The Hindu Business Line : Crisil downgrades Glenmark’s ratings

On Friday rating agency Crisil downgraded its ratings on Glenmark, reflecting the company’s financial risk profile due to a sharp increase in debt levels, resulting from a sizable increase in working capital requirements in Glenmark and its subsidiaries, higher-than-expected capital expenditure and outlays on brand acquisitions.

Glenmark has seen a sharp increase in its debt levels to an estimated Rs 1,900 crore as on March 31, 2009, from about Rs 1,000 crore in the previous year, a Crisil note said. Crisil had downgraded its ratings on Glenmark’s bank facilities to A+/Negative/P1 from AA-/Stable/P1+.

Remedy

Responding to the development, the Chief Financial Officer of Glenmark, Mr Rajesh Desai, told Business Line that the company had anticipated an increase in working capital requirements in Latin America, Russia and the CIS due to the overall global recession.

Stating that Glenmark had taken corrective measures in these countries to improve working capital, he said: “Receivables are being given the utmost priority. Second, we have managed to control overhead expenditure and capex in the year. So this will bring further relief. Third, due to the overall global recession we did not manage to close an out-licensing deal in the last financial year. This impacted our debt levels.”

Glenmark will continue its discussions with potential partners to out-licence some of its molecules in clinical development, he said, adding that the company was monitoring working capital requirements by keeping a control on debtors and reducing inventory days.

Delayed Receivables

Crisil had in its observation said that Glenmark’s financial risk profile was strained because of an increase in net working capital requirements following delayed receivables from Latin American, Russian and the CIS markets, as well as expansion of operations of its global subsidiaries.

The company has invested around Rs 700 crore in setting up manufacturing facilities and acquiring brands in Poland in 2008-09. This resulted in the sharp increase in debt levels.

“More than 50 per cent of the overall debt is short-term, posing a significant refinancing risk for the company. The company has arranged refinancing for a part of the short-term loans with loans having tenures between 18 and 24 months to address this risk.” Further, Crisil said, it would revise its outlook on Glenmark from “negative” to “stable” if the company corrects its working capital cycle and brings down debt levels to around Rs 1,300 crore, the note added.

Glenmark shares were down over 2 per cent on the BSE at Rs 252 on Friday.