| Gufic Biosciences Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed; Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Gufic Biosciences Limited (GBL) to 'Positive' from 'Stable', while reaffirming the rating at 'CRISIL BBB+'. and has assigned its 'CRISIL A2' rating to the short-term bank facility.
The outlook revision reflects improvement in GBL’s business risk profile in fiscal 2022, marked by expected revenue of Rs. 750 crore, increase from Rs 488 crores in fiscal 2021, driven by capacity expansion and higher revenue from critical drugs. Operating profitability improved in fiscal 2021 to 17.6% and expected to sustain in fiscal 2022. With further capacity expansion in FY2023, revenue is expected to grow in future years. Hence, sustenance of operating margin and revenue growth will remain key rating sensitivity factors. Financial profile and liquidity continue to be strong.
The ratings reflect established market position of GBL in the pharmaceutical business, well-established customer base, and comfortable financial risk profile. These strengths are partially offset by vulnerability to adverse changes in government regulations, large working capital requirement, and exposure to risks related to the ongoing project. |
Key Rating Drivers & Detailed Description Strengths:
The promoters have over five decades of experience in the pharmaceutical industry; their strong understanding of market dynamics and healthy relations with customers and suppliers should continue to support the business. GBL obtained various certifications and approvals for its manufacturing facilities and diversified its product portfolio through continuous research and development. The top 10 products contributed to 34% of revenue till the third quarter of fiscal 2022. Revenue grew to an estimated Rs 750 crore in fiscal 2022 from Rs 300 crore in fiscal 2018.
Clientele comprises large players such as Glenmark Pharmaceuticals Ltd, Lupin Ltd, Abbott Healthcare Pvt Ltd and Zydus Healthcare Ltd. Healthy relationship with reputed pharmaceutical players led to repeat orders, contributing to steady revenue growth over the years. Besides, it has a network of 25 carrying & forwarding agents and more than 500 stockists PAN India through which it has access to over 1 lakh retailers. The top 10 customers contribute 30-35% to the revenue profile. Benefits from longstanding relation with the well-established customer base will persist.
Financial risk should remain strong despite the huge, debt-funded capex to be undertaken in fiscal 2023. Networth was Rs 173 crore as on March 31, 2021 and is estimated at Rs 250 crore on March 31, 2022. Its controlled reliance on external debt has led to comfortable gearing and total outside liabilities to adjusted networth (TOLANW) ratios, which are estimated to be 0.14-0.15 times and 0.8-0.9 times, respectively in fiscal 2022. Debt protection metrics are robust, with interest coverage and net cash accrual to adjusted debt ratios estimated at 25 times and 2.5 times, respectively, for fiscal 2022.
Weaknesses:
The pharmaceutical industry is highly regulated by state governments and various government agencies, which approve new drugs and clinical trials, control the quality of imported drugs, and set prices for many critical drugs; while state authorities regulate manufacture, sales, and distribution. Any unfavourable regulation may adversely impact the business of GBL.
The working capital cycle is likely to remain stretched. Gross current assets (GCAs) have been 190- 250 days over the past four fiscals ended March 31, 2021, with high debtors (90-110 days) and huge inventory (90-130 days). The company extends long credit period of 90-120 days to customers. Furthermore, due to its business need, it holds large raw material and work in process inventory of 90-120 days. GBL’s operations are expected to remain working capital intensive over the medium term.
GBL has undertaken a greenfield project at Indore (Madhya Pradesh) to expand capacities of existing formulations/injectables and incorporate new product lines. It involves capital outlay of around Rs 225 crore (of which Rs 160 crore is funded by debt) and is expected to be completed by fiscal 2024 beginning. Timely completion of project, without any significant time and cost overrun, and subsequent ramp-up in operations will remain key monitorables. |
Liquidity: Adequate Cash accrual is projected at over Rs 90-100 crore per annum for fiscals 2023 and 2024, sufficient to meet the yearly repayment obligation of Rs 4.5-5.0 crore. The fund-based bank limit of Rs 90 crore was sparsely utilised during the 12 months through February 2022. Cash and cash equivalents were Rs 13.1 crore as on March 31, 2021. It has capex plans in fiscal 2023 of Rs. 250 crores, which will be funded through Rs. 160 crore of debt and remaining through accruals. CRISIL Ratings expects internal accruals, cash and cash equivalents and unutilized bank lines to be sufficient to meet its capex, repayment obligations and incremental working capital requirements. |
Outlook: Positive CRISIL Ratings believe GBL’s business risk profile will continue to improve over the medium term, driven by increasing scale of operations while sustaining operating margin; while financial profile will remain strong despite capex |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company GBL, incorporated in 1984, by the Choksi family, manufactures formulations across various therapeutic segments such as antifungal, anesthetics, and immunosuppressants. The key business segments are pharmaceutical products (75% revenue), bulk drugs (15%) and consumer care products (10%). Its facilities are at Navsari, Baroda in Gujarat, Belgaum in Karnataka and Indore. Mr Jayesh P Choksi (chairman and managing director) and Mr Pranav J Choksi (CEO) manage the business. GBL is listed on Bombay Stock Exchange and National Stock Exchange. |
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 - 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 07-Apr-22 in line with the lender-wise facility details as on 21-Oct-21 received from the rated entity,
Criteria Details
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