Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of HiMedia Laboratories Private Limited (HiMedia; part of the HiMedia group) at 'CRISIL A+/Positive/CRISIL A1+'.

 

The rating reflects the group’s leadership position & promoters’ established track record in the domestic culture media business, comfortable financial risk profile, and focus on research and development (R&D). These strengths are partially offset by limited, though increasing, geographical diversification, loss of revenue from Covid-testing related segment, exposure to intense competition in the overseas market, and stretched working capital cycle.

 

Revenue grew 12% to Rs 1,105 crore in fiscal 2022 (FY21: Rs 991 crore) driven by 30% growth in the non-Covid segment to Rs 811 crore (FY21: Rs 622 crore). Revenue from Covid segment moderated to Rs 390 crore in fiscal 2022 (FY21: Rs 450 crore) and is expected to further reduce over the medium term. Further, the first quarter being seasonal usually results in low revenue for the non-Covid segment and typically accounts for ~20% of full year revenues. As a result, during first quarter of the current fiscal, the revenue from non-Covid segment stood at Rs 179 crore (Q1 FY21: Rs 173 crore). In addition, the revenue from Covid segment also stood at just Rs 9 crore as against Rs 205 crore during the corresponding period previous fiscal. Going forward, revenue growth over the medium term is expected to be driven by introduction of newer products and higher volumes besides realisations from existing products, given its strong market position in the domestic tissue culture segment. HiMedia is entering new market segments like hydrocolloids, hydroponics, bioinformatics services etc. Also revenues from the covid segment is expected to gain some traction during the remaining period of the fiscal from tender based orders. However, given the moderation in Covid segment, steady scale-up in revenue from non-Covid segment remains a key monitorable.

 

Operating margin remained healthy at 31.8% for fiscal 2022 driven by healthy gross margin levels and high operating leverage. Going forward operating margins are expected to be maintained at healthy levels of ~27-30% over the medium term.

 

The financial risk profile remains strong driven by estimated networth of Rs 812 crore in fiscal 2022 as against debt of Rs 276 crore (FY21: Rs. 323 crore) resulting in a strong capital structure. Networth is expected to further improve with expected accruals of Rs 250-300 crore each fiscal over the medium term. Debt protection metrics to remain healthy with interest coverage expected at 16-18 times and Net Cash Accruals to Total Debt (NCATD) at 1-1.4 times. The accruals are expected to comfortably fund repayment obligations, capex and incremental working capital requirements.

Analytical Approach

• For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of HiMedia and Warkem Biotech Pvt Ltd (Warkem; ‘CRISIL A/Positive’). This is because the two companies, together referred to as the HiMedia group, have common promoters, significant operational and business linkages, and same businesses.

 

• Loans from promoters have been treated as neither debt nor equity as these do not have a fixed repayment schedule and are subordinate to bank borrowing. Moreover, the group has provided an undertaking that the loans will remain in the business over the medium term.

 

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 presence in the domestic culture media market: The group enjoys near monopoly position in the domestic culture media market. It has experience of over 45 years and a large product portfolio. Established market position and continued capacity expansion resulted in consistent strong compounded annual revenue growth of 28% over the past three fiscals through 2022. Revenue growth to remain healthy over the medium term, backed by surge in demand for VTM and Covid-testing kits in the wake of the pandemic, increase in demand for culture media from the domestic pharmaceuticals and packaged food industries and steady growth in export.

 

• Established track record of the promoters: Promoters comprise first and second generation entrepreneurs, who are highly qualified and experienced in the business. They have steered the group’s operations in their core area of expertise, and have ventured, on a small scale, into manufacturing of related products such as water-testing kits, soil-testing kits, and anaemia-testing kits.

 

• Comfortable financial risk profile: Networth was estimated at Rs 812 crore as on March 31, 2022, backed by steady and healthy cash accrual. Gearing estimated to be low at around 0.34 time as on March 31, 2022. Debt protection metrics were also healthy for fiscal 2022. With expected healthy revenue growth and stable profitability, the credit metrics should remain comfortable over the medium term.

