| Aarti Pharmalabs Ltd. | ||||
| 'CRISIL A+/Stable' assigned to Bank Debt | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL A+/Stable' rating to the long term bank facilities of Aarti Pharmalabs Ltd. (APL).
The ratings reflect the established market position in the active pharmaceutical ingredients (APIs) business marked by diverse product profile and established customer base, experienced management, healthy profitability driven by integrated unit and strong financial risk profile. These strengths are partially offset by susceptibility to fluctuations in raw material prices, intense competition and regulatory risks and large working capital requirement. |
Key Rating Drivers & Detailed Description Strengths: Established market presence in the Active pharmaceutical ingredients business: APL has diversified product portfolio with more than 125 products in API, intermediaries, Xanthine derivatives and specialty chemicals and products cater to more than 14 therapeutic segments and keeps on developing new products and more than 50 products are under development at any given point of time . APL has 50% of export sales to regions like US, Europe Russia, etc which includes export customers like Liconsa Laboratories, Caribbean Refrescos and domestic customers like Dr Reddy’s laboratories, Zydus Healthcare Ltd, Glenmark pharmaceuticals. Revenues have hence increased to Rs 1300 crores in Fiscal 2022 and it is expected to remain Rs 1500-1550 crores in Fiscal 2023
Experience management: APL’s promoters have been in the pharma industry since more than 35 years. They are technocrats and have extensive technical expertise and experience in projects, operations, process developments, and local and international markets. This has led them to build healthy relation with customers and suppliers.
Healthy operating margins driven by integrated unit: APL has healthy operating profitability in the range of 19-20% which is due to backward integration into manufacturing of intermediates for APIs and strong research and development team.. Going forward with the development of new products and high economies of scale, operating margins are expected to remain in similar range over the medium term.
Strong financial risk profile: APL’s financial risk profile is strong with net worth of Rs 128 crores as on March 31, 2022. With Low reliance on external debt, capital structure has been comfortable with gearing and total outside liabilities to adjusted net worth of 0.25 times and 0.42 times, respectively, as on March 31, 2022. It is expected to remain in the range of 0.2-0.3 times and 0.4-0.5 times over medium term backed by healthy accretion to reserves. Despite debt funded capex of Rs 250-300 crores over the medium term, capital structure is expected to remain healthy over the medium term due to increase in scale of operations and healthy accretion to reserves. Debt protection metrics is healthy with interest coverage and net cash accruals to adjusted debt of 16 times and 0.59 times, respectively, for Fiscal 2022 and expected to remain 10-10.5 times and 0.4-0.5 times for Fiscal 2023. Financial risk profile is expected to remain strong with healthy accretion to reserves and low reliance on external debt.
Weaknesses: Susceptibility to fluctuations in raw material prices, intense competition, and regulatory risks: Although company has ability to pass on increase in raw material prices to its customers, operating margin is susceptible to sharp changes in raw material prices. Further, more than 25% of raw material is imported from China which exposes company to forex risks. Further the API industry industry is highly competitive due to presence of numerous domestic as well as global prices which exerts pricing pressure on individual entities.
Large Working capital requirement: Operations are working capital intensive as reflected in gross current asset days of 245 days as on March 31,2022. APL provides a credit period of 70-90 days to its customers, and it is expected to remain in similar range going forward. Inventory holding is high at around 160 days because of variety of products and high shipping time for imports and exports.. Inventory holding is expected to remain in similar range going forward. Overall operations are expected to remain working capital intensive with Gross current asset days in the range of 240-250 days over the medium term. |
Liquidity: Strong Cash accruals are expected to be Rs 180-200 crores against nil repayment and Rs 8 crores of repayment in Fiscal 2024 and 2025 respectively. In addition, it will be act as cushion to the liquidity of the company.
Bank limits of Rs 375 crores have been utilized to the tune of 73% since the limits were sanctioned in Oct 22.
Cash and cash equivalents stood at Rs 56.5 crores as on March 31, 2022.
Despite the debt funded capex of Rs 250-300 crores over the medium term, with a gearing of 0.25 times s, APL has sufficient gearing headroom, to raise additional debt to meet its capex requirement. Its bank lines are expected to meet its incremental working capital requirements. |
Outlook: Stable CRISIL Ratings believe APL will continue to benefit from the established market position , and established relationships with clients. |
Rating Sensitivity Factors Upward factor * Sustained improvement in scale of operation band sustenance of operating margin above 19%, leading to higher cash accruals * Improvement in working capital cycle and sustenance of financial risk profile
Downward factor * Decline in revenue or operating margin below 15%, leading to lower net cash accrual * Large debt-funded capital expenditure or higher working capital requirement weakens capital structure |
About the Company APL, formerly known as Aarti Organics Ltd) was incorporated 2019 as a wholly owned subsidiary of Aarti Industries Ltd (CRISIL AA/Stable). APL has taken over the existing pharma business of AIL effective July 2021.
APL is engaged into manufacturing of active pharmaceutical ingredients, intermdiates and xanthine derivatives. APL facilities are located at Tarapur and Dombivali (Maharashtra) and Vapi (Gujarat). It is promoted by Gogri family with Mr. Rashesh Gogri as the chairman who looks after the overall business operations of the company. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 21-Feb-2023 in line with the lender-wise facility details as on 21-Feb-2023 received from the rated entity.
Criteria Details
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