Rating Rationale
May 05, 2023 | Mumbai
Gufic Biosciences Limited
Ratings upgraded to 'CRISIL A-/CRISIL A2+'; outlook revised to 'Stable'; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.425 Crore (Enhanced from Rs.275 Crore)
Long Term RatingCRISIL A-/Stable (Upgraded from 'CRISIL BBB+/Positive')
Short Term RatingCRISIL A2+ (Upgraded from 'CRISIL A2')
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 upgraded its ratings on the bank facilities of Gufic Biosciences Ltd (GBL) to 'CRISIL A-/Stable/CRISIL A2+' from 'CRISIL BBB+/Positive/CRISIL A2'.

 

The ratings upgrade reflects the improvement in GBL’s business risk profile, supported by continuous increase in scale of operations and sustenance of healthy operating margin. Revenues have steadily increased to Rs 518 crores during the first nine months of fiscal 2023 and is estimated to end the year with Rs 680-690 crore in fiscal 2023 as compared to from Rs 488 crore in fiscal 2021. The growth was backed by increase in manufacturing capacity, healthy demand from customers, continuous research and development (R&D) and diversified product portfolio. The operating margins have also sustained in the range of 17.5-19% over the past two to three years and is estimated to remain in similar range over the medium term driven by improved operating leverage and continued focus on cost discipline. 

The company’s financial risk profile continue to be healthy with comfortable capital structure and steady accretion to reserves, while liquidity remains strong with healthy cash accruals against moderate debt repayments, low bank limit utilization and healthy cash and bank balance..

 

The ratings reflect the 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 and detailed description

Strengths:

  • Established market position in the pharmaceutical industry: The promoters have over five decades of experience in the pharmaceutical industry. Their strong understanding of market dynamics and healthy relationships 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 R&D. The top 10 products contributed to 17% of revenue till the third quarter of fiscal 2023. Revenue are estimated to grow to Rs 680-690 crore in fiscal 2023 from Rs 300 crore in fiscal 2018 and is expected to increase further, backed by healthy demand, capacity enhancement, continuous R&D and diversified product portfolio.

 

  • Well-established customer base: Clientele comprises large players such as Glenmark Pharmaceuticals Ltd, Lupin Ltd, Abbott Healthcare Pvt Ltd and Zydus Healthcare Ltd. Healthy relationships with reputed pharmaceutical players led to repeat orders, contributing to steady revenue growth over the years. Besides, it has a network of 25 carrying and forwarding agents and more than 500 stockists across India, through which it has access to over 1 lakh retailers. The top five customers contribute 25-26% to the revenue profile. Benefits from longstanding relationships with the well-established customer base will persist.

 

  • Strong financial risk profile: The financial risk profile is expected to remain strong despite huge, debt-funded capital expenditure (capex) to be undertaken in fiscals 2023 and 2024. Networth was strong at Rs 309 crore as on September 30, 2022 and is further expected to increase to Rs 340-350 crore as on March 31, 2023. While the total outside liabilities to adjusted networth ratio and gearing are expected to increase slightly to 1.4-1.5 times and 0.8-0.9 time, respectively, as on March 31, 2023 due to high working capital requirement and debt-funded capex, it continues to remain comfortable. It is further expected to improve over the medium term, with repayment of loans and steady accretion to reserves. The debt protection metrics are robust, with interest coverage and net cash accrual to adjusted debt ratios estimated at 14-14.5 times and 0.3-0.4 time, respectively, in fiscal 2023. Though expected to deteriorate slightly due to higher debt levels, it is expected to remain comfortable over the medium term.

 

Weaknesses:

  • Vulnerability to adverse changes in government regulations: 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.

 

  • Large working capital requirement: The working capital cycle is likely to remain stretched. Gross current assets (GCAs) are estimated to be 210-220 days as on March 31, 2023, driven by high debtors of 95-105 days (71 days as on March 31, 2022) and huge inventory of 105-115 days (67 days as on March 31, 2022). The company extends long credit period of 90-120 days to its 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.

 

  • Exposure to risks related to the ongoing project: 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 312 crore (of which Rs 200 crore is funded by debt) and is expected to be completed by the middle of fiscal 2024. Timely completion of the project, without any significant time and cost overruns, and subsequent ramp-up in operations will remain a key monitorable.

