VIS revises Searle's outlook to stable, maintains ratings

July 11, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of The Searle Company Limited (PSX: SEARL) but has revised its outlook from negative to stable, according to the latest press release issued by VIS.

The ratings have been sustained at ‘AA-’ for long-term and ‘A-1’ for short-term.

To recall, previous Rating action was announced on May 19,2023.

The long-term rating of 'AA-' reflects high credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions.

The short-term rating of 'A-1' indicates high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor.

The assigned ratings reflect the company's strong market position and its low business risk profile, supported by the non-cyclical nature of the industry and favorable demand prospects.

SEARL is ranked in the top five pharmaceutical companies in the country in terms of revenues and holds a diversified portfolio of pharmaceutical products.

With the recent deregulation of non-essential drug prices by Drug Regulatory Authority of Pakistan (DRAP), whereby pharmaceutical companies are allowed to adjust prices at their discretion, TSCL is expected to benefit from it given a large non-essential drug portfolio of the Company.

A substantial part of the asset base of the Company remains vested in investment portfolio, which further increased in FY24 with acquisition of new subsidiaries namely Stellar ventures and Searle IV Solutions (Pvt) Ltd. Searle IV Solutions (Pvt) Ltd, has been acquired to set up intravenous manufacturing facility, for the purposes of the product line extension.

The company has also expanded their portfolio in GCC markets and registered it’s Pakistan’s manufacturing facility in UAE, which presents significant growth opportunities for the Company.

Assessment of financial profile reflects an increase in topline was supported by price adjustment granted during the year, however, inflationary pressures continued to suppress margins.

In addition, net margins remained under stress due to debt servicing, resulting in a drag on profitability, which was significantly impacted in FY23.

Consequently, debt servicing was constrained, however the gap in debt servicing was adequately met through dividends received from subsidiary, Searle Pakistan.

Nevertheless, operating cash flow continue to remain under pressure. To address the same, recently, the Company has approved the disposal of 100% shareholding and control of its subsidiary Searle Pakistan Limited.

This strategic decision is aimed at deleveraging balance sheet, reducing debt servicing and improving profitability of the Company.

Going forward, ratings remain underpinned on materialization of this strategic plan and planned reduction in debt.

Liquidity metrics while depicting a decline remain adequate, albeit rising payables remains a concern. Improving liquidity profile will remain important for ratings.

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