High Short-term Debt: GCR Downgrades Mecure Industries Rating
GCR Ratings (GCR) has downgraded Mecure Industries Plc’s national scale long-term and short-term issuer ratings to BBB (NG) and A3(NG) from BBB+(NG) and A2(NG), respectively.
Concurrently, GCR also downgraded the long-term issue rating of Mecure Industries Funding SPV Plc’s NGN3Bn Series 1 Senior Secured Bond to BBB(NG)(EL) from BBB+(NG)(EL).
The outlook on the ratings has been revised to negative from stable previously, GCR said, adding that the downgrade of Mecure Industries Plc’s ratings reflects the marked deterioration in its liquidity profile due to the high short-term debt accumulation to finance expanded working capital requirements.
The rating note revealed MeCure’s leverage metrics have remained weak amid higher finance costs and the elevated operational needs.
“We have revised the outlook to negative, reflecting the potential for a further downgrade of the ratings should the planned equity raise intended to significantly reduce near-term debt obligations, fail to materialise or be substantially undersubscribed”.
The rating note highlighted that GCR has negatively adjusted Mecure’s liquidity profile to reflect the persistently weak coverage resulting from elevated working capital financing, with short-term debt rising to NGN28.3 billion against a low cash balance of NGN1.5 billion as of 31 March 2025.
GCR said despite factoring in projected improvements in operating cash flows (OCF) of about NGN5.8 billion, a portion of inventory holdings (haircut at 40%), and committed revolving credit facilities amounting to NGN8.9 billion as of May 2025, the uses versus sources liquidity metric remained below 1.0x over a nine to 21 months period.
The company’s capital investment is expected to remain modest over the medium term considering the recent completion of production plant renovations and expansion.
GCR notes the company’s plan to raise up to NGN30 billion through an initial public offering in 2026, aimed at improving the capital structure.
Ratings analysts said proceeds from the offerings are expected to be directed toward reducing the high near-maturing debt and support working capital funding.
Accordingly, any improvement in liquidity coverage in the near term is contingent on the successful execution of the equity raise.
Over the review period, Mecure reported a solid topline performance, achieving a five-year cumulative average growth rate (CAGR) of 27% in 2024.
Revenue grew by 44.9% to NGN46.0 billion or USD29.9 million in the financial year ended 31 December 2024, driven by volume growth, inflation-driven price adjustments, the introduction of new formulations, and expanded production capacity.
This was sustained into the three-month period to 31 March 2025, with revenue rising by an annualised rate of 15.5% to NGN13.3 billion.
On the other hand, the earnings before interest tax depreciation and amortisation (EBITDA) margin declined slightly to 24.7% in 2024 from 26.1% in 2023, reflecting pressure from heightened foreign currency volatility and the resultant effect on imported inputs and operating costs.
However, increased volumes of margin-enhancing products and ongoing cost optimisation supported a recovery in the EBITDA margin to 27.5% in Q1 2025.
GCR Ratings forecast revenue growth of 40% over the outlook period, driven by increased capacity utilisation, rising sales volumes, and incremental contributions from export sales and new contract manufacturing arrangements.
Further, the EBITDA margin is projected to remain strong at around 27% over the next 21 months, supported by increased contributions of margin-safe ethical medicines, sustained cost management, improved scale efficiency and cost savings from removal of VAT and import duties on drugs.
MeCure’s leverage and capital structure remains a major ratings constraint due to the elevated debt level and rising working capital pressures, GCR said.
Over the past five years, the company’s gross debt has more than tripled, reaching NGN39.9 billion in Q1 2025, it was at NGN36.2 billion in 2024, related to business expansion and corresponding increase in working capital requirement.
In this regard, net debt to EBITDA weakened to 3.2x in 2024 before improving to 2.6x in Q1 2025, (2023: 3.0x), supported by a rebound in earnings.
Net interest coverage registered at 2x in 2024 and Q1 2025 (2023: 3.5x) on account of higher finance costs arising from costly short-term loans given the higher interest rate environment.
Also, OCF has been volatile, with a low coverage of gross debt at 11.4% in 2024 (2023: 19.4%) due to heightened working capital requirements. Barring further debt accumulation, we expect sustained recovery in earnings to support firmer gearing metrics over the next 12 to 18 months.
Mecure’s business profile remains a positive rating factor. This is supported by a diversified portfolio of over 140 product offerings across nine therapeutic classes, with a strategic focus on the margin-enhancing ethical medicine segment.
“Its competitive position is further underpinned by its nationwide network of about 100 distributors, as well as long-standing relationships with suppliers and foreign technical partners, which facilitates supply chain security, product development, and modern manufacturing practices.
“Bolstered by expanding scale, the company aims to increase market penetration through new product introductions, competitive pricing strategy, contract manufacturing arrangements, and growing export activity. These initiatives are expected to strengthen its competitive stance over the review period”.
Mecure Industries Funding SPV Plc, a special purpose vehicle incorporated by Mecure in October 2020 to raise debt finance through bond issuances for Mecure Industries Plc – the Sponsor.
In March 2021, the Issuer raised NGN3Bn in Series 1 bonds under a NGN20Bn Bond Issuance Programme registered with the Securities and Exchange Commission.
As of 31 March 2025, the outstanding principal balance was NGN889.8 million. The rating accorded to Mecure SPV Series 1 Secured Bond is obtained by applying a notching-up approach, starting from the long-term Issuer rating of the Sponsor.
The notching approach involves an assessment of the stressed estimated recovery rate expected from a forced sale value of the assets that serve as security for the Issuer’s outstanding bond obligation in the event that the Issuer is in default.
The stressed recovery rate was estimated at 27% in 2025 (2024: 35%). As such, the long-term rating of the bond is equivalent to the Sponsor’s national scale long-term corporate rating, as the current recovery rate does not qualify for any uplift. “We have reviewed the Trustees’ bond performance report dated 10 April 2025, and no breach was identified”.
The negative outlook reflects GCR’s expectation that the ratings could face further downward pressure if OCF remains negative from intense working capital absorption, and liquidity coverage stays below 1x due to increased reliance on short-term debt funding, especially if the proposed equity raise does not materialise or meet expectations. #High Short-term Debt: GCR Downgrades Mecure Industries Rating#
