| Emcure Pharmaceuticals Limited | ||||||
| Ratings Reaffirmed; NCD Withdrawn | ||||||
| Rating Action | ||||||
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| 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 A+/Stable/CRISIL A1’ ratings on the bank facilities of Emcure Pharmaceuticals Limited (Emcure, part of Emcure group). CRISIL Ratings has also withdrawn its rating on Rs.200 crore of NCDs (see ‘Annexure - Details of Rating Withdrawn’) and its rating on bank facilities aggregating to Rs.140 crore upon request of the company and on receipt of withdrawal documents from the lenders. The rating action is in line with the CRISIL Ratings policy on withdrawal of ratings.
The ratings continue to reflect the healthy business risk profile of the company, supported by geographic diversity in revenue, leadership position in the market across certain therapeutic segments, experienced management team and established research and development (R&D) capabilities.
Revenues, at a consolidated level, reported a low growth at 3% in fiscal 2023 at Rs 5,985 crore vis-à-vis Rs 5,855 crore in previous fiscal stemming from the degrowth in some of the therapy areas in the domestic formulation market as against an overall high base revenue growth (~15%) in previous fiscal. During fiscal 2023, the company reported operating margins of 20.3% lower than margins at 23.3% in previous fiscal as a resultant of increased marketing spends. The company reported revenue growth of 15% in the first half of fiscal 2024 and an operating profit of Rs 637 crore translating to ~20% margins. The improved performance in the first half as compared to previous corresponding period is attributable to healthy sales growth in the key therapy segments in the domestic and export markets.
During this fiscal, the company has acquired Mantra Pharmaceuticals Inc., in Quebec region of Canada under Marcan (Canadian subsidiary of Emcure); engaged in sale and distribution of pharmaceutical finished formulation products; with a purpose to expand its geographical presence in the Canadian market. Marcan had raised a debt of CAD 57.64 million (~Rs 353 Crore) to fund this acquisition. While Avet Lifesciences (USA entity) has been demerged, Emcure has provided a corporate guarantee of USD 65 million for the former’s working capital debt, which has been included in the adjusted debt of Emcure group which stood at ~Rs 2,716 crore as on March 31, 2023. While net adjusted debt to earnings before interest, tax, depreciation and amortisation (EBITDA) was at 1.76 times in fiscal 2023 (net debt includes the guaranteed debt amounting to ~Rs. 534 crore; excluding that, net debt to EBITDA stood at 1.42 times), a gradual correction is expected over the medium term, due to healthy cash generation and prudent funding of capex, even as working capital cycle will remain elongated.
CRISIL Ratings notes that Emcure has re-filed draft red herring prospectus (DRHP) in December 2023 and plans to go ahead with an initial public offering (IPO) and offer for sale (OFS). Successful completion of the IPO and utilisation of proceeds to lower debt would improve its debt metrics and will be a key monitorable.
The above strengths are partially offset by the group’s large working capital requirement and exposure to intensifying competition as well as regulatory and legal risks. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Emcure and its subsidiaries, collectively referred to as Emcure group, because these entities have common line of business, and inter-company transactions of sale/purchase.
Also, CRISIL Ratings has amortised intangible assets and goodwill on acquisitions over five years; profit after tax (PAT) and networth have been adjusted accordingly. The corporate guarantee extended to Avet has been treated as part of debt.
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: Healthy business risk profile, supported by geographic diversity in revenue Emcure group has a diversified revenue profile, with 46% of revenue coming from domestic market in fiscal 2023, 16% from emerging markets, 30% from regulated markets of Canada and Europe and rest from other segments including contract manufacturing for Avet. The group has an established market position in the domestic formulations market with a market share of 2.8% as per AIOCD MAT Sep’2023 and had eight brands in the top-300 brands in the domestic market. It also has a leading position in gynaecology, blood-related and human immunodeficiency virus (HIV) antiretroviral therapies.
Over the years, the group increased its presence in Europe and Canada by establishing front-end marketing networks through acquisitions of Tillomed Laboratories Limited (UK) and Marcan Pharmaceuticals Inc (Canada). Emcure group’s consolidated revenue grew by 3% in fiscal 2023 (compared to a 6-7% growth anticipated earlier).
Experienced management team, accredited manufacturing facilities and established R&D capabilities The promoter and chief executive officer, Mr Satish Mehta, is a first-generation entrepreneur with more than four decades of experience in the pharma sector. The second generation has been actively involved in the strategy and growth initiatives of the business for over a decade. Additionally, the group has a team of highly qualified professionals and scientists to support operations, strategy, and other functions, and drive future growth.
Emcure group has 13 manufacturing facilities across India, which produces a range of pharma/ biopharma products in varied dosage forms, including oral solids, oral liquids, injectables, including complex injectables such as liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products. The facilities are approved/accredited by various regulatory bodies including, USFDA, UK MHRA (United Kingdom), Health Canada, EDQM (Europe), ANVISA Brazil, and are compliant with current Good Manufacturing Practices (“GMP”) certificates from regulators including Health Canada, the World Health Organization (“WHO”), the Agency for Medicinal Products and Medical Devices of Croatia (“HALMED Croatia”), the National Institute of Pharmacy and Nutrition of Hungary (“NIPN Hungary”) and the Therapeutic Goods Administration of Australia (“TGA Australia”).. The group does not have plans to undertake any major debt-funded capex.
