The Investment and Credit Rating Agency (ICRA) has analysed the impact of the buy-out of the partners' 50per cent stake in Sarabhai Piramal Pharmaceuticals Limited (SPPL) for Rs.693 million by Nicholas Piramal India Limited (NPIL), and has re-affirmed the A1+ (pronounced as A one plus) rating to the Rs.2 billion and Rs.300 million short term-debt programmes of NPIL and SSPL, respectively.

The rating indicates highest safety in the short term. ICRA has also reaffirmed the MAA rating assigned to the Rs.1 billion NCD programme of NPIL, indicating high safety. The acquisition increases NPIL's overall domestic formulations market share to 4.4per cent (up from current 3.4per cent) as per ORG-MARG MAT Oct-03. The rating also takes into account NPIL's strong presence in the domestic pharmaceutical market and its well-established brands in the Respiratory, Central Nervous System (CNS), Nutritional and Anti infective (AI) segments, which would be further strengthened by the buy-out.

A larger field force will now be available to market the products of both the companies. SPPL would also benefit by being part of a larger group in the pharmaceutical business. ICRA's ratings also factor in NPIL's high profitability, comfortable liquidity position and improved financial performance in the current fiscal.

During the first 6 months of 2003-2004, NPIL registered a growth of 20.4per cent in revenue. Domestic branded formulations, accounted for 72per cent of the revenue the growth was pre-dominantly driven by new product launches in lifestyle therapeutic areas. The company has launched 36 new products over the past 24 months, of which 23 are in the high-growth lifestyle segment. The domestic Active Pharmaceutical Ingredient (API) business touched Rs.75.6 million during the period. The exports business registered a healthy growth, driven by API (Rs.299.3 million) and also a 31.5per cent growth in formulations exports. Exports to regulated markets accounted for 70per cent of API exports by the company.

During the 6 months ended September 2003, NPIL reported a operating margin (OPBDIT/ Operating income) 20.5per cent, up from 19.9per cent reported during 2002-03. The interest cost during the period was reduced through replacement of high cost debt. The net profit for 6 months 2003-04 reached Rs.729 million, against Rs.1118 million for the full year 2002-03. The cash accrual for the first half was a healthy Rs.865 million. Though the current acquisition will result in increased borrowings, the interest coverage would remain comfortable on account of increased profitability and overall moderate levels of gearing.

SPPL has remained focused on antibiotics, vitamins, respiratory, pain, CNS and CVS segments of the domestic pharmaceutical formulations industry. The top 20 brands of SPPL accounted for close to 78per cent of sales in FY 2003. Some of the top brands like Pentids, Ambistrin and Resteclin (all antibiotics) Esgipyrin, Contramal, Suganril and Biosuganril (all NSAIDs/analgesics), Mazetol (CNS) and Acitrom (CVS) are also among the top brands in the respective therapeutic sub groups of the industry. To reduce its dependence on older and slower growing products SPPL has introduced several new products over the last four years, which together account for about 15per cent of its gross sales. ICRA expects SPPL's low product concentration risk, strong product portfolio, and renewed focus on lifestyle related therapeutic segments to generate stable cash flows in the short to medium term.