Karachi, May 19, 2023 (PPI-OT): VIS Credit Rating Company Ltd. (VIS) has maintained the entity ratings of The Searle Company Limited at 'AA-/A-1'. 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 current outlook on the assigned ratings is ‘Negative’. Previous rating action was announced on February 15, 2022.
Assigned ratings incorporates Company's low business risk supported by non-cyclical nature of the industry and favourable demand prospects. Ratings also take into account Company’s strong market position and diversified product portfolio. Despite the challenging economic conditions, the demand for Searle's products remained strong during the period under review. Searle intends to expand its product portfolio into the IVY market, which presents significant growth opportunities for the Company.
Maintenance of ratings take into account recently approved price increase for pharma industry, which is likely to have a favourable impact on profitability and liquidity. The Company has been facing margin compression on account of surging input costs and currency devaluation together with higher debt servicing pressure arising from higher quantum of debt and rising interest rates. Amidst higher interest rate environment, debt servicing on the long-term debt secured for acquisition purposes has impacted profitability and consequently cash flow coverages.
Company envisages price increase from the Government to absorb the extraordinary exchange losses, however, margins and profitability are expected to remain under pressure over the rating horizon consequently impacting debt servicing. While dividend income provides support, the contribution remains low compared to the quantum of investment. Going forward, improvement in margins and liquidity will remain important for ratings. Capitalization indictors also record an increase, albeit remaining within manageable levels on the back of strong equity base. The outcome of planned IPO of Searle Pakistan Limited will remain important for materialization of future capex plans. Improvement in margins and debt service coverages will remain a key rating sensitivity.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/