According to S&P Global Ratings, Glenmark Pharmaceuticals will continue to register negative free operating cash flow on the back of relatively slower revenue growth with profitability constrained by natural price erosion, elevated research and development and capital expenditure, and higher working investments. The rating agency expects Glenmark to maintain a ratio of debt to EBITDA of below 3x. Glenmark has been revised to negative from stable by S&P Global Ratings. It has affirmed the rating at ‘BB’ due to company’s senior unsecured notes.
“Lower revenue growth due to a weaker-than-expected rate of new approvals, continuing generic price compression, and negative working capital movement together could result in a ratio of debt to EBITDA of above 3x, resulting in a downgrade,” said S&P Global Ratings in a press release. A higher tax incidence for the company will also result in a significantly weaker ratio of funds from operations (FFO) to debt of about 20-25%.
A pricing pressure in the US, slowdown due to the impact of demonetisation on the India business, and the devaluation of the pound sterling weighed on the company’s EBITDA margin. Sales from its first large exclusivity opportunity from a generic Zetia, a cholesterol drug, were lower than estimates. EBITDA margin was nearly 300 basis points lower than earlier expectation of about 22.7%.
In addition, estimated continuing negative working capital movement of over Rs400 crore resulted in adjusted debt rising to Rs4,900 crore in fiscal 2017, compared with S&P Global Ratings’ previous expectation of a reduction in gross debt.