| Alembic Pharmaceuticals Limited | ||||
| Ratings reaffirmed at 'Crisil AA+/Stable/Crisil A1+' | ||||
| Rating Action | ||||
| ||||
| ||||
| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank facilities and commercial paper programme of Alembic Pharmaceuticals Limited (Alembic Pharma).
The ratings continue to reflect the strong position of Alembic Pharma in the domestic formulations market, its diversified revenue profile with growing presence in the international generics segment and a healthy financial risk profile. These strengths are partially offset by average profitability due to increased operating expenses from new manufacturing facilities which continue to operate at sub-optimal capacities, and exposure to intense pricing pressure and regulatory risk in the pharmaceutical (pharma) industry.
The consolidated revenue grew 4% year-on-year (y-o-y) in the first nine months of fiscal 2025, supported by double-digit growth (10-11%) in formulations sales in the international markets (including US) compensating for the de-growth in the active pharmaceutical ingredients (API) revenues (-14%) and modest growth in the domestic business (6%). Revenue growth is projected at 4-6% for fiscal 2025 and may improve thereafter to 10-11% over the medium term, aided by recovery in the API business as well as steady demand for existing products and new product launches in the domestic and international segments.
The operating margin stood at 15.0% during the first nine months of fiscal 2025, similar to 15.3% in fiscal 2024. With higher operating expenses and lower capacity utilisation of the new manufacturing facilities offset by cost optimization measures and focus on high-margin projects, the margin may remain at similar levels for fiscal 2025. Going forward, with gradual ramp up in sales and operating leverage benefits, the margin should improve to 16-17% over the medium term.
The working capital intensity continues to be moderately high. Gross current assets are expected at 170-200 days over the medium term (177 days as on March 31, 2024), given the focus on maintaining larger inventory to capitalise on any market opportunity and avoid any supply-side disruption. The company has incurred sizeable, debt-funded capital expenditure (capex) over the past few fiscals towards specialised generics. It has further planned to incur annual capex of Rs 300-350 crore over the medium term towards routine maintenance, which shall remain funded through internally generated funds. Financial risk profile remains healthy, with only short-term debt outstanding, translating into comfortable debt protection metrics.
There has been a buildup of working capital (primarily inventory) in the current fiscal since March, which led to increase in working capital requirement by ~Rs 600 crore as of December 2024 (compared to March 2024). Due to this increased requirement for upcoming launches which have been delayed, there has been a temporary increase in working capital borrowing to ~Rs 985 crore (from Rs 430 crore on March 31, 2024). While the same is expected to remain higher at March 31, 2025, with liquidation of the inventory, it will come down by the first half of fiscal 2026 and remains a monitorable. |
Analytical Approach Crisil Ratings has consolidated the business and financial risk profiles of Alembic Pharma and its various subsidiaries and stepdown subsidiaries. These entities are strategically important to and have a significant degree of operational integration with Alembic Pharma. Crisil Ratings has applied a moderate consolidation approach for associate companies and joint ventures and has factored in the share of profit and requirement of any incremental investment.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
Operating margin is expected at ~15% in fiscal 2025, supported by cost-optimisation measures and focus on high margin projects, even as R&D expenses continue at lower levels in line with preceeding fiscal (7-8% of sales for the first nine months of fiscal 2025; 7.6% in fiscal 2024). However, roll out of new product launches in differentiated generics along with ramp-up of newer facilities will be critical for maintaining and enhancing operating profitability.
|
Liquidity: Strong The company had liquid surplus of Rs 104 crore as on December 31, 2024. Cash accrual is projected at over Rs 550 crore in fiscal 2025, sufficient to cover the routine capex; cash accrual is expected at Rs 700-800 crore per annum over the medium term. The company only has short-term debt outstanding. Bank limit utilisation was less than 50% during the 12 months through January 2025. Comfortable debt protection metrics enhance the fund-raising ability.
Environment, social, and governance profile The environment, social, and governance (ESG) profile of Alembic Pharma supports its strong credit risk profile.
The pharma sector can have a significant impact on the environment owing to greenhouse gas emissions, water use and waste generation. The sector’s social impact is characterised by the impact on the health and wellbeing of consumers due to its products and on employees and the local community on account of its operations.
Key ESG highlights
There is growing importance of ESG among investors and lenders. Alembic Pharma’s continued commitment to ESG principles will play a key role in enhancing stakeholder confidence and ensuring ease of raising capital from markets where ESG compliance is a key factor. |
Outlook: Stable The business risk profile is likely to benefit from the diversified segmental and geographical presence of the company in the pharma space. However, the operating margin will remain average amidst gradual ramp up in the new facilities, intense competition, price erosion in US, inflation driven cost and R&D spends. Healthy cash generation and low leverage in capital structure will help sustain healthy financial risk profile over the medium term. |
Rating sensitivity factors Upward factors
Downward factors
|
About the Company The pharma business of Alembic Ltd, comprising domestic formulations, international generics and APIs, was transferred to Alembic Pharma, following the latter’s demerger from Alembic Ltd effective April 1, 2010. Vadodara-based Alembic Pharma manufactures a range of formulations and bulk drugs for the domestic and international markets. It has nine manufacturing facilities for formulations and APIs and three R&D facilities.
Alembic Pharma is listed on the Bombay Stock Exchange and the National Stock Exchange. As on December 31, 2024, the promoters and group entities held 69.61% stake in the entity.
Profit after tax (PAT) stood at Rs 427 crore on revenue of Rs 4,902 crore for the first nine months of fiscal 2025, against Rs 438 crore and Rs 4,712 crore, respectively, in the corresponding period of fiscal 2024. |
Key Financial Indicators
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*100% interchangeability between funded and non-funded |
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
|
Criteria Details
|