans over the next few years will result in negative free cash flows for the company. As a result, Fitch expects the company’s leverage to remain high over the medium-term.

Neclife plans to diversify its product portfolio beyond antibiotics in high growth therapeutic segments like cardiovascular and oncology as these segments offer reasonable hedge against competition. Neclife also plans to grow in the phytochemicals space as this segment is largely unorganised in India. To fund its business growth initiatives, Neclife came out with a foreign currency convertible bond (FCCB) issue of USD35m in FY07 to finance its expansion plans. Neclife also plans to invest INR5900m over FY08-FY10 to set up a Neutraceutical plant, a unit for Menthol crystals, and a bulk drug unit, which the company plans to finance through a combination of proceeds from its FCCB issuance, fresh debt and internal accruals. Any large-scale debt led capex/ investments (beyond those currently underway) could put downward pressure on the ratings. Furthermore, any greater than expected decline in the prices of its products adversely impacting margins could also move the ratings downward. On the other hand, Fitch notes that a material sustained improvement in leverage levels over the medium term could act as a positive trigger for the rating.

Neclife is a manufacturer of off-patented cephalosporins (broad-spectrum antibiotics), both oral and sterile bulk drugs, intermediates, select semi synthetic penicillins (SSP) as well as finished dosage forms like tablets and capsules. It is also engaged in certain contract manufacturing for generic pharmaceutical companies. Headquartered in Chandigarh, Neclife has ten manufacturing facilities in Derabassi (API), Baddi (FDF), Jammu and Sri Lanka.

During FY07, the company registered revenue of INR4,260m (INR2,552m in 2006), on which it recorded a profit after tax of INR562m (INR244m in 2006). Phytochemcials contributed INR1470m to the revenue. Exports accounted for 45% of the revenue in FY07 compared to 29% in FY06, while EBITDAR margins stood at 16.3% (9.6% in 2006) with net margins at 13.2% (9.6% in 2006) in FY07. During the nine month period ended 31 December 2007, Nectar registered revenues of INR5266m and net income of INR593m, with EBITDA margins of 16.5% and net margins of 11.3%. Over the past few years Neclife net debt/EBITDA has been in range of 3 to 5x due to its expansion plans, with a net debt/EBITDA of 5.0x in FY07.

Sourced From: Sampark Public Relations Pvt Ltd

Tags: calls, daytrading, free calls, intraday, tips

Similar Posts:

• Fitch assigns Genus Power Infra A-(ind)’/’F1(ind) rtg
• Fitch assigns A-(ind)’/’F1(ind) to Adhunik Metaliks
• Fitch assigns F1(ind) rtg to STD prog of Unitech Machines
• Fitch assigns F1(ind) to Bilcare working capital bk limits
• Fitch assigns A+(ind)’/’F1+(ind) to Varun Shipping