The credit rating of Pharmforward LLC (hereinafter, the Company, or Pharmforward) is based on the Company’s medium assessments of market position, corporate governance, liquidity, and profitability, as well as low assessments of business size, cash flow, and coverage. The rating is supported by the strong business profile and low leverage.
Pharmforward LLC is a pharmaceutical distributor that operates in the Russian pharmaceuticals procurement market. The Company ranks seventh in the anti-cancer segment and second in the radiocontrast agents segment.
KEY ASSESSMENT FACTORS
Medium operational risk profile amid very high industry risk. ACRA assesses the underlying risk of the entire wholesale trade sector as very high, given the strong cyclical nature and volatility of sales, as well as low entry barriers in comparison with other industries. Nonetheless, the cyclical demand for pharmaceutical products and barriers to entry the pharmaceutical distribution market are assessed by ACRA as very high, which is reflected in the very strong assessment of the Company’s business profile.
The medium assessment of the operational risk profile is determined by the medium assessment of market position (the Company is not among top distributors in term of total sales, but it holds leading positions in certain segments), strong business profile, medium geographical diversification (due to the absence of exports), and medium level of corporate governance.
The Company's strategy involves a consistent expansion of the market share of budget purchases of medicines, growing diversification of the product portfolio with a focus on certain nosologies, and reducing the share of sales to secondary distributors, which will further increase the Company’s revenue and profitability. The significant role of the sole beneficiary in the day-to-day management has a constraining effect on the assessment of the level of corporate governance. The Company prepares RAS accounting statements only, so that the financial transparency is assessed as low.
Low leverage and low interest coverage. According to ACRA’s estimates, the weighted average ratio of long-term debt to FFO before fixed charges for 2021–2026 is 2.0x, the weighted average ratio of short-term debt to revenue for the same period is 0.05x, and the weighted average ratio of total debt to FFO before net interest for 2021–2026 is less than 3.0x (and it is expected to decline in the future). The estimated weighted average ratio of FFO before net interest to interest for 2021–2026 is 1.6x.
Below medium size of business and medium profitability. The weighted average FFO before interest and taxes margin for 2021–2026 is estimated by ACRA at 5.1%. In 2023, the Company’s sales volume amounted to RUB 17.5 bln. Taking into account the Company’s sales in 9M 2024, the Agency expects that this year the sales volume will grow by over 30%, and the annual average revenue growth will be about 7% in 2025–2027. The weighted average FFO before interest and taxes for 2021–2026 is estimated by ACRA at RUB 1.08 bln.
Medium liquidity assessment and weak cash flow. According to the Agency’s estimates, the weighted average FCF margin for 2021–2026 is -0.6%. The weak cash flow assessment is mostly associated with the need to replenish working capital in 2024 amid a strong growth of sales. In addition, crisis phenomena observed on the market in 2022 resulted in a significant increase in the net working capital, but as early as in 2023 the situation improved and the Company’s free cash flow entered the positive area. The Company’s liquidity is supported by the amount of undrawn credit lines high enough to refinance the debt.
KEY ASSUMPTIONS
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The Company’s revenue growing by over 30% in 2024 and by 7% annually in 2025–2027.
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Conservative dividend policy that does not lead to a growth of leverage.
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Absence of market changes able to hamper supplies and/or purchases of pharmaceuticals.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Weighted average ratio of FFO before net interest to interest exceeding 2.5x and the FCF margin entering the positive area.
A negative rating action may be prompted by:
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Weighted average ratio of short-term debt to revenue exceeding 0.2x and weighted average ratio of long-term debt to FFO before fixed charges sustainably above 1.0x;
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Weighted ratio of FFO before net interest to interest falling below 1.0x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb+.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Pharmforward LLC under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of Pharmforward LLC was published by ACRA for the first time on October 30, 2023. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Pharmforward LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and Pharmforward LLC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Pharmforward LLC. No conflicts of interest were discovered in the course of credit rating assignment.
