Investing.com -- On Wednesday, May 28, 2025, Fitch Ratings upgraded the Long-Term Issuer Default Rating (IDR) of Hikma Pharmaceuticals (OTC: HKMPY ) PLC (Hikma) to ’BBB’ from ’BBB-’, with a stable outlook. The senior unsecured rating on Hikma Finance USA LLC’s USD500 million notes was also upgraded to ’BBB’ from ’BBB-’.
The upgrades reflect Hikma’s maturing business model, which has developed through significant investments in organic and inorganic expansion initiatives over the past decade. This growth has resulted in consistent mid-single digit organic expansion, resilient EBITDA margins, and solid free cash flows, supported by conservative net leverage of less than 1.5x.
The stable outlook is based on Fitch’s expectation that Hikma will maintain its profitable growth, with mid-single digit free cash flow margins and leverage remaining below 1.5x until 2028.
Hikma’s upgrade is due to its maturing and strengthening operations, which balance its small scale relative to peers. The company has made heavy investments over the years, resulting in strong market positions in the US and Middle East and North Africa (MENA) regions. Hikma has achieved scale-driven efficiencies across its three business divisions and maintains EBITDA margins of 26%.
Hikma has evolved into a top three manufacturer by volume in US injectable generics, while also expanding in profitable markets such as Canada and Europe. The company is the second largest pharmaceutical company in the MENA regions.
Fitch expects Hikma to increase in size in the mid-to-high single digit percentages, supported by the continued geographic expansion of the injectables business, the chronic illness portfolio expansion, and the acquisition of 17 new brands from Takeda in its MENA branded division.
Hikma has maintained conservative net leverage since the rating inception in 2020, with well-managed operational expansion and business transformation. Its continuing conservative leverage corresponds to a high investment grade rating category, which, together with its strengthening business risk profile, supports an upgrade to ’BBB’.
Hikma’s operational development across its manufacturing facilities has resulted in strong EBITDA margins of above 25% in the last decade. Fitch projects a defined EBITDA margin of close to 25% in 2025-2026, rising towards 26% by 2028. This will be driven by more R&D investments in the injectables business while the generics business increases its profitability through increased contract manufacturing operations.
Fitch projects that Hikma’s free cash flow margins after dividends will be negative in 2025, due to two litigation settlement payouts in the US amounting to USD165 million, before improving to 3%-5% to 2028.
Hikma operates in select generics markets, which offer structural growth due to an expanding and ageing population with improving access to healthcare. However, these markets are subject to rising regulatory scrutiny and potential pricing pressure.
Fitch rates Hikma under its Rating Navigator Framework for Pharmaceutical Companies. The company’s low leverage is balanced by its small scale, compared with Teva and Fresenius Kabi, and Viatris. Hikma’s overall EBITDA margin in the mid-20% range is higher than the margins of Glenmark and Fresenius SE (ETR: FREG ), in line with Teva’s generic division, though slightly lower than Viatris’s.
Fitch’s key assumptions for Hikma include organic sales growth in the mid-single digits in 2025-2026, EBITDA margin declining slightly below 25% in 2025-2026, and capex plus milestone payments at 6.5%-7.5% of revenue for 2025-2028. Net acquisitions across 2025-2028 are expected to be USD400 million, leading to sales rises of 5.5%-6% a year.
Factors that could lead to a downgrade include EBITDA net leverage above 1.8x on a sustained basis, deterioration of market conditions or competitive position leading to EBITDA margin below 23% on a sustained basis, and free cash flow margin consistently in the low-single digits. Factors that could lead to an upgrade include sustained profitable business expansion across all the divisions, successful execution of its R&D strategy, and EBITDA net leverage below 1.3x on a sustained basis.
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