India Ratings & Research (Ind-Ra) has said that Cipla's ratings are unlikely to affected by the recent cash-rich acquisitions of the two US-based companies for USD 550 mn. The current ratings of the company is assigned as 'IND AAA'/Stable.

By the way of acquisition, Cipla expects operational synergies accruing on account of this transaction to be reflected in therapy and product diversification, scaling-up of revenue, high profitability (acquired business generating EBIDTA margin of 25%) and negligible debt levels of the acquired entity.

The acquisition of InvaGen is likely to provide Cipla access to a round 40 approved abbreviated new drug filings, 32 marketed products and a pipeline of 30 products which are to be approved over the next four years. In addition, InvaGen has filed five first-to-file products which represent a market size of around USD 8 bn in revenue by 2018.

The acquisition is also likely to provide Cipla access to large wholesalers and retailers in the US. InvaGen has three units located in Long Island, New York, with a total annual production capacity of 12 billion tablets and capsules and about 500 employees. The acquisition of Exelan Pharmaceuticals will provide Cipla access to the government and institutional market in the US.

The rating agency expects the acquisitions to be funded by a mix of internal accruals, existing cash balances and debt. It expects Cipla's net leverage i.e adjusted net debt/EBIDTA to increase but remain commensurate with the existing ratings.

The benefits accruing on account of the to be acquired companies net leverage being lower than Cipla's given their nil debt levels and higher EBIDTA margins are likely to be offset by the debt assumed for the acquisition. At FY15E, Cipla reported net leverage of 1.2x (FY14: 1.2x) and interest coverage (EBIDTA/interest) of 13.1x (15.4x).