| IPCA Laboratories Limited | ||
| Rating reaffirmed at 'CRISIL A1+' | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of IPCA Laboratories Ltd (IPCA).
IPCA registered healthy revenue growth of 17% year-on-year in fiscal 2021, backed by higher institutional sales and bulk drug sales, including one-off sales of chloroquine (CQ) and hydroxychloroquine (HCQ) in both the domestic and export markets. Revenue growth is expected to remain healthy at 10%-12% over the medium term, supported by growth in the domestic formulations market which contributes ~40% of total revenue. The company continues to maintain leadership position in segments such as rheumatoid arthritis and orthopaedic therapies in the domestic market. Export growth momentum is expected to sustain on the back of healthy growth in bulk drugs segment in the international market and sustenance of sales to institutional customers such as The Global Fund, Geneva.
Operating profitability improved sharply to 29.1% in fiscal 2021, against 20.6% in fiscal 2020, supported by healthy revenue growth, lower marketing expenses amidst the Covid-19 pandemic and subsequent lockdown, and high margin on the one-off CQ and HCQ sales. Operating profitability is expected to remain healthy at 23-25% over the medium term. During fiscals 2016 to 2020, IPCA had incurred cost towards remediation of regulatory issues raised by the US Food and Drug Administration (US FDA) at three of its plants, and had invited US FDA for re-inspection. Timely resolution of import alert issued by the US FDA can provide additional uptick to revenue growth and profitability and, hence, will be a key monitorable.
Overall, the financial risk profile remains strong. Gearing was comfortable at 0.06 time as on March 31, 2021 (compared to 0.14 time as on March 31, 2020), adjusted interest coverage and net cash accrual to total debt ratios were 144 times and 4.95 times, respectively, in fiscal 2021, against 50 times and 1.44 times, respectively, in fiscal 2020. Absence of any large, debt-funded capital expenditure (capex) and steady accrual is likely to keep the financial risk profile strong over the medium term.
The rating continues to reflect IPCA’s established position in the domestic formulations segment, presence in diverse therapeutic segments, integrated operations and strong financial risk profile because of robust capital structure and healthy debt protection metrics. These strengths are partially offset by working capital-intensive operations, exposure to intensifying competition in the pharmaceutical industry, and susceptibility of performance to regulatory changes in the domestic and international markets. |
Analytical Approach For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of IPCA and its subsidiaries because of their high operational and financial linkages. For joint ventures (JV) and associates, CRISIL Ratings follows a moderate integration approach. Specifically, CRISIL Ratings factors in any incremental investment required.
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: Established position in domestic formulations, with presence in diverse segments: IPCA is among India’s top 20 pharmaceutical companies. The domestic formulations market contributed 37% of the total revenue in fiscal 2021, against 42% in fiscal 2020. IPCA has established presence in the pain management and cardiovascular segments. Its product portfolio has been expanding in the fast-growing therapeutic segments and the company had a portfolio of 145 brands as on March 31, 2021.
Robust financial risk profile: It is backed by substantial networth of Rs 4,555 crore as on March 31, 2021, and healthy capital structure. Debt protection metrics were also comfortable in fiscal 2021. The financial risk profile is expected to sustain, over the medium term, in the absence of any sizeable debt-funded capex.
Weaknesses: Working capital-intensive operations: Gross current assets were 202 days as on March 31, 2021 on account of large inventory and export receivables. The company operates in multiple geographies and has a wide product portfolio. Hence, it is required to maintain substantial inventory to ensure adequate supply. Given its continuously expanding product portfolio, operations are expected to remain working capital intensive over the medium term.
Exposure to intense competition and regulatory changes: Around 70% of the revenue is derived from sales of drugs in the pain management, cardiovascular, anti-diabetic and anti-malarial segments, which are intensely competitive. The domestic pharmaceutical sector has recently been subject to increased regulatory scrutiny, adding to the challenges of players. However, this is partially offset by the company’s leadership position in key brands such as Zerodol,
Hydroxychloroquine Sulfate, and Solvin. Besides, the company is required to comply with regulations issued by authorities in various countries, given its international presence. The company is exposed to regulatory scrutiny by international authorities, including US FDA and adverse actions could impact the company’s growth prospects, as witnessed in the case of US FDA import alerts on its three plants. |
Liquidity: Strong Liquidity is supported by cash accrual of Rs 1,250 crore in fiscal 2021 and healthy cash and cash equivalent of Rs 758 crore as on March 31, 2021. Cash accrual is expected to be Rs 1,000-1,200 crore over the medium term, which is more than adequate to meet the modest debt obligation of less than Rs 100 crore annually, capex and working capital requirement. Financial flexibility is enhanced by low bank limit utilisation of 41% on average over the 12 months through June 2021, and comfortable gearing of 0.06 time as on March 31, 2021. Liquidity will remain strong over the medium term. |
Rating Sensitivity factors Downward factors
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About the Company Set up in 1949, IPCA manufactures formulations, active pharmaceutical ingredients (APIs), and drug intermediates. The company’s product range includes pain management, cardiovascular, anti-malarial, anti-emetic, antibiotic, analgesic and anti-diabetic medicines; and formulations for cough and cold therapy, skin problems and problems with the central nervous system. The company is also a leading supplier of APIs such as atenolol (anti-hypertensive), chloroquine and artemisinin derivatives (anti-malarial), furosemide (diuretic) and pyrantel salts (anthelmintic).
As on June 30, 2021, the promoters held 46.29% stake in IPCA, foreign portfolio investors held 17.81%, and the balance was held by the public and others.
For the first quarter of fiscal 2021, operating income and profit after tax (PAT) were Rs 1,566 crore and Rs 307 crore, respectively, against Rs 1,534 crore and Rs 446 crore, respectively, for the corresponding quarter in the previous fiscal. |
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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Criteria Details
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