Rating agency Crisil today said that Glenmark Pharmaceuticals' rising debts have strained its financial health and downgraded the working capital loan and cash credit ratings of the drug maker.

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"The downgrade reflects Glenmark's strained financial risk profile due to a sharp increase in debt levels as a result of a sizeable increase in working capital requirements in both Glenmark and its subsidiaries," the rating agency said in a release.

The downgrade also reflects the company's higher-than-expected capital expenditure (capex) and outlays on brand acquisitions, Crisil added.

Further it said that the rating revision also reflects the refinancing risk posed by high reliance on short-term borrowings to fund the increase in working capital requirements.

The working capital demand loan and cash credit ratings for Glenmark have been downgraded to A+/Negative, which is a lower investment-grade rating but with a negative outlook.

Earlier, Crisil had assigned AA-/Stable ratings on both the debt facilities, which meant relatively better investment grade with a stable outlook. These ratings are for a Rs 145 crore working capital demand loan and a Rs 25 crore cash credit. Crisil has also assigned an A+/Negative rating to Glenmark's Rs 400 crore long-term loans.

The rating agency has also downgraded its ratings on Glenmark's Rs 400 crore short-term loans.     

Crisil said that Glenmark's financial risk profile was strained because of an increase in net working capital requirements following delayed receivables from Latin American, Russian, and Commonwealth of Independent States (CIS) markets, as well as expansion of operations of its global subsidiaries.     

The company has invested around Rs 700 crore for setting up manufacturing facilities and acquiring brands in Poland in 2008-09, which has led to a sharp increase in the debt levels to an estimated Rs 1,900 crore as on March 31, 2009, from about Rs 1,000 crore a year ago.     

"More than 50 per cent of the overall debt is short-term, posing a significant refinancing risk for the company. The company has arranged refinancing for a part of the short term loans with loans having tenure between 18 to 24 months to address this risk," Crisil said.

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