Rating Rationale
September 03, 2024 | Mumbai
Kopran Limited
Rating outlook revised to 'Stable'; Ratings Reaffirmed; Rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.69.31 Crore (Enhanced from Rs.61.31 Crore)
Long Term RatingCRISIL BBB+/Stable (Outlook revised from 'Negative'; Rating Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
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 have revised its outlook to ‘Stable’ from ‘Negative’ on the long-term bank facilities of “Kopran Limited (Kopran; part of Kopran group)” while reaffirming the rating at ‘CRISIL BBB+’. Short-term rating has been reaffirmed at ‘CRISIL A2’.

 

The revision in outlook reflects the improvement in business risk profile of the group, especially the operating margin. The group’s scale of operations has improved in fiscal 2024 to Rs 615 crores from Rs 551 crores for fiscal 2023. Improvement in scale is driven by higher volume sales backed by steady demand. Consequently, group earnings before interest, taxes, depreciation and amortization (EBITDA) have improved to 13.3% compared to 9.5% for the previous fiscal. Furthermore, for Q1FY25 EBITDA margins have sustained above 13%. The financial risk profile remains strong on account of lower reliance on debt.

 

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 Limited (KRLL), 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

 

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:

  • Extensive experience of the promoters established market position: 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. Benefits from the extensive experience of the promoters should continue, as demonstrated by several product launches, especially in the United States (USA) and other developed markets, driving revenue growth and profitability over the medium term, further strengthening the business risk profile.

 

  • Healthy financial risk profile: Group’s networth is Rs 471 crore as on March 31, 2024. The plough back of earnings has resulted in the company having a comfortable net worth. With moderate profitability and accretions, networth is expected to increase to Rs. 500-550 crore over medium term. Company has moderate debt protection measures, because of moderate reliance on debt and moderate operating margins. Company’s interest coverage and net cash accruals to total debt ratios at around 9.57 times and 0.5 times, respectively, for fiscal 2024. Financial risk profile is expected to remain comfortable over the medium term.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets (GCA) were high at 264 days, driven by receivables and inventory of 127 and 95 days respectively, as on March 31, 2024. GCAs are expected to remain high at around 250 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. Business is expected to remain working capital intensive in nature and will remain monitorable over the medium term.

 

  • Susceptibility of operating profitability to volatility in raw material prices: Operating margin has ranged between 9.5% and 20.2% over the six fiscals through March 2024 (13.3% in fiscal 2024), 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 2024 was largely driven by economies of scale and better volume sales 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

Liquidity is adequate marked by net cash accruals of over Rs 49.4 crore against minimal repayment obligations for fiscal 2024. Net cash accruals are expected to be over Rs 50 crore against repayment obligations of Rs 3-5 crore over the medium term. Bank Limit Utilization is 48.49% utilized for the last 15 months ending May 2024. Group has cash and cash equivalents of Rs 14.19 crores (Encumbered & Unencumbered) as on March 31,2024. No major debt funded capex plans over the medium term.

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 factors

Upward factors:

  • Sustained improvement in revenue and operating margins leading to higher-than-expected net cash accruals above Rs 60 crores.
  • Improvement in working capital cycle.

 

Downward factors:

  • Lower than expected revenue and/ or significant drop in profitability constrains net cash accruals to below Rs.30 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

As on / for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

614.9

551.0

Reported profit after tax

Rs crore

50.9

27.2

PAT margins

%

8.29

4.94

Adjusted Debt/Adjusted Net worth

Times

0.21

0.18

Interest coverage

Times

9.57

8.95

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  Bank Guarantee  NA  NA  NA  6.25 NA  CRISIL A2 
NA  Cash Credit  NA  NA  NA  56 NA  CRISIL BBB+/Stable 
NA  Letter of Credit  NA  NA  NA  6.5 NA  CRISIL A2 
NA  Non-Fund Based Limit  NA  NA  NA  0.5 NA  CRISIL A2 
NA  Proposed Working Capital Facility  NA  NA  NA  0.06 NA  CRISIL A2 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Kopran Research Laboratories Limited

Full

Common management and engaged in the same line of business

Kopran Limited

Full

Common management and engaged in the same line of business

Kopran Lifesciences Limited

Full

Common management and engaged in the same line of business

Kopran (H. K.) Limited

Full

Common management and engaged in the same line of business

Kopran UK Limited

Full

Common management and engaged in the same line of business
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 56.06 CRISIL BBB+/Stable / CRISIL A2   -- 05-09-23 CRISIL BBB+/Negative / CRISIL A2 19-05-22 CRISIL BBB+/Stable / CRISIL A2 06-08-21 CRISIL BBB+/Stable / CRISIL A2 CRISIL A3+ / CRISIL BBB/Positive
      --   -- 16-08-23 CRISIL BBB+/Negative   -- 03-06-21 CRISIL BBB+/Stable --
Non-Fund Based Facilities ST 13.25 CRISIL A2   -- 05-09-23 CRISIL A2 19-05-22 CRISIL A2 06-08-21 CRISIL A2 CRISIL A3+
      --   -- 16-08-23 CRISIL A2   -- 03-06-21 CRISIL A2 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 3.5 RBL Bank Limited CRISIL A2
Bank Guarantee 0.75 State Bank of India CRISIL A2
Bank Guarantee 2 ICICI Bank Limited CRISIL A2
Cash Credit 8 YES Bank Limited CRISIL BBB+/Stable
Cash Credit 12 RBL Bank Limited CRISIL BBB+/Stable
Cash Credit 15 State Bank of India CRISIL BBB+/Stable
Cash Credit 15 YES Bank Limited CRISIL BBB+/Stable
Cash Credit 6 ICICI Bank Limited CRISIL BBB+/Stable
Letter of Credit 3.5 YES Bank Limited CRISIL A2
Letter of Credit 3 State Bank of India CRISIL A2
Non-Fund Based Limit 0.5 State Bank of India CRISIL A2
Proposed Working Capital Facility 0.06 Not Applicable CRISIL A2
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
Understanding CRISILs Ratings and Rating Scales

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