| Aarti Drugs Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the bank facilities of Aarti Drugs Limited (ADL, part of Aarti group) at 'CRISIL AA-/Stable/CRISIL A1+’.
The ratings continue to reflect Aarti group’s established market position in the active pharmaceutical ingredients (APIs) business, sound operating efficiencies and strong financial risk profile. These strengths are partially offset by working capital intensive nature of operations and susceptibility of operating margin to fluctuations in raw material prices, intense competition, and regulatory risks. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of ADL and its wholly owned subsidiary, Pinnacle Life Science Pvt Ltd (PLSPL; Rated 'CRISIL A/Stable/CRISIL A1'), herein after referred to as the Aarti group, as there are operational and financial linkages between these entities.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Aarti Group is one of the leading manufacturers of APIs in India, operating in over 12 therapeutic segments with expertise in the antibiotic and antidiarrheal segments with increasing focus on the anti-protozol, antifungal and antidiabetic segments. Group is in process of adding new product capacities as well as enhancing existing capacities. ADL has a diversified customer base with presence in domestic as well as export markets. Group has reported revenue of around Rs 2489 crore in fiscal 2022 against Rs 2155 crore in fiscal 2020.
Aarti group has healthy operating efficiencies supported by high economies of scale and enhanced level of backward and forward integrations for key products and research and development capabilities, which help develop new products and improve processes to optimize costs. While operating margin was impacted in fiscal 2022 on account of sharp raw material price movement, operating margin are expected to remain steady at around 16-17 percent levels over the medium term.
Total outside liabilities to adjusted networth of sub 0.3 time on a healthy networth base of Rs 1036 crore represents healthy capital structure. Further, debt protection metrics is robust indicated by interest coverage and net cash accrual to adjusted debt ratios at 16.4 times and 0.5 times, respectively, in fiscal 2022. Financial risk profile is expected to be maintained over the medium term despite debt funded capex supported by Aarti group management’s conservative policy towards debt and expected improvement in operating performance.
Weaknesses:
Operations are working capital intensive indicated by gross current assets in range of remain high at gross current asset day (GCA) of 180-200 days over past 3 years through March 31, 2022. Debtors have been in range of 90-110 days and inventory in range of 70-90 days during this period. As a result, majority of the accretions are utilised towards working capital and capital expenditure requirements of the group.
Although group has ability to pass on increase in raw material prices to its customers, Group’s operating margin is susceptible to sharp changes in raw material prices as seen during fiscal 2022. Further, majority of raw material is imported from China which exposes group to geo-political risks. While group has found alternate procurement sources for some raw materials; meaningful diversification of raw material procurement from non-Chinese suppliers would be monitorable going ahead.
Further, the bulk drugs industry is highly competitive due to presence of numerous domestic as well as global players, which exerts pricing pressure on individual entities. This necessitates the group to remain cost competitive to maintain profitability. Indian players, including ADL, also face challenges from increase in inspections and regulatory actions by authorities such as the US Food and Drug Administration (FDA). |
Liquidity Strong Aarti Group has strong liquidity driven by expected cash accruals of Rs 300 crore per annum over medium term and unencumbered cash and cash equivalents of Rs 22 crore as on March 31, 2022. Company’s fund-based bank limits were utilized at an average of 63% over last 12 months ended March 2022. The company has long term repayment obligation of around Rs 60 crore and capex of around Rs 200-250 crore per annum over medium term. The liquidity is further supported by unsecured loans extended by the promoters. This funding support is expected to continue over the medium term. CRISIL Ratings believes group's net cash accruals, unutilized bank limits and cash and cash equivalents will be sufficient to fund its incremental working capital, debt repayment and capex requirements over the medium term. |
Outlook: Stable CRISIL Ratings believes the Aarti groups’ business risk profile will continue to improve over the medium term backed by good growth prospects for its products. This will help in gradual improvement in utilization of capacities to be added and in maintaining operation margin. |
Rating Sensitivity factors Upward factors
|
About the Group ADL, incorporated in 1984, manufactures APIs, formulations, advance intermediates, and specialty chemicals; APIs contribute almost 80% to the total revenue. ADL has 11 manufacturing facilities certified under good manufacturing practices in Maharashtra and Gujarat. The company operates in over 90 countries. It is listed on the Bombay Stock Exchange and National Stock Exchange.
PLSPL, incorporated in 2003, manufactures and packages pharmaceutical formulations. ADL acquired PLSPL in September 2014, making it a wholly own subsidiary. PLSPL recommenced commercial operations in December 2014. Most of its requirement of active pharmaceutical ingredients (APIs) is met by ADL. |
Key Financial Indicators (Consolidated)
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 27-Jul-22 in line with the lender-wise facility details as on 08-Sep-21 received from the rated entity.
Criteria Details
|