Kathmandu. Credit rating firm Infomerics Nepal has assigned ‘B Plus’ rating to Accord Pharmaceuticals Limited for long-term bank loan and ‘A-Five’ for short term loan.
The company’s stock issuer rating has also been assigned a ‘B plus’ rating. The financial strength rating issued for all three purposes indicates that the company’s debt repayment capacity is weak. The rating agency has said that there is a need to carefully monitor the ability to repay the loan.
Although the pharmaceutical company has shown significant growth in revenue and profit in the last few years, the size of the business has not increased.
In the last three years, the company’s business income has increased by almost 8 times, but the turnover size is limited. Last fiscal year 2081. At 82, the company’s operating profit margin topped 51 percent, which is considered the highest for a manufacturing business.
The company has not been able to fully utilize the production capacity of the pharmaceutical plant in Luvu. In the tablet segment, barely 18 per cent capacity has been utilised, while others have utilised even less than that. The share of fixed costs in its production is high due to limited capacity utilization.
The share of debt capital in the company’s capital structure is also higher than that of its own capital. The higher the debt-capital ratio, the higher the interest expenditure, and the risk of loss due to expenses increases.
Both raw materials and finished goods have a long shelf life. The period of credit available for sale in the market is also longer than that of other competing companies. This has weakened cash flows, leading to a higher reliance on bank credit facilities for cash flows.
The company is facing stiff competition from big pharmaceutical companies like Deurali Janata, Nepal Pharmaceuticals, Quest Pharmaceuticals, National Healthcare and other big pharmaceutical companies established in the domestic market.
The capital structure is likely to improve if the company uses it to repay loans by raising capital from the public. If the production capacity is fully operational, the profit can be stable and sustainable. Infomerics suggests that the cash flow could be strengthened if the drug distributors could reduce the recovery time from the customers.
