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Cipla’s Ratings Unlikely To Be Impacted By Proposed US Acquisitions: Ind-Ra

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Indian multinational pharmaceutical and biotechnology company, Cipla Ltd.’s recently announced acquisitions of the two US-based companies InvaGen Pharmaceuticals Inc. (InvaGen) and Exelan Pharmaceuticals Inc. are unlikely to affect its ratings, says India Ratings and Research (Ind-Ra). The two acquisitions, referred to as ‘transaction’, are subject to certain closing conditions and are valued at $550m.  
“The transaction is in sync with the management’s strategy to gear up and strengthen its front-end presence in the US, which is considered a high-margin geography,” says Jahnavi Prabhu, senior analyst, India Research.
 Cipla expects operational synergies accruing on account of this transaction to be reflected in therapy and product diversification, scaling-up of revenue, high profitability (acquired business generating EBIDTA margin of 25 per cent) and negligible debt levels of the acquired entity.
 The acquisition of InvaGen is likely to provide Cipla access to around 40 approved abbreviated new drug filings, 32 marketed products and a pipeline of 30 products which are to be approved over the next four years. In addition, InvaGen has filed five first-to-file products which represent a market size of around $8bn in revenue by 2018.
“Cipla can also access to the government and institutional market in the US,” says Prabhu.
Prabhu believes that it is also likely to provide Cipla access to large wholesalers and retailers in the US. InvaGen has three units located in Long Island, New York, with a total annual production capacity of 12 billion tablets and capsules and about 500 employees.
The agency expects the acquisitions to be funded by a mix of internal accruals, existing cash balances and debt. It expects Cipla’s net leverage (adjusted net debt/EBIDTA) to increase but remain commensurate with the existing ratings. The benefits accruing on account of the to be acquired companies’ net leverage being lower than Cipla’s given their nil debt levels and higher EBIDTA margins are likely to be offset by the debt assumed for the acquisition. At FY15E, Cipla reported net leverage of 1.2x (FY14: 1.2x) and interest coverage (EBIDTA/interest) of 13.1x (15.4x).
The company expects the transaction to be completed by end-December 2015, subject to the completion of certain conditions precedent and receipt of applicable regulatory approvals including the expiration or termination of the waiting period provided for by the Hart-Scott-Rodino Antitrust Improvements Act.

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