Emcure group has five R&D facilities with 550 qualified scientists. The group’s R&D focus along with manufacturing skills, developed through long track record of contract manufacturing for international pharma companies, has helped establish its presence in regulated and emerging markets. Besides, its generic formulations research in complex injectables, established expertise in chiral chemistry and focus on biopharma business demonstrate its strong R&D capabilities.
Weaknesses: Moderate financial risk profile Emcure’s financial risk profile remains adequate, supported by sizeable net worth. Albeit, debt protection metrics remain moderate, as reflected in net adjusted debt to EBITDA of 1.76 times in fiscal 2023 (net debt includes the guaranteed debt amounting to ~Rs. 534 crore; excluding that, net debt to EBITDA stood at 1.42 times). Interest cover stood adequate at 5.74 times in fiscal 2023. A gradual correction in debt metrics is expected over the medium term, due to healthy cash generation and prudent funding of capex, even as working capital cycle will remain elongated. Operations are working capital intensive, as reflected in gross current assets of ~200 days as on March 31, 2023, driven by inventory and receivables of ~84 and ~100 days, respectively. The group operates in multiple geographies and has a large product portfolio; hence, it needs to maintain sizeable inventory to ensure adequate supply.
Exposure to intensifying competition and increasing legal and regulatory risks Emcure group generates significant proportion of total sales through the regulated markets. The generics business in the regulated markets is highly competitive and has various legal and regulatory risks. Players in the regulated generics markets are vulnerable to pricing pressure on account of entry of several cost-competitive Indian players. Furthermore, growing competition, may limit improvement in profitability. Also, owing to the nature of products, Emcure group like many of its peers is vulnerable to litigations filed by regulators among others. In addition to this, any price-control measures of the government in the branded segment may weaken the domestic formulation growth and remains a monitorable.
While the US business has been demerged, Emcure group remains exposed to the ongoing litigation in the US and other markets. Any sizeable outflow towards settlement of the same remains a monitorable. Moreover, CRISIL Ratings notes that in March 2022, HDT Bio Corp, US-based biopharmaceutical company, filed a lawsuit against Emcure in a US court and initiated arbitration proceedings against Emcure’s subsidiary, Gennova Biopharmaceuticals Ltd in the London Court of International Arbitration. In these suits, HDT has claimed that Emcure and Gennova misappropriated trade secrets related to Covid-19 vaccine development and has sought USD 950 million in damages. The United States District Court has dismissed HDT’s claims against Emcure. |
Emcure group’s cash accrual of ~Rs 800 crore in fiscal 2023 comfortably covers its annual debt repayment obligation of Rs 300 crore. The Company’s annual capex of Rs 300 crore funded through a mix of debt and cash accruals. Cash and equivalent were healthy at Rs 558 crore as on September 30, 2023. The sanctioned working capital limit at standalone level, was utilised 83% on average during the 12 months through September 2023. |
Outlook: Stable CRISIL Ratings believes Emcure’s business risk profile will be supported by its established market position and geographic diversity. The financial risk profile will gradually improve backed by healthy cash generation and gradual debt reduction, and prudent funding of its capex plans. |
Rating Sensitivity Factors Upward Factors
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About the Company Emcure was incorporated by Mr Satish Mehta in 1981; the company commenced operations in 1983 in Pune, Maharashtra. The group has 13 manufacturing facilities across India and 5 R&D centres. The manufacturing facilities can manufacture pharmaceutical and biopharmaceutical products across a wide range of dosage forms, including oral solids, oral liquids, injectables, including liposomal and lyophilized injectables, biotherapeutics and complex APIs.
It has presence in domestic, regulated as well as emerging markets. It enjoys the alliance of multinational corporations and has established front-end presence in several countries through its subsidiaries. It has subsidiaries in UK, Canada, Dubai, Italy, Germany, South Africa etc. It markets formulations in key chronic therapeutic segments such as anti-diabetic, cardiovascular, oncology, etc. Also, it has presence in acute segments such as anti-infectives, gastro-intestinal, pain and analgesics, etc. Key brands such as Orofer, Tenectase, Bevon, Maxtra, Metpure, Asomex and Ferium are well-established in the domestic market.
The promoters own 82.98% in Emcure, while Bain Capital holds 13.09% and remaining is held by key employees and directors. |
Key Financial Indicators (Consolidated)
*Adjusted for amortisation of intangible assets of Rs. 25 crore in fiscal 2023 and Rs. 20 crore in fiscal 2022 Adjusted debt includes guaranteed debt of ~Rs 534 crore | ||||||||||||||||||||||||
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - Details of Rating Withdrawn
*Not placed |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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