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| Fitch Affirms Claris Lifesciences Bank Loan Ratings |
| Announcement / Banking Aug 21, 2009, 18:50 IST |
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Fitch Ratings has today affirmed Claris Lifesciences Ltd's (Claris) National Long-term rating at 'BBB+(ind)' with a Stable Outlook. Fitch has simultaneously affirmed Claris's INR1,238m outstanding long term bank loans and INR1,535m fund-based cash credit limits at 'BBB+(ind)', respectively, and both its INR175m fund-based limits and INR640m non-fund based limits at 'F2+(ind)'. The agency has assigned Claris' additional outstanding INR250m long term loans and its additional INR275m fund-based cash credit limits respective ratings of 'BBB+(ind)'.
The ratings reflect the improvement in Claris's financial performance, its comfortable financial metrics due to capex deferment and strong revenue visibility going forward. During CY08, Claris' revenues grew 25% and its operating margin expanded by 3% to 27% from 24%, whilst net profit increased to INR1bn from INR835m. In addition, despite an increase in debt to INR3.3bn in CY08 from INR2.3bn in CY07, debt/EBITDA remained at 1.6x.
However, Claris' ratings are constrained due to less flexibility of short term liquidity on account of increase in working capital levels, which is a result of its growing operations and the global recessionary environment. During CY08, a lengthening in the company's receivable period and a reduction in the payables period translated into higher working capital levels with the cash conversion cycle increasing to 119 days in CY08 from 80 days in CY07.
Fitch notes that with adequate working capital tied up, and measures being taken to reduce working capital levels, the company has seen an improvement in its liquidity position since April 2009. Furthermore, despite the additional capex planned in CY09-10, financial leverage should remain comfortable due to the anticipated increase in Claris' profitability and cash flows from its recent deal with Pfizer Inc. A consistent improvement in working capital could be a positive rating trigger. However, if the company does face any liquidity pressure the ratings could come under negative pressure. (Claris entered into a 15 year partnership agreement with Pfizer Inc in May 2009 to licence and commercialize 17 sterile injectible drugs. The company has already received part of the licensing fee and expects the balance in CY10, whilst revenues from commercialization are expected post CY10.)
The agency further notes that with respect to Carlyle an equity investor in the company, Claris during the FY10-11 has the option to provide an exit route to Carlyle either through a sale to a strategic investor or private equity fund, through an IPO or through a buy out of Carlyle's investment. The company has already started exploring the various routes and expects to finalize it within the next 6-12months. In the event, that the exit route options do not materialize during the stated period, Carlyle could decide on an exit option; however Claris would then have the first right of a buyback before the sale to a strategic investor option is adopted by Carlyle. As and when the options are finalized, Fitch would assess the potential impact on Claris' ratings
The rating continues to reflect Claris' focus on the higher value added growing injectible drug markets and its increased operations. However, Fitch notes that a significant competition in regulated markets could limit margin expansion.
Claris primarily develops, manufactures and markets injectable drugs that are mainly used in the critical care, hospital care, renal care and nutrition segments. During FY03-08, the company's revenues grew at a CAGR of 40%, to INR7,501m from INR1,387m. During the same period, EBITDA margins expanded to 27% from 9%. On a standalone basis, the company's revenues in CY08 grew to INR 6,848m from INR5,484m, the EBITDA margin increased to 29% from 25%, and net profit rose to INR1bn from INR758m.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including over 3,200 banks and 2,200 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings’ financial institution coverage universe.
Fitch India has Five rating offices located at Mumbai, Delhi, Chennai, Kolkata and Bangalore. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.
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