| Auro Laboratories Limited | ||||||
| Ratings downgraded to 'CRISIL BB+/Stable/CRISIL A4+' | ||||||
| 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 downgraded its ratings on the bank facilities of Auro Laboratories Limited (ALL) to ‘CRISIL BB+/Stable/CRISIL A4+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.
The downgrade in the rating reflects the stretch in the liquidity profile of the company driven by limited sales during first half of fiscal 2025 amid delay in ongoing capex and stretched receivables leading to high dependence on bank limits. The company’s existing operations has currently been halted due to integration of the unit with new capacity leading to Rs 8 crores of turnover in H1 of fiscal 2025. While revenues should bounce back with the unit now expected to commence operations by December 2024, the existing debtor realisation from overseas customers has seen a stretch weakening the overall liquidity profile with full utilisation of its bank lines. Timely realization of the debtors, commencement of operations in the new unit and effective management of its increasing working capital requirement amid ramp up of additional capacities remains a key monitorable.
The ratings continue to reflect the extensive experience of the promoters in the pharmaceutical industry, strong customer base and its moderate financial risk profile. These strengths are partially offset by the large working capital requirement, moderate scale of operation amid intense competition and product concentration in revenue. |
Analytical Approach While arriving at the ratings CRISIL Ratings has evaluated the standalone business and financial risk profile of the company. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the promoters: The three decades of experience of the promoters in the pharmaceutical industry along with support of professionally qualified secondary level management, their in-depth understanding of market dynamics and strong relationships with suppliers and customers in India and abroad should continue to support the business. The company has also been diversifying its operations with expansion into new products through capital expenditure.
Strong customer base: Serving wide geographies has helped expand sales to customers across various countries. The company has large client base and has diversified its geographically presence across various countries such as Egypt, Germany, Malaysia, Singapore, South Africa, Brazil, Spain and countries in the United Kingdom accounts for 70-75% revenues, while the remaining comes from the domestic market thereby reducing its geographical concentration risk.
Moderate financial risk profile: Net worth remained moderate at Rs.41 crore as on March 31, 2024 (Rs 37 crores a year ago). ALL’s capital structure have been at healthy level due to moderate reliance on external funds yielding gearing of 0.63 times and moderate total outside liabilities to adj net worth (TOL/ANW) of 1.01 for year ending on 31st March 2024 largely driven by the debt funded capital expenditure being undertaken by the company. ALL debt protection measures have also been at healthy level due to healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are at 16.5 times and 0.34 times for fiscal 2024. With the debt funded capex and increase in the interest cost while maintaining healthy profitability the debt protection measure should remain at average levels.
Weaknesses: Modest scale of operation amid intense competition and volatile operating margins: Despite growth, scale of operation remains modest with revenue of Rs 53 crore in fiscal 2024. The pharmaceutical industry is highly competitive, which constrains sizeable growth and restricts bargaining power with customers and suppliers, and benefits accruing from economies of scale. Furthermore, With the ongoing capital expenditure and the existing manufacturing unit being shut due to the integration with the new unit, the company has achieved only Rs 8 crores in H1 of fiscal 2025 with an estimation to have at par revenues as compared to fiscal 2024 in fiscal 2025 largely driven by the commissioning of the plant in the Q4 of fiscal 2025 and the catering to the orders in hand. Further the operating margins have been volatile between 10-23% over the last 3 fiscal years ended March 31,2024 on account of sharp increase in freight charges and raw material prices and delays in passing on the same to its customers. Stability and growth in the scale of operations post the commissioning of the capex and sustaining healthy operating margins will be monitorable.
Product concentration in revenue: Nearly 80% of the revenue is derived through Metformin HCL (an active pharmaceutical ingredient). Hence, a slowdown in demand or price reduction due to replacement products or regulatory interventions may impact the business significantly. Product concentration in revenue is likely to be reduced with the expected addition of more products post the commissioning of the manufacturing plant once the integration of the existing unit is completed with the new unit. Hence, diversification of product profile and revenue growth will remain key monitorable.
Large working capital requirement: Gross current assets (GCAs) were sizeable at 195 days, as on March 31, 2024 (Although improved from 242 days as on March 31, 2023), due to receivables of around 93 days, high other current assets, and high inventory of 72 days. Open credit of 60-90 days is offered to major clients. Payables of 60-120 days support working capital. The debtors has seen a stretch in the current fiscal year FY 2025 leading to high dependence on bank lines. The management of working capital amid increasing scale of operations with ramp up of enhanced capacities will remain a key monitorable over the medium term. |
Liquidity: Stretched Bank limit utilization is high which averaged at 95% for the past six months ended October 2024. Cash accruals are expected to be over Rs. Rs 2 in fiscal 2025 against debt repayment of Rs 0.14 crores. With operations restarting in the new unit, cash accruals should improve to over Rs 10 crores against term loan obligation of Rs 2.4 crores in fiscal 2026. Current ratio is healthy at 1.31 times on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. The company has a cash and bank balance of Rs.0.6 crore as on September 30, 2024. |
Outlook: Stable CRISIL Ratings believe ALL will continue to benefit from the extensive experience of its promoter, and established relationships with clients. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Company Incorporated in 1989 by Mr Sharat Deorah and Mr Siddhartha Deorah, ALL manufactures APIs, majorly Metformin HCL. It is listed on the Bombay Stock Exchange. Its facility is located in Tarapur, Maharashtra. |
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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Criteria Details
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