Detailed Rationale

Crisil Ratings has revoked the suspension of its rating on the bank facilities of Laborate Pharmaceuticals India Limited (LPIL) and has assigned its ‘Crisil A/Stable/Crisil A1’ ratings to the bank facilities of LPIL. Crisil Ratings had suspended the ratings on July 20th 2016, on account of non-cooperation by LPIL with Crisil Ratings efforts to undertake are view of the ratings. LPIL has now shared the requisite information enabling Crisil Ratings to assign its ratings

 

The rating reflects LPIL's established position in the pharmaceutical industry with a extensive industry experience of the promoters, diversified product and customer portfolio and strong financial profile. These strengths are partially offset by its exposure to regulatory risks & intense competition and working capital intensive operations.

Analytical Approach:

Crisil Ratings has evaluated the standalone business and financial risk profiles of LPIL.

Key Rating Drivers & Detailed Description

Strengths:

Extensive experience of the promoters : Established in 1990, the company has a strong market presence in the pharmaceutical industry. This has helped the promoters, Mr Ajay and Sanjay Bhatia, to gain a strong understanding of market dynamics  and establish healthy relationships with suppliers and customers.

 

With healthy demand and established customer base, the company has achieved revenue of Rs 1,500-1550 crores of revenues over the past three fiscals through fiscal 2025. The company has recently incorporated a new plant which would primarily cater to exports in Europe. Driven by continuous product addictions, the entering of new geographies and continued healthy demand for the products, the scale is expected to improve over the medium term.

 

Diversified product and customer portfolio: The company has a wide range of product portfolios in the formulation manufacturing catering to acute therapeutic segments including eye/ear/nasal drops, skin infections, anti-biotics, etc. Further the company also has been achieving healthy revenues from the personal care divisions. The company has more than 1500 products with the top ten products contributing around 20-25% of the revenues.  

 

LPIL has an established presence in the branded generic segment with presence in the domestic as well as export market. In the domestic market, the company has more than 5000 distributors and has a strong presence in the tier II & III cities and is further increasing its exposure in the tier-I cities. The company derives around 15-25% of its revenues from the export market primarily to African countries. The proportion of export contribution to the topline is expected to increase with the commencement of the new manufacturing facility in Q2 of fiscal 2026. The top ten customers have been contributing revenues of less than 10% over the past few fiscals leading to low concentration risks Diversity in product portfolio and customer base should help enhance the scale of operations over the medium term.

 

Strong financial risk profile: Networth stood at Rs 600 crore as on March 31, 2024, and is  expected to improve further, with steady accretion to reserves. The company incurred share buyback of Rs 123 crore over the past three fiscals through fiscal 2024, however no further share buyback is expected and hence networth is further expected to improve to around Rs 700 to 710 crore as on March 31st 2025. Capital structure is aided by low leverage, as reflected in low total outside liabilities to adjusted networth (TOL/ANW) ratio of 0.94 time and gearing of 0.06 time, as on March  31, 2024. With low reliance on external debt to support working capital requirement and no large debt funded capex plans, the TOLANW is estimated to improve to around 0.80 – 0.85 times as on March 31st 2025.

 

Debt protection metrics are also healthy due to low leverage and healthy profitability. Interest coverage and net cash accrual to total debt ratios stood at 18.9 times and 2.9 time, respectively, for fiscal 2024, and are expected to remain steady at around 17 - 18 times and 4 – 4.5 times as on fiscal 2025. The financial risk profile should remain strong over the medium term.

 

Weaknesses:

Exposure to regulatory risks and intense competition with presence limited to branded generic segment and low exposure in chronic therapeutic segment: Susceptibility to regulatory changes for pharmaceutical formulations and intense competition persists. The pharmaceutical industry is highly regulated by state governments and various government agencies such as Central Drugs Standard Control Organization and National Pharmaceutical Pricing Authority. These agencies 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. The company has to comply with stringent quality and pricing norms on a continuous basis. Also, with an increasing export base, the regulatory requirements of a larger number of countries need to be met.

 

Further the company’s products primarily comprise of branded generic segment which faces intense competition from other pharmaceutical players in the industry. This limits the company’s ability to scale up their operations and profitability over the medium term.

 

Working capital intensive operations: Gross current assets are estimated to be high at 240 to 245 days as on March 31, 2025, driven by large receivables and inventory of 125 to 130 days and 90 to 100 days, respectively. The company needs to extend a long credit period to its customers, which keeps receivables high in the range of 125-135 days. To ensure timely fulfilment of customer requirements, the group may continue to hold large inventory of 90-110 days over the medium term. Working capital requirement is partially supported through creditors and remains a key rating sensitivity factor.

Liquidity: Strong

Bank limit utilisation is low at around 5% for the past twelve months ended Jan 2025. Cash accruals are expected to be over Rs 150 to 160 crore which are sufficient against term debt obligation of Rs 9-10 crore over the medium term. In addition, it will be act as cushion to the liquidity of the company.

 

The current ratio is estimated to be healthy at 1.87 times on March 31, 2025 while unencumbered cash and bank balance stood at around Rs. 50 crores as on March 31, 2024. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations.  Low gearing and moderate net worth support it’s financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Stable

Crisil Ratings believe LPIL will continue to benefit from the extensive experience of its promoter, and established relationships with clients.

Rating sensitivity factors

Upward factors

• Significant increase in the scale of operations while maintaining operating margins above 11% leading to higher cash accruals
• