Rating agency Crisil has reaffirmed its 'A1+' rating on bank facilities of Ranbaxy Laboratories post Sun Pharmaceutical Industries's announcement to acquire 100 percent stake in it.
The deal is valued at an enterprise value of USD 4 billion on an all-stock transaction. Under the agreement, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy.
"The ratings continue to reflect Ranbaxy's established position in the international generics market and in the Indian formulations market. The rating also factors in the business synergies with its parent, Daiichi Sankyo Company Ltd (Daiichi), one of the leading innovator pharmaceutical companies in Japan.
"These rating strengths are partially offset by Ranbaxy's exposure to growing competition and regulatory risks in the regulated generics markets of USA and Europe, and susceptibility to fluctuations in foreign currency exchange rates on option contracts," Crisil said in its report.
Ranbaxy, being one of the top 10 generics companies in the world, has first-to-file (FTF) status on blockbuster products such as Nexium (sales of around USD 6 billion for 2012) and Diovan (around USD 2 billion), among others.
Crisil estimates that the overall US generic market opportunity from exclusivity products for Ranbaxy will be more than Rs 1,500 crore till 2015.
The rating agency further said it believes that Ranbaxy will remain a strong player in the domestic formulations market, supported by its established brands, a large therapeutic-focused field force, access to the parent's portfolio, and new product launches.
Ranbaxy faces intense competition and pricing pressure in the regulated generics market in line with the industry, where generic players face severe price erosions.
"Crisil believes that Ranbaxy will remain vulnerable to pricing pressures in the regulated generics market. However, Ranbaxy's presence in the branded and authorised generics market protects the company against any steep price erosion in generics," the Crisil report said.
The rating was given to Ranbaxy's total loan bank facilities of Rs 1,500 crore and Rs 500 crore short term debt programme.
Crisil said it believes that Ranbaxy has adequate financial flexibility in the form of healthy cash accruals and healthy cash position (Rs 1,450 crore as on December 31, 2013) to withstand the potential payments with respect to consent decree and potential losses on the currency option contracts.
However, any larger-than-expected losses on option contracts and payout of USFDA continue to be key rating sensitivity factors.