Ind-Ra affirms Torrent Pharmaceuticals long-term issuer rating at AA with stable outlook

India Ratings and Research (Ind-Ra) has affirmed Torrent Pharmaceuticals Ltd's long-term issuer rating at AA with a stable outlook.

Torrent's consolidated operating EBITDA margins improved to 27.1 per cent in 9M FY20 led by the benefits of Unichem Ltd's domestic business acquisition completed in December 2017.

The consolidated leverage ratio (net debt/operating EBITDA) improved to 2.1x for the trailing 12 months ended December 2020 driven by an increase in its operating EBITDA and a reduction in consolidated debt to Rs 5,413 crore at end-December 2019.

Ind-Ra said Torrent has successfully integrated the domestic businesses of Unichem, in line with the guidance provided by the management. Consequently, EBITDA margin jumped 440 basis points to 27.1 per cent in 9M FY20 from 22.7 per cent in FY18 on the successful implementation of the acquisition-related cost synergies, productivity enhancement, in-clinic efficiency improvement, speciality focus and cross-selling initiatives.

Based on Ind-Ra calculations, Torrent's consolidated cash flow from operations stood at Rs 531 crore in 1H FY20 due to the successful integration of Unichem's portfolio and an improvement in the operating profitability.

Due to higher concentration in branded generic markets, particularly India, Torrent provides strong visibility on margin improvement trajectory and cash flow generation, leading to adequate liquidity for the upcoming debt repayments.

At FYE20, Torrent's working capital cycle is likely to marginally increase to 216 days due to higher inventory and receivable days. Liquidity is further supported by high cash balances of Rs 986 crore at end-December- 2019 as well as unutilised fund-based limits of Rs 977 crore at end-March 2020.

The pharmaceuticals sector falls under essential services and hence is operational despite the ongoing nation-wide lockdown. However, the compes in the sector are facing challenges regarding logistics and plants are operating at a sub-optimal level due to manpower and transport-related issues.

China remains a major source for the procurement of intermediates and active pharmaceutical ingredients for Indian pharmaceutical compes. On the demand side, considering Torrent has a higher concentration of chronic and sub-chronic portfolio (75 per cent), its existing prescription is not impacted due to the ongoing lockdown.

On the supply side, Torrent has limited direct exposure to the sourcing of raw material from China. On the manufacturing side, Torrent's manufacturing facilities are operating at around 70 per cent of its normal capacity utilisation as the company has implemented social distancing norms across its facilities.

Incorporated in 1959, Torrent manufactures branded and generic formulations. Dosage forms include tablets, capsule and extended-release formulations. Its major markets include India, the United States, Germany and Brazil.

( With inputs from ANI )