Rating Rationale
June 03, 2021 | Mumbai
Kopran Limited
Ratings upgraded to 'CRISIL BBB+ / CRISIL A2 '; outlook revised to 'Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.98.5 Crore
Long Term RatingCRISIL BBB+/Stable (Upgraded from 'CRISIL BBB / Positive' and outlook revised to 'Stable')
Short Term RatingCRISIL A2 (Upgraded from 'CRISIL A3+ ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its rating on the bank loan facilities of Kopran Ltd (Kopran; part of the Kopran group) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Positive/CRISIL A3+’.

 

The rating upgrade reflects improvement in the business risk profile and further strengthening in the financial risk profile, backed by revenue growth and improved operating profitability. Revenue grew by 41.6% in fiscal 2021 and operating margins improved by 629 basis points to 19.3% driven by healthy demand in both API and formulation segments, better realisations and improved economies of scale. Sustained demand from the existing export markets, introduction of new products into regulated markets and addition of new geographies, should support revenue growth over the medium term, while sustaining healthy operating margins. Financial risk profile has further strengthened backed by enhanced capital structure with reduced leverage and improved debt protection metrics.

 

The ratings continue to reflect the extensive experience of promoters in the pharmaceutical industry, and healthy financial risk profile. These strengths are partially offset by the working capital-intensive operations, and susceptibility of operating profitability to volatility in raw material prices.

Analytical approach:

For arriving at its ratings, CRISIL Ratings continues to fully consolidate the business and financial risk profiles of Kopran and its wholly-owned subsidiaries, Kopran Research Laboratories Ltd (KRLL; rated ‘CRISIL BBB/Stable/CRISIL A3+’), Kopran Lifesciences Ltd, and Kopran (HK) Ltd, Hong Kong, and Kopran (UK) Ltd, collectively referred to as the Kopran group, as they are in the similar line of business and have significant operational and financial linkages

Key rating drivers and detailed description

Strengths

  • Extensive experience of the promoters: The four-decade-long experience of the promoters in the pharmaceutical industry, their strong relationships with key suppliers and customers, will continue to support the business risk profile. The group has been working on obtaining certifications and approvals for exports to developed markets and received USFDA approval for their API unit in fiscal 2020. Benefits from the extensive experience of the promoters should continue, as demonstrated by several product launches, especially in the United States (USA) driving revenue growth and profitability over the medium term, further strengthening the business risk profile.

 

  • Healthy financial risk profile: Financial risk profile marked by a healthy networth and  total outside liabilities to adjusted networth ratio (TOLANW) of Rs 236.3 crore and 0.8 respectively as on March 31, 2021 vis-à-vis Rs 181.1 crore and 1.0 times, respectively, as on March 31, 2020. Capex of around Rs.30-35 crore over the medium term is likely to be funded by internal accruals and, TOLANW ratio is likely to further improve over medium term. Debt protection metrics were healthy, with the interest coverage and net cash accrual to adjusted debt ratios at 16 times and 0.96 time, respectively, in fiscal 2021, and should be sustained over medium term.

 

Weaknesses

  • Working capital-intensive operations: Gross current assets were high at estimated at 188 days, driven by receivables and inventory of 86 and 90days respectively, as on March 31, 2021. GCAs are expected to be remain high at around 190-200 days. Debtor profile is marked by significant revenue derived from South Africa and other African countries, however, bulk of the sales are backed by letter of credit mitigating credit risk associated with exposure.

 

  • Susceptibility of operating profitability to volatility in raw material prices: Operating margin has ranged between 11.9% and 19.3% over the four fiscals through March 2021 (19.3% in fiscal 2021), owing to volatility in raw material prices and realisation. Though the group has the ability to pass on price fluctuations to customers, it is with a lag, and any sharp volatility impacts profitability. However, the improvement in operating margins in fiscal 2021 was largely driven by economies of scale and better realisation from few of the products. Accordingly, operating profitability should sustain at improved levels, on the back of better fixed cost absorption and higher contribution from regulated markets and from new higher margin products.

