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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 200.00 | ACUITE AA- | Stable | Downgraded | - |
| Total Outstanding | 200.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has downgraded its long-term rating to ‘ACUITE AA-’ (read as ACUITE double A minus) from ‘ACUITE AA’ (read as ACUITE double A) on the Rs. 200.00 Cr. bank facilities of Sun Pharma Advanced Research Company Limited (SPARC). The outlook is 'Stable'.
Rationale for the rating downgrade The rating downgrade reflects deterioration in the operating performance of SPARC by way of decline in license fees, royalty income and setback failure of Proseek study. However, the rating draws strength from SPARC’s experienced management, comfortable R&D pipeline and parent support from Shanghvi Finance Private Limited (SFPL) in the form of corporate guarantee and financial support. SPARC is a part of the Sun Pharma Group (SPG) headed by Mr. Dilip Shanghvi. Mr. Shanghvi also holds directorship position in SPARC. The rating also draws comfort from business synergies SPARC has with Sun Pharmaceutical Industries Limited (SPIL) – flagship of SPG. The above-mentioned strengths are also partly offset by long gestation periods and capital-intensive nature of drug research and development process, Continued support from promoters, timely commercialization of key products under development and further deterioration in the operating performance or regulatory setback would remain key rating sensitivity factors for SPARC. |
| About the Company |
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SPARC with its corporate office in Mumbai is a clinical stage bio-pharmaceutical company and is part of the Sun Pharma Group. It was incorporated in 2006 when the innovative product group was carved out of Sun Pharmaceutical Industries Limited (SPIL). It is primarily engaged in pharmaceutical research and development activity and earn its revenue from license fee / royalty on technology / R&D services. It undertakes research in the field of Oncology, Neuro Degeneration, Ophthalmology and Dermatology. It has its office in Mumbai (India) and New Jersey (USA) along with R&D centers at Mumbai and Vadodara (India). Mr. Dilip Shanghvi is the Chairman of the entity and Mr. Anil Raghavan is the CEO. The promoters of the company hold 65.67 percent in SPARC which includes Shanghvi Finance Private Limited (SFPL) with 42.28 percent, Mr. Dilip Shantilal Shanghvi with 19.05 percent and the rest are from other family members as on 31st December 2024. SFPL is also the holding company for SG’s flagship company Sun Pharmaceutical Industries Limited (SPIL) and SFPL currently holds ~40 percent in SPIL as on 31st December 2024.
About Shanghvi Finance Private Limited Shanghvi Finance Private Limited (SFPL) is an investing company of the promoter family. It has been listed as promoter entity as per the disclosures on the stock exchange. SFPL currently holds 40.30 per cent of the total shareholding of Sun Pharma Industries Limited (SPIL) as on 31st December, 2024 and also holds 42.28 per cent in SPARC as on 31st December 2024. The rated bank facilities of SPARC have been secured by corporate guarantee of SFPL. |
| About the Group |
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The company has one Wholly Owned Subsidiary namely SPARCLIFE Inc. incorporated at Delaware, USA on September 25, 2023. It is also primarily engaged in facilitating pharmaceutical research and development activity.
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| Unsupported Rating |
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ACUITE BB/Stable (Downgraded from Acuite BB+/Stable)
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| Analytical Approach |
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered consolidated financial and business risk profile of SPARC to arrive at the rating. The entities consolidated include SPARC along with its wholly owned subsidiary Sparclife Inc. Acuité has also factored in the benefits accrued to SPARC for being a part of Sun Pharma group and financial support SPARC received from Shanghvi Finance Private Limited (SFPL) on account of the Corporate Guarantee and line of credit extended by the later.
