Investing.com -- S&P Global Ratings has downgraded the credit rating of Brazil-based pharmaceutical company Hypera S.A. to ’BB’ from ’BB+’ due to higher-than-expected leverage. The credit rating agency also lowered the company’s Brazil national scale issuer credit and issue ratings to ’brAA+’ from ’brAAA’. Despite this, the outlook for the company remains stable.
Hypera reported a net revenue of R$7.4 billion, adjusted EBITDA of R$2.1 billion, and adjusted debt to EBITDA of 4.0x in the 12 months that ended in December 2024. The company’s profitability has decreased due to changes in its working capital policy, leading to the expectation that adjusted debt to EBITDA will remain above 3.0x over the next 12 months.
The company has been facing macroeconomic challenges that could pose risks to its strategy over the next two years. However, these risks could be partially offset by operating cash flow. Hypera has announced its plans to optimize working capital by reducing the payment term policy granted to customers. This strategy, aimed at increasing operating cash generation, is expected to yield an increase of R$2.5 billion by 2028 and R$7.5 billion over the next 10 years.
In the fourth quarter of 2024, Hypera experienced a quarterly drop of 18.2% in net revenue and 74.6% in EBITDA from continuing operations. Compared to the previous year, net revenue and EBITDA from continuing operations fell by 6% and 23.8% respectively. This resulted in a higher leverage than expected, with the company reporting adjusted debt to EBITDA of 4.0x, compared to the previously forecasted 2.7x by the end of 2024.
Hypera expects that by the end of the working capital optimization in 2025, its product stocks with customers will reach levels commensurate with the overall pharmaceutical industry in Brazil. Despite macroeconomic challenges such as rising interest rates, high inflation, and weakening GDP growth, the company projects revenue of R$8 billion-R$10 billion and EBITDA of R$3 billion over the next two years, with margins of 26% in 2025 and 34% in 2026.
Hypera’s strong cash flow is expected to partially mitigate its exposure to short-term obligations and higher leverage. The company has consistently generated satisfactory cash flow and has managed its liabilities prudently. It is expected to continue to honor its obligations and related interest expenses, and gradually increase adjusted operating cash flow in relation to debt to 28%-30% in 2025 and 2026.
The company’s robust brand portfolio is expected to help balance its higher leverage. The leverage is expected to gradually decrease over the next few years as the company focuses on completing the working capital optimization and improving the research and development pipeline. The adjusted net debt to EBITDA is expected to be around 3.4x at the end of 2025, and then fall to 2.1x in 2026.
The stable outlook reflects S&P Global Ratings’ expectation that Hypera will recover its credit metrics slowly, alongside more conservative liability management, which will keep its liquidity comfortable in the coming years. The reorganization of the company’s working capital is expected to strengthen its cash generation and reduce its adjusted leverage, with adjusted debt to EBITDA of 3.4x at the end of 2025 and closer to 2.0x from 2026 on.
S&P Global Ratings could downgrade Hypera in the next 12 months if the company’s credit metrics weaken and it fails to deliver the expected recovery in EBITDA and leverage. Conversely, an upgrade could occur if there is a faster-than-expected drop in leverage and accelerated EBITDA growth, with the company maintaining its conservative approach to debt.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.