Glenmark Pharma share jumps over 6% as S&P Global upgrades rating from 'stable' to 'positive'

Shares of Glenmark Pharmaceutical jumped over 6 per cent touching the day's high at Rs 827.90 apiece on BSE on Friday, September 29. The buying interest in the stock came after S&P revised the company's outlook from 'stable' to 'positive'. 

Last seen, shares of Glenmark Pharma traded 5.17 per cent higher at Rs 818.20 apiece. The market capitalisation of the company stood at around Rs 23,127 crore. The stock continued its rally for the third consecutive session. 

The credit rating agency, S&P Global is bullish on the company after it announced the divestment of a 75 per cent stake in its subsidiary, Glenmark Life Sciences. The 75 per cent stake will be sold to Nirma at the price of Rs 615 per share. The stock closed 9.88 per cent at Rs 854.8 apiece.

"The positive outlook on Glenmark reflects our expectation that the company will significantly reduce debt on completion of the Glenmark Life Sciences sale and maintain healthy earnings. It also reflects our view that the debt reduction will more than offset the company's weakened business position, following the divestment," the S&P Global's report read.

Why did S&P upgrade the outlook?

According to the report, the company will use the proceeds from the sale to repay the loan which will help improve the company's financial position. 

Further, in the short term, the disinvestment in Glenmark Life Sciences will have little impact on earnings. But it is expected to grow by 15-16 per cent in the next four to six months. The credit rating agency has also given a strong growth forecast for generic business. 

Meanwhile, Earnings Before Interest, Taxes, Depreciation, and Amortization or EBITDA margin is expected to stabilise at 18 per cent by FY25 

If the Funds from Operations (FFO)-to-debt ratio goes above 45 per cent, S&P will upgrade the company's rating which is currently 'BB'. 

Glenmark Pharma's management commentary 

The company's aim is to keep the net cash positive for the next two years. According to the management, the return ratio will improve from now on. 

According to Zee Business research, the company has cash and investments of about Rs 1,500 crore and it will be debt-free after the deal at a net level. For net debt reduction, the company will have to spend around Rs 4,200.

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