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| Key Rating Drivers |
| Strengths |
| Extensive experience and established track record in Pharma R&D
SPARC operates in a segment which is highly technical, and which requires high technical competency. SPARC’s senior management has extensive experience in the relevant field, and it is also supported by experienced scientific advisory board. Currently Mr. Dilip Shanghvi is the Chairman. He is supported by a highly qualified and experienced senior management team. Mr. Anil Raghavan is the CEO and has an experience of over two decades in the pharmaceutical industry. The rest of the senior management team also have extensive experience in the pharmaceutical industry working in past for companies such as Merck, Sanofi-Aventis, Glaxo Smith Kline and Dr. Reddy’s amongst others. The team is also supported by a scientific advisory board consisting of experienced professors from leading medical education institutions across the globe. Acuité believes that SPARC will derive benefits from its established track record and experienced management in the pharmaceutical industry. Comfortable R&D pipeline and synergies with SPIL SPARC is engaged in research & development activity and generate their revenue primarily from license fee, royalty on technology and R&D services. It has undertaken research in the field of Oncology, Immunology, Neuro Degeneration, Ophthalmology and Dermatology. It currently has a comfortable R&D pipeline with 7 products at various stages of development, these target Alopesia Areata, Psoriasis, Atopic Dermatitis , glaucoma, different kinds of cancer. Besides these it has more than 10+ assets under development. SPARC currently looks at developing NCE (New Chemical Entities) and New Biological Entities (NBEs). The company has completely transitioned into NCE and NBEs from NDDS (New Drug Delivery Systems) and started commercializing them at various location such as US, India and RoW as NCEs have higher revenue potential. As the product progresses towards the end of its development process SPARC licenses the same with various pharmaceutical companies. It regularly partners with SPIL - its group company which has a robust presence in the overseas market along with other pharmaceutical companies. Also, SPARC and UCSF (University of California San Francisco) have signed binding Letter of Intent(LoI) with Tiller Therapeutics Inc.(Tiller) granting exclusive worldwide license to Tiller for preclinical oncology asset along with associated IP. Upon grant of license, SPARC will receive 55% equity stake in the fully diluted securities of Tiller. SPIL is one of the leading listed pharmaceutical companies in India with consolidated revenues of was Rs.48,496.85 Cr. on which it posted a net profit of Rs. 9,610.03 Cr. in FY24 as against Rs 43,885.68 Cr. and Rs 8,512.94 Cr. for FY23 respectively. The company has a presence in about 100 countries SPIL is the largest Pharmaceutical Company in India and 13th Largest Generic Pharmaceutical Company in US as on March -24. Its investor base includes leading domestic and foreign institutional investors. The Promoter Group hold ~54.48 per cent 31st December 2024. Out of the promoter holding, Shanghvi Finance Private Limited holds ~40.30 per cent and balance ~14.18 percent is held by promoter group in individual capacity and through other entities. It has presence in specialty medications for ophthalmology, dermatology and oncology, in generic medications for psychiatry, anti-infective, neurology, cardiology, orthopaedic, diabetology, gastroenterology, ophthalmology, nephrology, urology, dermatology, gynaecology, respiratory, oncology. |
| Weaknesses |
| Deterioration in the operating performance of SPARC
SPARC reported deterioration in operating performance and increase in losses where revenue and operating loss stood at Rs.75.55 Cr. and Rs.387.22 Cr. in FY24 as against Rs. 238.78 Cr. and Rs.222.58 Cr. in FY23 respectively. Deterioration in operating performance and increase in losses further continued during 9MFY2025 where revenue stood at Rs 44.58 Cr. and losses at Rs 282.74 Cr. as against Rs 58.99 Cr. and Rs 281.42 Cr. in 9MFY2024. The deterioration in operating performance is on account of decline in license fees, royalty income and setback failure of Proseek study for Parkinson disease. Long gestation period for return on investments, high capital investment requirement and susceptibility regulatory environment SPARC is a clinical stage bio-pharmaceutical company which undertakes pre-clinical and clinical stage research and development. Drug development process involves long gestation periods with constant investments. Heavy costs must be incurred to carry out research, conduct clinical trials and compensate a highly qualified work force every year. However, the major payouts come when a product is near commercialization and a licensing agreement is signed. There is an inherent mismatch of cash flows in the R&D segment. SPARC has some regular revenues which it earns as royalty and fees for carrying out research activities. The long gestation periods and highly capital-intensive operations necessitates periodic capital infusion. The company also faces significant regulatory risks. Since it is engaged in new drug development it must adhere to a stringent compliance and regulatory environment. Costs incurred on products under development for a long time may get impacted by any adverse regulatory action. However, this is mitigated to some extent on account of the strong support and resource mobilization ability of the promoters. Acuité believes, augmentation of timely resources, completion