Liquidity: Strong

Cash accrual is projected to be Rs 99 crore and Rs 120 crore in fiscals 2024 and 2025, respectively, which is sufficient to meet the debt obligation of Rs 7 crore and Rs 30 crore, respectively. The fund-based bank limit of Rs 110 crore was utilised at 25% on average for the 12 months through February 2022. Cash and cash equivalent were Rs 46 crore as on September 30, 2022. It has planned capex of Rs 312 crore in fiscals 2023 and 2024, which will be funded through Rs 200 crore of debt and the remaining through accrual. CRISIL Ratings expects internal accrual, cash and cash equivalent, and unutilised bank lines to be sufficient to meet the capex, debt obligation and incremental working capital requirement.

Outlook: Stable

CRISIL Ratings believes GBL’s business risk profile will continue to improve over the medium term, driven by increasing scale of operations with stable operating margin.

Rating sensitivity factors

Upward factors:

  • Sustained revenue growth and stable operating margin above 18%, leading to cash accrual of more than Rs 120 crore
  • Improvement in working capital cycle and sustenance of healthy financial risk profile

 

Downward factors:

  • Sharp decline in revenue or operating margin to below 15%, leading to lower than expected cash accrual less
  • Stretch in the working capital requirement or higher-than-expected capex, weakening liquidity

About the company

Incorporated in 1984 by the Choksi family, GBL manufactures formulations across various therapeutic segments such as antifungal, anesthetics and immunosuppressants. The key business segments are pharmaceutical products (75% contribution to revenue), bulk drugs (15%) and consumer care products (10%). Its facilities are at Navsari, Baroda in Gujarat; Belgaum, Karnataka; and Indore, Madhya Pradesh. Mr Jayesh P Choksi (chairman and managing director) and Mr Pranav J Choksi (CEO) manage the business. GBL is listed on the Bombay Stock Exchange and National Stock Exchange.

Key financial indicators

As on / for the period ended March 31

 

2023 9M

2022

2021

Operating income

Rs crore

517.59

779.22

488.17

Reported profit after tax (PAT)

Rs crore

61.60

95.84

44.23

PAT margin

%

11.90

12.30

9.06

Adjusted debt/adjusted networth

Times

-

0.23

0.32

Interest coverage

Times

21.64

30.69

6.43

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 110 NA CRISIL A-/Stable
NA Long-term loan NA NA Mar-31 135 NA CRISIL A-/Stable
NA Term loan NA NA Mar-33 40 NA CRISIL A-/Stable
NA Term loan NA NA Mar-32 20 NA CRISIL A-/Stable
NA Term loan NA NA Mar-31 20 NA CRISIL A-/Stable
NA Letter of credit NA NA NA 100 NA CRISIL A2+
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 325.0 CRISIL A-/Stable   -- 10-10-22 CRISIL BBB+/Positive 25-10-21 CRISIL BBB+/Stable   -- --
      --   -- 07-04-22 CRISIL BBB+/Positive   --   -- --
Non-Fund Based Facilities ST 100.0 CRISIL A2+   -- 10-10-22 CRISIL A2   --   -- --
      --   -- 07-04-22 CRISIL A2   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 70 The Saraswat Co-Operative Bank Limited CRISIL A-/Stable
Cash Credit 20 Axis Bank Limited CRISIL A-/Stable
Cash Credit 20 HDFC Bank Limited CRISIL A-/Stable
Letter of Credit 30 Axis Bank Limited CRISIL A2+
Letter of Credit 20 The Saraswat Co-Operative Bank Limited CRISIL A2+
Letter of Credit 50 HDFC Bank Limited CRISIL A2+
Long Term Loan 135 The Saraswat Co-Operative Bank Limited CRISIL A-/Stable
Term Loan 40 HDFC Bank Limited CRISIL A-/Stable
Term Loan 20 The Saraswat Co-Operative Bank Limited CRISIL A-/Stable
Term Loan 20 HDFC Bank Limited CRISIL A-/Stable

This Annexure has been updated on 05-May-23 in line with the lender-wise facility details as on 07-Oct-22 received from the rated entity.

Criteria Details
Links to related criteria
Rating Criteria for the Pharmaceutical Industry
The Rating Process
CRISILs Bank Loan Ratings
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales

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