India Ratings and Research (Ind- Ra) today said it has placed pharma major Cipla's long-term issuer rating as well as ratings on its non-convertible debentures (NCDs) on negative watch list.
However, the rating agency said the generic drugmaker's outlook was stable.
Ind-Ra said the Rating Watch Negative (RWN) follows a Supreme Court's judgement on October 21 in a case involving overpricing of certain medicines by Cipla.
National Pharmaceutical Pricing Authority (NPPA) had fined the company for alleged overcharging of certain drugs.
The ratings agency said the ruling has come on the back of Cipla's large debt-funded acquisitions in financial year 2016 which have impacted its credit profile. Its adjusted net leverage (adjusted net debt/EBIDTA) deteriorated to 2.13x in financial year 2016 from 1.17x in a year-ago period, higher than the agency's earlier estimates.
The synergies/benefits arising on account of the company's US-based acquisition from business and financial perspectives are yet to be accrued to Cipla and the final impact of the potential outgo on account of the NPPA demand is yet to be seen. This could delay recovery in the company's credit profile, Ind-Ra said.
The agency said it expects to resolve the ratings watch within six months.
Cipla acquired the US-based Invagen Pharmaceuticals Inc and its marketing arm Exelan Pharmaceuticals Inc in an all -cash debt funded deal of USD 550 million in financial year 2016.
As indicated in the annual report for financial year 2016, Mumbai-based Cipla has outstanding cumulative demand notices to the tune of Rs 17.68 billion and has not made any provisions towards this NPPA liability.
The RWN indicates the rating could be either affirmed or downgraded. Ind-Ra placed long-term issuer rating 'IND AAA' on RWN. Provisional 'IND AAA' rating of the pharma major's proposed Rs 20 billion NCD was also placed on RWN.
Cipla has more than 2,000 products in therapeutic categories with over 40 dosage forms covering a wide spectrum of diseases. Its 34 state-of-the-art manufacturing facilities have been approved by major international regulatory agencies and are spread over seven locations. Cipla has a presence in over 170 countries through its subsidiaries.
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