| Farmson Pharmaceutical Gujarat Private Limited | ||||||
| Long-term rating upgraded to 'CRISIL A '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its long-term rating on bank facility of Farmson Pharmaceutical Gujarat Pvt Ltd (FPGPL) to ‘CRISIL A/Stable’ from ‘CRISIL A-/Positive’ while reaffirming short term rating at 'CRISIL A1'.
The rating action reflects consistent improvement in business risk profile of FPGPL with revenue almost doubled in fiscal 2022. The improvement is driven because of strong position in the paracetamol market, as reflected in robust performance with revenue of over Rs 2000 crore and operating margin of 36% due to sharp rise in average sales realisation and increase in volume. The realisation of paracetamol improved post Covid-19 due to reduced competition from China and the sharp improvement in realisation. This has also strengthened financial risk profile of FPGPL as reflected in estimated improvement in networth levels from Rs 575 crore in fiscal 2021 to over Rs 1000 crore in fiscal 2022. Also working capital is prudently managed, resulting in low reliance on external debt.
The ratings also factor in strong financial risk profile, indicated by a robust capital structure with near debt-free operations, strong debt protection metrics and liquidity with estimated healthy cash accrual and large unencumbered fixed deposits of over Rs 400 crore as on March 31, 2022.
The ratings reflect the promoters' extensive experience in pharmaceutical industry, established track record with strong clientele and its healthy financial risk profile. These strengths are partially offset by moderately working capital intensive operations and susceptibility to volatility in key raw material prices. |
Analytical Approach CRISIL Ratings had been combining the business and financial risk profiles of FPGPL and its group entity, JNP Products (JNP), together referred to as the Farmson group, as the entities have significant business and financial linkages and common management. FPGPL acquired JNP on slump-sale basis during the first nine months of fiscal 2021.
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: Strong market position with reputed and diversified clientele FPGPL has been in the bulk drug manufacturing business for more than four decades. It supplies paracetamol in bulk form (active pharmaceutical ingredients), glacial acetic acid, to reputed and diverse clients in India and overseas (including Europe, Africa and 43 other countries). Revenue was Rs 721 crore in fiscal 2020 and Rs 736 crore for the first nine months of fiscal 2021. Revenue is expected grow at 10-30% over the medium term driven by gradual benefit derived from enhanced capacity. The ability of FPGPL to sustain its revenue growth and profitability post timely completion and stabilisation of ongoing capex will be a key monitorable.
Strong operating efficiency Operating margins were healthy and had increased from 22% in fiscal 2019 to 28% in fiscal 2020 backed by fully integrated plant and economies of scale. The operating margin is expected above 22% over the medium term. The return on capital employed (ROCE) was healthy at 55% in fiscal 2020 and is expected at 30-40% over the medium term.
Strong financial risk profile Financial risk profile is strong, driven by healthy networth of over Rs 368 crore and gearing of 0.05 time as on March 31, 2020. Debt protection measures were robust, as reflected in interest coverage and net cash accrual to total debt ratios of 50 times and 8 times, respectively, in fiscal 2020. The funding mix of ongoing capacity expansion projects remain key monitorable.
Weakness: Moderately working capital-intensive operations Operations of company is moderately working capital intensive as reflected in gross current assets (GCA) of 166 days in FY21 (against 81 days in FY20) due to increase in inventory level to 65 days (against 29 days in FY20) and increase in other gross current assets. Company increased procurement to ensure uninterrupted operations and large portion of inventory is raw materials and portion of inventories are order backed which mitigates risk of fluctuation in prices of raw materials. Simultaneously, the debtor days has improved to 28 days in FY21 (against 45 days in FY20). Company has reduced the credit period from 45-60 days to 30 days which would support the overall working capital cycle. Furthermore, portion of working capital requirement is being met through creditor of 88 days in FY21. Over the medium term, working capital cycle expected to remain at similar level.
Susceptibility of operating margin to volatility in raw material prices Operating margin remains susceptible to fluctuation in raw material prices which moves in tandem to crude oil prices as evident from volatility in operating margins ranging from 12.5-22% for previous five fiscals through 2019. The operating margin improved to 28% in FY20 against 22% in FY19. As FPGPL's customer base persists of large and reputed pharmaceutical companies, increase in input costs cannot be immediately passed on to them. While company has maintained operating margin in range of 14-29%, its ability to maintain healthy operating margin remain key monitorable. |
Liquidity: Strong FPGPL has strong liquidity supported by healthy net cash accruals are expected over Rs 150-160 crore over the medium term against meagre term debt repayment over the medium term, the surplus cash should be used to fund ongoing capacity expansion projects worth over Rs 128 crore which is expected to conclude in May 2021. The bank lines are unutilised during last 12 months ended February 2021. FPGPL has unencumbered cash and bank balance/fixed deposits of Rs 165 crore as on December 31, 2020 (against Rs 98 crore as on March 31, 2020). The current ratio was comfortable at 2.52 times as on March 31, 2020 and expected to remain above 2.5 times over the medium term. |
Outlook Stable CRISIL Ratings expects FPGPL’s business risk profile would strengthen over the medium term on the back of ongoing capacity expansion, reputed clientele, and diversifying geographical presence, while maintaining robust financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1974, FPGPL is promoted by Mr Vithani, Mr Samir Patel and their family members. The company manufactures paracetamol in bulk form (active pharmaceutical ingredients) at its manufacturing facility in Baroda. JNP was a partnership firm that manufactured para–amino phenol for sale entirely to FPGPL. FPGPL has acquired JNP on slump-sale basis during the first nine months of fiscal 2021. |
Key Financial Indicators
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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)
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Annexure – List of entities consolidated
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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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