 

Weakness:

• Limited, though improving, geographical diversity: Due to intense competition in global market from the large incumbents, the company has limited presence in the overseas market. Export accounted for ~25% of revenue in fiscal 2022 as the group is a fringe player in the global culture media market.

 

• Large working capital requirement:  The group has high working capital requirements as reflected in high estimated GCA days of 258 days as on March 31, 2022. Working capital requirements have been higher as company maintains large inventory to minimise turnaround time while catering to high-value customers. As a result the Inventory was sizeable at 166 days, as on March 31, 2022. Further the receivables is also moderately high at 55 days due to the high credit period offered to customers. Working capital requirements will continue to remain elevated over the medium term as well due to the nature of the business.

Liquidity: Strong

Liquidity is supported by healthy accrual and need-based support from the promoters. Cash accrual is expected over Rs 250 crore per annum against annual debt obligation of Rs 35-45 crore over the medium term. Utilisation of the bank limit of Rs 151 crore averaged 67% over the 12 months through June 2022. Cash and bank balance of Rs 133 crore as on June 30, 2022, provides cushion to overall liquidity. The expected cash accruals, cash and equivalents and unutilised bank lines to comfortably fund capex of Rs 60 crore per fiscal, repayment obligations and incremental working capital requirements. Furthermore, funding support from the promoters is also forthcoming in case of any exigency.

Outlook: Positive

CRISIL Ratings believes the HiMedia group's business risk profile will continue to benefit from its established market position and healthy demand for culture media from the pharmaceutical and packaged food industries. Financial risk profile should remain comfortable over the medium term, driven by strong accruals, healthy capital structure and debt protection metrics.

Rating Sensitivity Factors

Upward factors

• Scale up in revenue especially from the non-covid segment, while maintaining overall operating margin at 26-28%.
• Sustenance of strong financial risk profile and debt metrics.

 

Downward factors

• Significant and steady decline in revenue and operating margin below 16-18%.
• Increase in leverage or weakening of liquidity because of larger-than expected debt-funded capex or acquisitions or stretch in the working capital cycle.
• Change in stance of funding support from promoters

About the Group

HiMedia was established in 1976 as a partnership firm, Hindustan Dehydrated Media, and was reconstituted as a private limited company with the current name in 1982. The company initially only provided ready-to-use culture media to scientists, researchers and small entities, but now manufactures sensitivity discs and allied products. Its products are used in more than 150 countries. It is a dominant player in the domestic culture media market. The manufacturing facilities are in Dombivli, Ambernath, and Nashik in Maharashtra, while R&D facilities are in Mumbai and Nashik. The company has plans for capacity expansion and extension of its product line.

 

Warkem was set up by Ms S G Warke in 1978 as a partnership firm and reconstituted as a private limited company in April 2005. It manufactures protein hydrolysate bases used in the pharmaceutical and food industries. It also manufactures vegetable peptones and yeast extracts. It derives 70-80% of its revenue from HiMedia.

Any other information: Not applicable

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	Cash Credit & Working Capital Demand Loan*	NA	NA	NA	68	NA	CRISIL A+/Positive
NA	Letter of Credit**	NA	NA	NA	6	NA	CRISIL A1+
NA	Bank Guarantee	NA	NA	NA	2	NA	CRISIL A1+
NA	Term Loan	NA	NA	NA	34.5	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Jul-23	28	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Jan-23	60	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Dec-23	30	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Dec-23	23.30	NA	CRISIL A+/Positive
NA	Cash Credit^	NA	NA	NA	40	NA	CRISIL A+/Positive
NA	Cash Credit & Working Capital Demand Loan	NA	NA	NA	32	NA	CRISIL A+/Positive
NA	Term Loan	NA	NA	Dec-23	17	NA	CRISIL A+/Positive

*Interchangeable with book debt of Rs 20 crore, export packing credit of Rs 30 crore, export bill negotiation/export bill discounting of Rs 30 crore, and packing credit/export bill rediscounting in foreign currency of Rs 30 crore
**Fully interchangeable with buyer's credit and bank guarantee

^Fully interchangeable with working capital demand loan, export packing credit, export bill discounting, letter of credit, buyer's credit and bank guarantee.