Glenmark Pharma surges 6% as S&P Global sees stable cash flow in 2 years

Glenmark's operating cash flows, lower capital investments, and plans to channel proceeds from the sale of non-core assets to pay debt should improve its ratio of funds from operations to debt

Shares of Glenmark Pharmaceuticals rallied 6 per cent to Rs 450 in the intra-day trade on the BSE on Thursday after S&P Global ratings said it expects the company’s operating cash flows to stabilise over the next 12-24 months, given the limited impact of the Covid-19 pandemic on the broader pharmaceutical industry.

At 10:17 am, the stock was trading 5 per cent higher at Rs 446 on the BSE, as compared to 0.75 per cent rise in the S&P BSE Sensex. The counter witnessed huge trading volumes with a combined 6.8 million equity shares changing hands on the NSE and BSE till the time of writing of this report. As of Wednesday, July 29, the stock has corrected 26 per cent from its 52-week high level of Rs 573 touched on June 22, 2020.

"Despite expectations of slower revenue growth in fiscal 2021 (year ending March 31, 2021), Glenmark should be able to maintain EBITDA (earnings before interest, taxes, depreciation, and amortization) margins at about 16 per cent as it looks to reduce investments in research and development (R&D) and control operating costs," S&P Global said.

Glenmark's operating cash flows, lower capital investments, and plans to channel proceeds from the sale of non-core assets to pay debt should improve its ratio of funds from operations (FFO) to debt to above 20 per cent in fiscal 2021, from 19.3 per cent in fiscal 2020, it adds.

S&P Global has, however, placed Glenmark Pharma's rating on CreditWatch "Negative" on growing re-financing risk.

“The company faces several bullet debt maturities totaling $340 million in 2021, including a put option on its foreign currency convertible bonds (FCCBs). The generics pharmaceuticals company is working on several refinancing options. However, funding requirements are substantial and challenging market conditions could strain its ability to raise funds, significantly weakening its liquidity,” the rating agency said in statement.

S&P Global further said it aims to resolve the CreditWatch over the next few weeks when they expect to get more clarity on Glenmark's plans to address its re-financing requirements. CLICK HERE TO READ FULL REPORT