Detailed Rationale CRISIL Ratings' ratings on the bank facilities of BDH Industries Limited (BDH) continue to reflect the company's established presence in the pharmaceutical formulations and contract-manufacturing business, extensive experience of the management and above-average financial risk profile. These strengths are partially offset by working capital intensive operations, significant customer concentration, modest scale of operations, and exposure to intense competition. |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of the management The five-decade-long experience of the management in the pharmaceutical industry, their strong understanding of market dynamics and healthy relationships with suppliers and customers should continue to support the business. The extensive experience of the management has expanded the operations over the years with revenues increasing to Rs 69.39 crores in fiscal 2022 from Rs 59.48 in fiscal 2020.
Established presence in the pharmaceutical formulations and contract manufacturing business The promoters experience of more than eight decades in the business, established presence in a competitive industry, healthy relationships with various government agencies in different countries and wide product portfolio should continue to support the business. The company has expanded its portfolio to nearly 200 products, which include antimicrobials, vitamins, and minerals and dosages for the treatment of skin-related diseases and other illnesses, such as cancer, malaria, and tuberculosis. Company has long term plans of setting up a new plant to enhance its capacities, however these plans are in its nascent stage.
Above-average financial risk profile Net worth was moderate at Rs 47.25 crore and total outside liabilities to adjusted net worth comfortable at 0.43 time as on March 31, 2022. Debt protection metrics is robust, with interest coverage ratio of 44.22 times in fiscal 2022. Return on capital employed increased to 19.15% in fiscal 2022 from 18.35% in the previous fiscal and is expected to improve further. Financial risk profile is expected to remain moderate over the medium term in the absence any major debt-funded capital expenditure.
Weakness: Significant customer concentration A single customer, IPCA Laboratories Ltd (IPCA), accounted for around 44% of the revenue in fiscal 2022. While BDH's relationship with IPCA is more than a decade old, revenue is dependent on successful orders placed by the client. Customer concentration is expected to persist in future.
Modest scale of operations and exposure to intense competition Intense competition in the formulations market constrains scalability-revenue was a modest Rs 68.55 crore in fiscal 2022. Entry of several cost-competitive domestic players in the industry has resulted in heavy fragmentation, with sizeable presence of the unorganized sector. Scale of operations is expected to remain modest with expected revenues of Rs 68-72 crore over the medium term.
Working Capital intensive operations Working capital cycle continues to remain high at GCA days of 247 days mainly driven by inventory days of 41 and moderate debtor days of 77 as on March 31, 2022. This is because company usually holds on the inventory for 45-60 days to cater the needs of the customers. Debtors remain around 70-90 days mainly because they need to provide this much credit period to the customers. Working capital cycle is expected to improve over medium term. |
Liquidity: Adequate Liquidity is adequate with net cash accrual of about Rs 6-6.5 crore per annum over the medium term against no debt repayment obligations. Bank limit utilization is low at 26% for the past 12 months through June 2022. Current ratio was healthy at 2.51 times, while unencumbered cash and bank balance was Rs 18.17 crore as on March 31, 2022. Company has adequate headroom for obtaining funding on account of its comfortable capital structure with gearing of 0.05 times as on March 31, 2022. |
Outlook: Stable CRISIL Ratings believes BDH's financial risk profile will remain above-average over the medium term, supported by a moderate capital structure and healthy relationship with customers |
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About the Company Established in 1990, BDH manufactures pharmaceutical formulations. Mr S C Kachhara, the joint managing director, manages operations. Products include formulations for anticancer, antifungal, anti-malarial, and other treatments in the form of tablets, capsules, injectables, and external preparations. |
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Any other information: Not applicable |
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Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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