Rating Rationale
January 28, 2022 | Mumbai
Gennova Biopharmaceuticals Limited
Long-term rating upgraded to 'CRISIL A+ / Stable'; short-term rating reaffirmed; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.454.5 Crore (Enhanced from Rs.216.21 Crore)
Long Term RatingCRISIL A+/Stable (Upgraded from 'CRISIL A / Stable')
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of Gennova Biopharmaceutical Ltd (Gennova) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’ and reaffirmed its ‘CRISIL A1’ rating on the company’s short-term bank facilities.

 

The rating upgrade reflects the healthy operating performance of Gennova with 8.6% compound annual growth rate in revenue over the five years through fiscal 2021. Operating profitability improved to 36.2% in fiscal 2021 from 32.6% in fiscal 2020, driven by product launches, sales traction in the high-margin biopharma business and savings in selling expenses during the pandemic. Revenue growth is expected to remain healthy at 10-15%, along with steady operating profitability above 30% over the medium term. The completion of planned capex and successful launch of mRNA Covid-19 vaccine will provide further revenue upside and remain key monitorables.

 

The ratings continue to reflect Gennova’s presence in the niche biopharmaceutical segment and healthy operating performance, and strong operational, managerial, technical and financial support from its parent, Emcure Pharmaceuticals Ltd (Emcure; ‘CRISIL A+/Stable/CRISIL A1’). These strengths are partially offset by average financial risk profile and exposure to regulatory risks.

Analytical Approach

CRISIL Ratings has applied its parent notch up framework to factor in support from Emcure.

Key Rating Drivers & Detailed Description

Strengths:

  • Growing scale of operations in niche biopharmaceutical segment

Gennova has presence in the niche biosimilar segment catering to domestic and emerging markets. It has a portfolio of seven products'Elaxim, Tenectase, Vintor, Xgrast, Pegex, EmgrastM and Hamysyl'for treatment in oncology, cardio-vascular, neurology and nephrology.

 

Its revenue growth to Rs 258 crore in fiscal 2021 has been driven by ramp-up in sales of existing product portfolio as well as continued focus on new product development. Operating profitability has been healthy above 30% over the years, given presence in a niche segment and healthy product portfolio.

 

Revenue growth is expected to remain healthy at 10-15% over the medium term. along with steady operating profitability above 30%. The Covid-19 vaccine development on mRNA platform will provide further revenue upside, once successfully launched, and will remain a key monitorable. The company is undertaking capital expenditure (capex) of Rs 350 crore for facility expansion, which will support revenue growth.

 

  • Strong support from the parent, Emcure

Gennova is strategically important to Emcure, given its presence in the niche biopharmaceutical and vaccine development segment. Gennova is developing an mRNA vaccine for Covid-19. The vaccine has successfully completed phase 1 trials and is in phase 2/3 trials, which will be completed in the next few months.

 

Gennova leverages the sales and distribution network of Emcure for catering to emerging markets. It benefits from operational, managerial and technical support from the parent, and will likely receive financial support from Emcure during exigencies.

 

Weaknesses:

  • Average financial risk profile

The financial risk profile is expected to remain average on account of moderate capex plan, working capital intensive-operations and modest networth of Rs 168 crore as on March 31, 2021. The ongoing capex of Rs 350 crore for facility expansion over a period of two years is expected to be funded through debt, government grant and internal accrual. Operations are working capital intensive, as reflected in gross current assets of 246 days as on March 31, 2021, and will remain so over the medium term. Gearing is thus expected to weaken to 1.05 times by March 31, 2022, from 0.21 time a year earlier. Timely ramp up of operations at the new facility and improvement in the financial risk profile will remain key monitorables.

 

  • Exposure to regulatory risks

The regulatory risks are manifested in increasing scrutiny and inspections by the regulatory authorities including the US Food and Drug Administration, European Medical Agency and regulators in the Asian and Latin American markets. Biosimilars require market-specific approvals for product launches. Any delay in approval can lead to loss of potential opportunity through delayed launches. In the branded formulation segment, additions to the Drug Price Control Order list could impact product pricing and hence the profitability of the domestic business.

Liquidity: Adequate

Cash accrual is expected above Rs 50 crore per annum over the medium term, which will be adequate to meet debt obligation of Rs 25-30 crore over the medium term. The company had negligible term loan as of March 2021, but is expected to add debt to fund expansion. Bank limit utilisation was low at 30% on average during the 12 months through August 2021.

Outlook Stable

CRISIL Ratings believes Gennova will benefit from its presence in the niche biopharma segment and continued strong support from Emcure.

Rating Sensitivity factors

Upward factors

  • Improvement in the credit risk profile of Emcure
  • Sustained revenue growth of 20% with operating profitability above 35%
  • Improvement in the financial risk profile, with better capital structure and prudent working capital management

 

Downward factors

  • Weakening in the credit risk profile of the parent, Emcure, or change in support stance
  • Sustained revenue de-growth of more than 10% or decline in profitability below 25%
  • Larger-than-expected, debt-funded capex or stretch in the working capital weakening the financial risk profile.

About the Company

Gennova, headquartered in Pune, Maharashtra, is a biotechnology company dedicated to the development, production and commercialisation of bio-therapeutics to address various life-threatening diseases. It has incorporated recombinant DNA technologies together with innovative bio-manufacturing practices. Gennova has created a cutting-edge solution for manufacturing and successfully commercialising bio-therapeutics in the cardiovascular, neurology, nephrology and oncology segments. Emcure holds 87.95% stake in Gennova.

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs crore

258

211

Profit after tax (PAT)

Rs crore

48

38

PAT margin

%

18.4

18.0

Adjusted debt/adjusted networth

Times

0.21

0.44

Interest coverage

Times

10.57

8.48

 

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs crore)

Complexity level

Rating assigned with outlook

NA

Term loan

NA

NA

Sept 2026

50.0

NA

CRISIL A+/Stable

NA

Term loan

NA

NA

May 2028

172.5

NA

CRISIL A+/Stable

NA

Fund-based facilities

NA

NA

NA

100.0

NA

CRISIL A+/Stable

NA

Non-fund based limit

NA

NA

NA

7.0

NA

CRISIL A1

NA

Proposed fund-based bank limits

NA

NA

NA

75.0

NA

CRISIL A+/Stable

NA

Proposed working capital facilities

NA

NA

NA

50.0

NA

CRISIL A+/Stable

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 447.5 CRISIL A+/Stable   -- 25-05-21 CRISIL A/Stable   --   -- --
      --   -- 09-04-21 CRISIL A/Stable   --   -- --
Non-Fund Based Facilities ST 7.0 CRISIL A1   -- 25-05-21 CRISIL A1   --   -- --
      --   -- 09-04-21 CRISIL A1   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 88.29 Bank of Maharashtra CRISIL A+/Stable
Fund-Based Facilities 11.71 Bank of Maharashtra CRISIL A+/Stable
Non-Fund Based Limit 7 Bank of Maharashtra CRISIL A1
Proposed Fund-Based Bank Limits 75 Not Applicable CRISIL A+/Stable
Proposed Working Capital Facility 50 Citibank N. A. CRISIL A+/Stable
Term Loan 50 Bank of Maharashtra CRISIL A+/Stable
Term Loan 22.5 Exim Bank CRISIL A+/Stable
Term Loan 150 Exim Bank CRISIL A+/Stable

This Annexure has been updated on 28-Jan-2022 in line with the lender-wise facility details as on 28-Jan-2022 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales

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