The Investment Credit and Rating Agency (ICRA) has reaffirmed the A1+ rating assigned to the Commercial Paper Programmes of Torrent Pharmaceuticals Ltd (TPL) and Indoco Remedies Limited (Indoco). The rating indicates highest safety in the short-term.

The reaffirmation over the Rs.600 million Commercial Paper Programme of TPL has come after taking into account TPL's strong presence in the domestic pharmaceuticals market and its well-established brands in growth oriented specialty segments viz. cardiovascular (CVS), central nervous system (CNS), and gastrointestinal (GI). The rating also factors in its regular product launches, the improved capital structure of the company, high profitability and comfortable liquidity position, stated an ICRA release.

The Rs.100 million Commercial Paper programme of Indoco also has been rated after taking into account Indoco's healthy and stable profitability with a low financial gearing. The amalgamation of Warran Pharmaceuticals with Indoco, Indoco's widened therapeutic coverage through introduction of products in segments such as newer generation antibiotics, anti-diabetes and cardiovascular, and the change in Indoco's product portfolio through its concerted efforts at improving in-house research and development capabilities. The company has been able to slightly better its ranking in ORG's prescription audit data to 25 (August 2003, moving average annual)) from 27 in the same period previous year and has maintained its ranking at 34 as per ORG's retail audit data for the same period. Indoco's product portfolio remains well diversified, with top 18 products accounting for about 65 per cent of the total revenue, the release said.

Indoco added over ten new products over the last two years, giving it an entry into previously uncovered therapeutic segments like anti-diabetics, cardiovascular and macrolides. Most of the new products have been in high priced segments, and less than 18 per cent of its sales come under DPCO coverage. To succeed in the growing life style segment, Indoco launched the anti- diabetes and cardiovascular products under a new marketing division 'Radius'. With low growth in the sales of Indoco's key brands like Cyclopam (anti-spasmodic) and Febrex (anti-pyretic and decongestant), it is expected that Indoco will grow through new product launches through the Radius division. In addition to high value launches in the life-style segment, Indoco is also concentrating on exports in the regulated markets. The UK-MCA approval for one of its manufacturing facility in Goa, planned UK-MCA approval for ophthalmic and injectable plant in Goa and proposed plans to build a facility on US-FDA guidelines are steps towards penetrating the regulated export markets. The increased capital expenditure on account of these new facilities would be incurred in the current and the next financial year. The cash accrual for the company remains comfortable and would be adequate to meet the capital expenditure requirements for the company.

For the year ended June 2003, Indoco's Operating Income increased by 7.5per cent to Rs.1273.7 million from 2001-02 levels. The operating margin (OPBDIT/OI) increased from 17.5per cent to 18.1per cent. The gearing of the company as on June 30, 2003 was 0.38 times. The gearing however, is substantially lower at 0.19, after adjusting total debt for cash & equivalents and liquid investments of the company (net debt). Indoco's ROCE (PBIT/ (Total debt + Tangible Net worth) remains healthy at 21.2per cent. Due to higher cash accruals and lower debt levels than previous year, Indoco's Net Cash Accruals/Total Debt increased to 57per cent in 2002-03 from 49per cent in 2001-02. The interest coverage (OPBDIT/ Interest & finance charges) for the company is comfortable at 7.6.

Meanwhile, TPL's product range comprises mainly formulation drugs and insulin, with domestic formulation sales and exports contributing approximately 70per cent and 10per cent of its sales respectively (during FY03) and the balance being contributed by bulk drugs and insulin. The downside arising on account of low exports and over-dependence on domestic sales is mitigated to a great extent by its strong presence in the CVS, CNS (including anti-diabetic) and GI segments, which are characterised by high margins and relatively higher growth rates. The products in these segments together comprise over 70per cent of TPL's domestic formulation sales. Over the years, the company has been able to launch new products in these segments and also hold on to its market leadership in those segments. As on March 2003, the company had 6 brands in the top 300 brands of the Indian Pharmaceuticals market.

The strong brands in its portfolio viz. Domstal (GI), Alprax (CNS), Dilzem (CVS), Droxyl (Anti-infective), Listril (CVS) and Nikoran (CVS) generate stable cash flows for the company. TPL has several strong brands in its portfolio and the top 10 products of the company account for about 56per cent of its domestic formulation sales. In the recent past, the company had revamped its operations especially on the marketing front, which yielded results during the first two quarters of FY04 whereby the company's sales registered 17per cent growth as compared to the corresponding period of the previous fiscal.

The operating income (OI) of the company was Rs.3805.54 million in FY 2003 as compared to Rs.3784.86 million in FY 2002. Despite an increase in the employee cost, reduced raw material cost on account of better product mix resulted in improvement in the operating margin (OPBDIT/OI) to 22.6per cent in FY 2003 from 21.3per cent in FY 2002. The net margins remained high at 13.6per cent in FY 2003 and 13.2per cent in FY 2002. The operating income of the company for the six months ended 30th September 2003 was Rs.2407.96 million, a growth of 23per cent as compared to the corresponding period of the previous year. During the same period the net profits were Rs.392.9 million. The gearing has reduced significantly over the years due to repayment of its debt stock and expenditure on expansion and modernisation being funded out of internal accruals. As on September 30, 2003 the company is completely free of all long-term debt obligations. As a result of efficient working capital management, the company has reduced its reliance on working capital finance from banks and its liquidity position has remained comfortable. In addition, as on 30th September 2003 the company had over Rs.600 million in liquid investments.

The company has plans to exploit the market in developed countries, with a significant number of currently patented drugs going off-patent over the next few years. TPL has already set up subsidiaries in Brazil, Russia and Germany in order to exploit the opportunities in these markets. The company also has significant capital expenditure plans in the near future. However, it is unlikely to affect its capital structure adversely as a major part of such capex is expected to be funded out of internal accruals. Overall the company's performance is characterised by high profitability, financial flexibility by virtue of its debt free status and comfortable liquidity, the release said.