Olympus Corp.

The stable rating outlook reflects our view that Olympus Corp. will remain dominant in the gastrointestinal endoscope market despite intensifying global competition. We believe that the company's profitability will improve substantially in fiscal 2021, and will continue to improve moderately in subsequent years thanks to its continued management reforms. We also think it will maintain key financial ratios commensurate with the rating even as it steps up growth investments. We may consider a downgrade if we see a heightened likelihood of either of the following scenarios. Debt to EBITDA staying above 1.5x because of large acquisitions or increased growth investments; or The EBITDA margin staying below 15% because of intensifying competition in its main business fields. We may consider an

...We expect Olympus' performance to remain solid in the next two to three years. Sales of the company's core endoscopes and therapeutic solutions have recovered substantially as hospitals recoup finances that were hurt during the COVID-19 pandemic. Wider use of preventive health care is also likely to boost sales. S&P Global Ratings also expects the company's EBITDA margin to exceed 20% in fiscal 2021 (ending March 31, 2022), up from 16.7% the previous year, and gradually improve thereafter. The sale of unprofitable businesses and reduced costs will underpin the improvement. Olympus is likely to increasingly use its operating cash flow on growth investments, in our view. It stepped up its pursuit of growth by announcing and implementing multiple acquisitions even in fiscal 2020, when it expected weaker profit amid the pandemic. It has also shown a clear emphasis on capital efficiency. We assume in our base-case scenario that Olympus will spend Ñ50 billion-Ñ100 billion annually in the next...

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