Liquidity: Adequate

Net cash accrual are estimated at around Rs 65 crore in fiscal 2021 (Rs.30.6 crores in fiscal 2020) and likely to be around Rs 70-80 crore per fiscal over the medium term, more than sufficient to cover the maturing debt of 3-5 crore per fiscal and planned capital expenditure of Rs 30-35 crores over the medium term. Bank limit utilisation was moderate, averaged at 53% over the 12 months through January 2021. Healthy capital structure, and support from promoter group also support financial flexibility

Outlook: Stable

CRISIL Ratings believes that the business risk profile would continue to benefit from, improved demand from existing clients and higher contribution from regulated markets and from new high margin products.

Rating sensitivity factor:

Upward factors:

  • Growth in revenue and operating margins backed by higher contribution from regulated markets and from new high margin products strengthens net cash accruals to sustain above Rs.75 crores
  • Improvement in working capital cycle and sustained financial risk profile with sustained capital structure and debt protection metrics

 

Downward factors:

  • Lower than expected revenue and/ or significant drop in profitability constrains net cash accruals to below Rs.40 crores
  • Stretch in working capital cycle or higher than expected debt funded capex or deterioration in debt protection metrics weakens the financial risk profile

About the group

Kopran was incorporated in 1958, promoted by the Mumbai-based Somani family. The company, which is a part of the Parijat group, is managed by Mr Surendra Somani. It manufactures pharmaceutical formulations such as antibiotics, anti-malarial, analgesics, and cardiovascular and bulk drugs at its facilities in Mahad and Khopoli in Maharashtra.  In fiscal 2015, the bulk drugs division was transferred to KRLL through a slump sale. Kopran Lifesciences Ltd and Kopran (HK) Ltd, Hong Kong are small entities and nearly defunct.

Key Financial Indicators (Consolidated)

As on / for the period ended March 31

 

2021

2020

Reported Revenue

Rs crore

509.8

360.1

Reported profit after tax

Rs crore

60.6

21.0

PAT margins

%

12.1

5.8

Adjusted Debt/Adjusted Net worth

Times

0.3

0.6

Interest coverage

Times

16

5.3

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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

Complexity level

Issue Size

(Rs. Cr)

Rating Assigned  with Outlook

NA

Bank Guarantee

NA

NA

NA

NA

0.75

CRISIL A2

NA

Cash Credit

NA

NA

NA

NA

15

CRISIL BBB+/Stable

NA

Letter of Credit

NA

NA

NA

NA

15

CRISIL A2

NA

Loan Equivalent Risk Limits

NA

NA

NA

NA

5.25

CRISIL BBB+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

NA

62.5

CRISIL BBB+/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Kopran Limited

Full

Common management and engaged in the same line of business

Kopran Research Laboratories Ltd

Full

Common management and engaged in the same line of business

Kopran Lifesciences Ltd

Full

Common management and engaged in the same line of business

Kopran (HK) Ltd

Full

Common management and engaged in the same line of business

Kopran (UK) Ltd

Full

Common management and engaged in the same line of business

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 82.75 CRISIL BBB+/Stable   -- 07-10-20 CRISIL A3+ / CRISIL BBB/Positive 07-01-19 CRISIL A3+ / CRISIL BBB/Stable 24-05-18 CRISIL A3+ / CRISIL BBB/Stable CRISIL BBB-/Stable / CRISIL A3
      --   -- 12-03-20 CRISIL A3+ / CRISIL BBB/Stable   -- 14-02-18 CRISIL A3+ / CRISIL BBB/Stable --
Non-Fund Based Facilities ST 15.75 CRISIL A2   -- 07-10-20 CRISIL A3+ 07-01-19 CRISIL A3+ 24-05-18 CRISIL A3+ CRISIL A3
      --   -- 12-03-20 CRISIL A3+   -- 14-02-18 CRISIL A3+ --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 0.75 CRISIL A2 Bank Guarantee 0.75 CRISIL A3+
Cash Credit 15 CRISIL BBB+/Stable Cash Credit 15 CRISIL BBB/Positive
Letter of Credit 15 CRISIL A2 Letter of Credit 15 CRISIL A3+
Loan Equivalent Risk Limits 5.25 CRISIL BBB+/Stable Loan Equivalent Risk Limits 5.25 CRISIL A3+
Proposed Long Term Bank Loan Facility 62.5 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility 62.5 CRISIL BBB/Positive
Total 98.5 - Total 98.5 -
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
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for Consolidation
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings

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