Intas Pharmaceuticals Limited

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1 Intas Pharmaceuticals Limited April 5, 2018 Ratings Long-term/ Short-term Bank Amount Total (Rupees Five Hundred and Fifty crore only) Commercial Paper (CP) Issue (Rupees Seventy five crore only) Details of instruments/facilities in Annexure-1 Rating 1 CARE AA; Stable / (Double A; Outlook: Stable/ A One Plus) (A One Plus) Rating Action Reaffirmed Reaffirmed Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities/instruments of Intas Pharmaceuticals Ltd (IPL) continue to derive strength from vast experience of its promoters in the pharmaceutical industry, strong position in the domestic formulations business along with growth in export revenue mainly from regulated markets, wide marketing and distribution network, diversified product portfolio with established brands across multiple therapeutic segments, healthy product pipeline and good growth prospects for the Indian pharmaceutical industry led by patent expiration in developed countries. The ratings also take into account the healthy growth in its total operating income and high profitability. The long-term rating, however, continues to be constrained on account of its moderate leverage, uncertainty associated with its bio-similar product pipeline and exposure to inherent regulatory risk associated with the pharmaceutical industry coupled with intense competition in both domestic and export markets. IPL s ability to generate envisaged returns from its investment in biosimilars business, further strengthening of its position in regulated markets, continued compliance of regulatory norms along with effective working capital management and improvement in its leverage are the key rating sensitivities. Further, any large debt funded acquisition resulting in deterioration in its leverage would also be a key credit monitorable. Detailed description of the key rating drivers Key Rating Strengths Vast experience of its promoters in the pharmaceutical industry: IPL and its promoters have a long track record of operations in the pharmaceutical industry. Mr Hasmukh Chudgar, Chairman of IPL, has business experience of around 60 years. IPL was founded by Mr Hasmukh Chudgar and is currently managed by second generation of the Chudgar family, viz. Mr Binish Chudgar (Vice Chairman and Managing Director), Mr Nimish Chudgar (Managing Director and CEO) and Dr Urmish Chudgar (Managing Director). The promoters are well qualified with experience of more than three decades in the pharmaceutical industry. Growth in export revenue mainly from regulated markets: Over last five years ended FY17, IPL has been growing its presence in the international markets with focus on regulated markets of United States of America (USA) and Europe. International business continues to be the growth driver for IPL as indicated by increasing share of exports in its gross sales from 56% in FY16 to 62% in FY17. IPL acquired Actavis UK and Ireland businesses from Teva during FY17 to increase its presence in the international markets. Given its focus on segments such as critical care and oncology, IPL generates a sizeable share of its revenues from complex injectables. IPL s presence in some of niche/complex injectables allows the company to generate higher gross margins. Strong presence in domestic formulations market: In the domestic market, IPL has strong presence in chronic segments like neurology / central nervous system (CNS), cardiovascular, veterinary, diabetology, gynecology and gastroenterology which are amongst the fastest growing therapeutic segments. Ranked 10 th with a market share of 2.88%, IPL is one of the fastest growing pharmaceutical companies in the Indian Pharmaceuticals Industry as per IMS ORG November Wide marketing and distribution network: IPL markets its products in domestic as well as exports market through its marketing subsidiaries. In order to sell its products in the domestic market, IPL has a wide marketing network comprising around 4,700 medical representatives which enables it to market its products over 4,75,000 doctors across various 1 Complete definition of the ratings assigned are available at and other CARE publications 1 CARE Ratings Limited