of product development without significant time overruns or regulatory setbacks will remain a key monitorable. Moderate average financial risk profile The financial risk profile of the company is marked by below average net worth, low gearing and average debt protection metrics. The tangible net worth stood at Rs. 125.57 Cr. as on March 31, 2024 as against Rs. 512.43 Cr. as on March 31, 2023 on account of losses incurred during the year. With losses reported in 9MFY2025, tangible net worth of the company is expected to deteriorate further. SPARC may issue equity at an opportune time to shore up its capital base and to fund its R&D activities. The total debt of the company increased to Rs 61.15 Cr. as on March 31, 2024 as against Rs. 15.68 Cr. as on March 31, 2023 on account of utilisation of short term borrowings. Based on that gearing (debt to equity) increased which stood at 0.49 times as on March 31, 2024 as against 0.03 times as on March 31, 2023. Acuité expects the financial risk profile to moderate over the medium term on account of increase in losses. |
| Assessment of Adequacy of Credit Enhancement under various scenarios including stress scenarios (applicable for ratings factoring specified support considerations with or without the “CE” suffix) |
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Assessment of Adequacy of Credit Enhancement
Corporate guarantee for Bank Loan facilities: Shanghvi Finance Private Limited has extended a corporate guarantee for the bank loan facilities availed by SPARC. The extended corporate guarantee stands at ~0.20 per cent of net worth of Shanghvi Finance Private Limited as on 31st March 2024, this along with being part of Sun Pharma group helps strengthening the credit profile of the SPARC Stress case Scenario Acuite believes that, given the adequacy of the strategic and financial support by Sun Pharma group as well as by parent Shanghavi Finance in the form of Corporate guarantee, SPARC will be able to service its debt on time, even in a stress scenario. |
| ESG Factors Relevant for Rating |
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The inherent material risk to the pharmaceutical industry includes releasing toxic greenhouse gases into the atmosphere. Furthermore, air impurities and polluting water bodies by releasing hazardous substances are other key issues. Additionally, efficient water utilization and material sourcing with a green supply chain are few significant problems.
Employee health & safety management are of primary importance to this industry given the nature of operations. Regulations involving product quality, safety testing, monitoring and manufacturing quality, customer welfare and proper product labelling and marketing compliance are material issues. Furthermore, community relations & inclusive development play a significant role. Factors such as ethical business practices, management compensation and board administration hold primary importance within this industry. Likewise, legal and regulatory compliance, corruption and bribery associated with acquiring approvals, permits and licences are material risks. Additionally, shareholder’s rights and audit control are other material issues to the industry. |
| Rating Sensitivities |
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| Liquidity Position |
| Strong |
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SPARC’s operations have of long gestation periods. The company must make significant investments in R&D before returns can be generated from the products. The company has sanctioned bank limits towards funding these requirements to the tune of Rs.175 Cr. The average utilisation of bank facilities in the month of Dec-24 stood at 36 per cent. Also, it has line of credit facilities from its parent company i.e. SFPL to the tune of Rs.250 Cr. as on 31st December 2024. However, these facilities remained utilised ~ Rs 100.00 Cr. as on date. Furthermore, SPARC’s liquidity is supported by strong financial flexibility of the promoters and promoter group. The company is listed on the stock exchanges and has demonstrated ability to raise funds directly from the capital markets. SPARC’s liquidity is expected to remain strong on the back of its ability to access capital markets and strong financial flexibility of the promoters and promoter Group.
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| Outlook: |
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Stable
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| Other Factors affecting Rating |
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None
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| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 75.55 | 238.78 |
| PAT | Rs. Cr. | (387.22) | (222.58) |
| PAT Margin | (%) | (512.56) | (93.22) |
| Total Debt/Tangible Net Worth | Times | 0.49 | 0.03 |
| PBDIT/Interest | Times | (219.89) | (26.61) |
| Status of non-cooperation with previous CRA (if applicable) |
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Not applicable
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| Interaction with Audit Committee anytime in the last 12 months (applicable for rated-listed / proposed to be listed debt securities being reviewed by Acuite) |
| Not applicable |
| Any Other Information |
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None
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| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm |
| Note on complexity levels of the rated instrument |
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | ||||||||
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