CRISIL reaffirms Sun Pharma''s FCCB rating

Rs. 400 Million Commercial Paper Programme

P1+ (Reaffirmed)

Rating agency CRISIL has reaffirmed its outstanding rating on Sun Pharmaceutical Industries Ltd.'s (Sun Pharma) commercial paper programme The agency's affirmation comes in the wake of Sun Pharma's acquisition of the assets of Able Laboratories Inc. (Able Labs), U.S., for a consideration of US $23.50 million (approximately Rs1.06 billion).

Sun Pharma is a fast-growing pharmaceutical company with a leading market position in the high-value cardiovascular and neuro-psychiatry segments. Able Labs has manufacturing facilities for generic pharmaceutical products in tablet, capsule, liquid and other dosage forms, including controlled release.

In May 2005, Able Labs suspended manufacturing and distribution of its entire product line and recalled all its products, due to non-conformance with U.S. Food and Drug Administration (USFDA) standards. The company is presently not generating any revenues, and is referred under Chapter 11 of the United States Bankruptcy Code. For the year ended December 31, 2004, Able Labs had reported a net profit of US $14 million on net sales of US $103 million.

Sun Pharma now plans to revalidate and resubmit some of Able Labs' products with the USFDA. According to the company, these products will have the potential to help it strengthen its U.S. operations, as and when approved by the federal agency. For the company, the acquisition is in line with its strategy of expanding its presence in the U.S. generics market and focusing on difficult-to-manufacture generics. The acquisition is funded out of Sun Pharma's available cash and marketable securities of over Rs18 bn.

According to CRISIL, the rating continues to reflect Sun Pharma's dominant position in the fast-growing therapeutic segments such as cardiovascular, diabetes, and gynaecology in the domestic market, as well as its growing presence in the international generics markets. It also reflects on the company's strong profitability. The company has reported operating profits of 38 per cent, and net profit margins of over 30 per cent, in the last three years.

Sun Pharma's rating strengths, according to CRISIL, are offset to an extent by the company's high gearing of 1.98 times as at March 31, 2005 (up from 0.27 times as at March 31, 2003), resulting from its large US $350 million foreign currency convertible bonds (FCCB) issue in November 2004. The company also remains exposed to growing competition in the global generics markets, and increasing exposure to the legal and regulatory risks therein, the agency said.

For the year ended March 31, 2005, Sun Pharma reported a profit after tax of Rs4 billion (Rs.3.31 billion in the previous year) on the net sales of Rs11.4 billion (Rs9.5 billion). For the half year ended September 30, 2005, Sun Pharma reported a net profit of Rs2.87 billion (Rs1.95 billion in the previous corresponding period) on net sales of Rs8.2 billion (Rs5.9 billion).