2 specialties, over 35 exclusive and dedicated sales depots and around 5,600 stockiest spread across the country. IPL also markets its products through hospitals and other medical institutions which constitute an important marketing channel for them. Globally, IPL markets its products in overseas markets including major regulated markets such as the US and Europe through its own marketing setup and alliance with global pharmaceutical companies which have significant presence in these markets. Diversified product portfolio along with healthy product pipeline: As on March 31, 2017, IPL had a strong product portfolio with established brands across multiple therapeutic segments comprising of over 1,000 product registrations of which around 600 products are approved in the regulated and semi regulated markets. Further, it has already filed for approval of 169 products and another 287 products are currently under development. IPL also possesses a strong product portfolio of 12 fully commercialized biosimilar products in India till March In addition to this, it has healthy product pipeline of 5 other biosimilar products for Indian market and 5 for regulated markets of US and Europe. Consistent growth in total operating income along with healthy profitability; albeit with moderate leverage: Over last five years ended FY17, at consolidated level, IPL s total operating income has grown at a robust compounded annual growth rate (CAGR) of 23%. During FY17, IPL s consolidated total operating income grew at a healthy growth rate of 27% on the back of 42% growth in its export sales and 11% growth in domestic sales. Further, over the same period the PBILDT margins remained healthy in range of 18-23% on the back of strong operational capabilities and growing contribution of exports. In FY17, the PBILDT margin remained healthy at 20.50%. IPL s liquidity remained healthy marked by healthy cash accruals, comfortable current ratio and low fund based working capital limit utilisation. IPL on a consolidated basis had unencumbered cash balance of Rs crore as on March 31, 2017 (Rs crore as on March 31, 2016). However, its leverage was moderate marked by overall gearing of 1.04x and 0.97x as on March 31, 2017 and September 30, 2017 respectively. This is largely an outcome of its predominantly debt-funded acquisition of Actavis business from Teva in January Healthy growth prospects led by patent expiration in developed countries; albeit with increasing competition: The Indian Pharmaceutical Industry (IPI) is ranked third globally in terms of volume and thirteenth in terms of value. The lower market share in terms of value can be attributed to the predominance of IPI in generic medicines which command lower prices. As per estimates, the industry size was around USD 33 billion in In FY17, the industry faced slew of issues with increased scrutiny of regulatory authorities and increase in competition in generics market in one of its primary export destination, United States of America (USA). This, in turn, resulted in marginal growth in exports to USA. Also, the stricter enforcement of Drug Price Control Order (DPCO) has impacted revenue growth rate of the industry in domestic market. However, CARE expects pharma export volumes from India to USA to increase since the branded drugs of about USD 55 billion are expected to go off patent till FY20 which will create an opportunity for IPI. However, the Indian pharma companies will continue to witness pricing pressure in the USA generics market due to consolidation of distribution channels and increase in competition. Key Rating Weaknesses Exposure to inherent regulatory risk: IPL is exposed to regulatory risk with its operations centered majorly into manufacturing pharmaceutical formulations. The government also controls the prices of pharmaceutical products through DPCO under price control mechanism. Furthermore, the pharmaceutical industry is highly regulated in many other jurisdictions and requires various approvals, licenses, registrations and permissions for business activities. The approval process for a new product registration is complex, lengthy and expensive. The time taken to obtain approval varies by country but generally takes from six months to several years from the date of application. Any delay or failure in getting approval for new product launch could adversely affect the business prospect of the company. Further, given India s significant share in the US generic market, the United States Food and Drug Administration (USFDA) has increased its scrutiny of manufacturing facilities and other regulatory compliances of the Indian Pharmaceutical companies supplying generic drugs to the US. Non-compliance may result in regulatory ban on products/facilities (as in the recent cases of import alerts issued by the USFDA to top Indian Pharmaceutical companies) and may impact a company s future approvals from USFDA. Hence, ongoing regulatory compliance has become critical for Indian Pharmaceutical companies including IPL. Uncertainty associated with its bio-similar product pipeline: Along with the chemical formulations, IPL is investing its resources in development of biosimilars. Although, there is a huge market potential for biosimilars with a large number of biopharmaceutical drugs scheduled to go off patent in regulatory markets over next three years, there is also a high risk of failure associated with development of biosimilars. Furthermore, the biosimilars industry is at a nascent stage globally since the regulations for biosimilar s approval in regulated markets like US and UK have been in place since only a few 2 CARE Ratings Limited

3 years and there is uncertainty about the parameters on which a biosimilar will be judged before it is granted regulatory approval. Analytical approach: Consolidated Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Criteria for Short Term Instruments Rating Methodology-Manufacturing Companies Rating Methodology - Pharmaceutical Sector Financial ratios Non-Financial Sector About the Company Incorporated in 1985, IPL (CIN no. U24231GJ1985PLC007866) is a vertically integrated Indian pharmaceutical company, promoted by the Chudgar family based out of Ahmedabad. IPL is one of the fastest growing companies in Indian pharmaceutical industry, growing at a Compounded Annual Growth Rate (CAGR) of 23% at a consolidated level over last five years ended FY17. Its manufacturing facilities are approved by various international regulatory agencies like USFDA (USA), MHRA (UK), MCC (South Africa), GCC (Gulf), ANVISA (Brazil), TGA (Australia) and WHO. Over the same period, IPL has also strengthened its position in overseas markets mainly driven by growth in regulated markets like USA and Europe along with diversifying further into semi-regulated markets. To expand its presence in European market, IPL had acquired the divested business of Actavis UK and Actavis Ireland from Teva Pharmaceutical Industries, UK (comprising the UK and Ireland generics business and the Barnstaple manufacturing facility) in January 2017 through its wholly-owned subsidiary in the UK-Accord Healthcare Limited for a consideration of GBP 603 million. Brief Financials FY16 (A) FY17 (A) Total operating income 6,532 8,278 PBILDT 1,467 1,697 PAT 884 1,031 Overall gearing (times) Interest coverage (times) A: Audited During H1FY18, on a consolidated basis, IPL registered total operating income of Rs.5,245 crore with PBILDT of Rs.1,348 crore as against total operating income of Rs.3,768 crore and PBILDT of Rs.813 crore during H1FY17. Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Naresh M. Golani Tel : Mob : naresh.golani@careratings.com **For detailed Rationale Report and subscription information, please contact us at About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital 3 CARE Ratings Limited

4 for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, 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. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/ Name of the Date of Instrument Issuance Fund-based/Non-fundbased-LT/ST Commercial Paper- Commercial Paper Coupon Rate Maturity Date Size of the Issue Rating assigned along with Rating Outlook CARE AA; Stable / days Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Type Current Ratings Amount Outstanding 1. Debentures-Non Convertible Debentures 2. Commercial Paper- Commercial Paper 3. Fund-based/Non-fundbased-LT/ST Rating Rating history assigned in LT )Withdrawn ST CARE - - 1) 1) A1+ (09-Jan-17) (12-Feb-16) 2) LT/ST CARE AA; Stable / CARE A )CARE AA; Stable / (09-Jan-17) 1)CARE AA+ / (12-Feb-16) 2)CARE AA+ / 4 CARE Ratings Limited

5 CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: Cell: meenal.sikchi@careratings.com ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: Cell: rashmi.narvankar@careratings.com saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: deepak.prajapati@careratings.com BENGALURU Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , CHANDIGARH Mr. Anand Jha SCF No , First Floor, Phase 11, Sector 65, Mohali Chandigarh Cell: / Tel: /01 anand.jha@careratings.com JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com CHENNAI Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / 0811 COIMBATORE T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Tel: / PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com 5 CARE Ratings Limited

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