This is despite the sector’s heavy reliance on Chinese API and intermediates
Ind-Ra has said that the new coronavirus (COVID-19) pandemic is unlikely to impact the rating agency’s credit profile of pharma companies in the near term despite the sector’s heavy reliance on Chinese API and intermediates. Nonetheless, in case the supply disruption continues 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, India Ratings and Research (Ind-Ra) said in a statement.
Furthermore, if the disruption spills beyond the next 9 to 12 months, some of the higher-rated corporates could face downward pressure. China is the world’s largest exporter of active pharmaceutical ingredient (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 vis-a-vis higher rated players.
Even in the case of issuers who are backwards-integrated, their own API and intermediates manufacturing capacities might be able to cater to only a limited portion of their requirements. Furthermore, players with API manufacturing facilities too are likely to be dependent on Chinese imports for supplying the intermediates necessary to manufacture APIs.