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Searle Co’s acquisition of Luna Pakistan Ltd to result in higher consolidated profits: VIS

December 10, 2019: VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to The Searle Company Limited (SCL).

Outlook on the assigned ratings is ‘Stable’. Long Term Rating of ‘AA-’ reflects high credit quality, strong protection factors, and moderate risk but may vary slightly because of economic conditions.

Short Term Rating of ‘A-1’ indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors and minor risk factors.

Ratings assigned to SCL incorporate the Company’s strong market position & franchise, diversified product portfolio & therapeutic area coverage and high relative market share of top 10 products vis-à-vis competing brands.

Ratings also reflect the low business risk profile of the pharmaceutical industry where revenues of the sector will continue to be supported by a growing population and increasing life expectancy (implying increase in the elderly population) and continuous emergence of diseases.

Ratings also reflect the sound financial profile of SCL with low leveraged capital structure and healthy cash flow coverages. While remaining within manageable levels, cash flow coverages and leverage indicators are expected to weaken over the next one year as additional debt is undertaken.

However, VIS expects healthy internal capital generation over the rating horizon to result in a gradual reduction in leverage indicators and improvement in cash flow coverages.

Ratings remain dependent on the reduction in leverage indicators over the rating horizon, maintaining healthy cash flow coverages and sound debt servicing ability.

SCL’s product portfolio is well-diversified comprising 100+ products catering to over 19 therapeutic segments with an overall 93% therapeutic area-wise coverage.

Top five leading revenue-generating therapeutic areas are alimentary tract & metabolism, cardiovascular, respiratory, nervous and musculo-skeletal system which represented four-fifths of topline during FY19.

Product concentration risk is considered on the lower side with the top five brands accounting for around two-fifths of total revenue.

SCL’s established distribution network along with extensive doctor and pharmacy coverage supports sales growth.

Recently, the board of directors of SCL gave approval for the acquisition of 100% shareholding in Luna Pakistan (Private) Limited which indirectly owns 100% of the issued share capital of OBS Pakistan (Private) Limited (OBS Pakistan) from Universal Ventures (Private) Limited (UVPL).

Once the acquisition is complete, OBS Pakistan will become a wholly-owned subsidiary of SCL. The acquisition is projected to translate into higher consolidated profitability where cost synergies within-group along with healthy sales growth is expected to result in a turnaround in the profitability of OBS Pakistan.

Posted on: 2019-12-10T12:35:00+05:00

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