Karachi, February 15, 2022 (PPI-OT):VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of The Searle Company Limited (SCL) at ‘AA-/A-1’ (Double A Minus/A-One). 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. The previous rating action was announced on December 21, 2020.

Assigned ratings encapsulates low business risk of the company on account of non-cyclical nature of the industry and favourable demand prospects supported by increasing life expectancy, demographic changes, rising income levels, increasing incidences of chronic diseases, and persistence of COVID-19. Ratings also draw comfort from strong market position, diversified product portfolio and therapeutic area coverage, with market share standing at approximately 5.6% in FY21. In addition, acquisition of Searle Pakistan Limited (SPL) (formerly OBS Pakistan) is expected to further strengthen the Company’s position in the industry. Searle has an extensive distribution network through IBL Operations which remains a key rating driver.

Assessment of financial risk profile incorporates sales revenue remaining stable in FY21 despite pandemic related turbulences and closures of Outpatient Departments (OPDs). Gross margins however witnessed modest increase during the outgoing year. Net margins declined during FY21 primarily due to substantial surge in finance costs as a result of debt secured for OBS acquisition. However, impact of the same on profitability was somewhat offset with dividend income from Searle Pakistan Limited (SPL) (formerly OBS Pakistan). While management projects strong topline growth in FY22, there may be some rationalization with the transfer of certain businesses to OBS.

Cash flow coverages and debt servicing witnessed decline in FY21 due to limited profitability, albeit remaining within manageable levels. Liquidity profile also remained satisfactory, and cash flows generated from operating activities were sufficient to meet working capital requirements during the outgoing year. Capitalization indicators witnessed minimal increase in FY21 on account of issuance of right shares despite sizeable increase in long term financing undertaken for OBS acquisition. Capitalization indicators and debt servicing are expected to depict improvement going forward on account of higher profitability contribution from SPL and proceeds from planned listing of SPL currently under process. Ratings remain dependent upon healthy cash flow generation, sound debt servicing ability, and improvement in capitalization indicators.

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/