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Investing.com -- S&P Global Ratings has upgraded the long-term issuer credit rating of Hikma Pharmaceuticals (OTC:HKMPY) PLC and its $500 million notes due on July 9, 2025, from ’BBB-’ to ’BBB’. This upgrade is a result of the company’s continued strong business momentum, as reflected in its fiscal 2024 results.
Hikma Pharmaceuticals recorded solid performances in fiscal 2024, with broad-based organic revenue growth of 9%. This growth was driven by the launch of over 100 new products which helped counterbalance the expected margin erosion in the U.S. Generics business due to increased royalty payments to Jazz Pharmaceuticals (NASDAQ:JAZZ) PLC.
The company’s broad product portfolio and new launches in the Injectables and Branded businesses, along with recent acquisitions like Xellia Pharmaceuticals’ U.S. assets, have contributed to Hikma’s sustained business momentum. The company also maintains a prudent approach toward discretionary spending and has consistent shareholder remuneration policies.
While Hikma has a significant maturity in the form of its $500 million senior unsecured notes due on July 9, 2025, the company’s liquid assets, including sizable undrawn amounts under its $1.15 billion committed revolving credit facility (RCF) not due until 2029, provide ample coverage.
The stable outlook from S&P Global Ratings is based on the assumption that Hikma will maintain good revenue growth of about 4%-6% annually with stable-to-slightly expanding EBITDA margins of 26%-27%. This should result in annual free operating cash flow (FOCF) of over $200 million and adjusted debt to EBITDA of close to 1.5x in the next 12-24 months.
Hikma’s strong financial position is supported by its resilient 2024 performance with stable year-on-year credit metrics, and a good start to 2025. The company’s organic revenue growth stood at 9% in 2024, exceeding forecasts and the company’s own guidance for revenue growth of about 6%-8%.
Despite the near-term maturity of its outstanding $500 million notes due on July 9, 2025, Hikma has an adequate liquidity position, supported by positive free cash flow prospects, and anticipates timely refinancing of the debt in the coming weeks.
Hikma’s broad product portfolios in its Injectables and Branded franchises, which have recently been strengthened through acquisitions, are expected to help offset challenges in its U.S. Generics business. The company also maintains a solid financial position and conservative balance sheet, with net debt to EBITDA consistently below 2.0x in the past 10 years.
The stable outlook reflects S&P Global Ratings’ view that Hikma is well positioned to maintain good business momentum, withstand possible U.S. trade tariff policy frictions in its U.S.-based supply chain, and offset possible competitive pressures in the U.S. Generics and Injectables businesses. The company is expected to maintain robust revenue growth in the range of 4%-6% with adjusted EBITDA margins of 26%-27% and annual FOCF of over $200 million in the next 12-24 months, translating into adjusted debt to EBITDA of close to 1.5x.
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