The Covid-19 outbreak is unlikely to impact the credit profiles of India Ratings and Research (Ind-Ra) rated pharmaceutical companies in the near term, despite the industry’s heavy reliance on Chinese activated pharmaceutical ingredients (API) and intermediates, the rating agency said in a statement on Friday.
However, in the event of supply disruption continuing over the next three-to-nine months, the pressures on credit buffers could intensify and rating transitions would be imminent, especially in case of the entities rated ‘IND A’ and below. Furthermore, if the disruption spills beyond the next nine-to-12 months, some of the higher-rated corporates could face downward pressure, Ind-Ra said.
The agency in the statement added that China is the world’s largest exporter of APIs and intermediates. Approximately 70 per cent of India’s total API requirement is met by imports from China. IND-Ra’s portfolio consists of 19 pharma-formulation, manufacturing issuers that are rated ‘IND A-’ and above. Among these entities, only nine have their own API manufacturing facilities, and only one entity manufactures intermediates. The degree of backward integration is lower for players rated ‘IND A’ or below, thereby making them more vulnerable to supply disruptions compared to higher rated players.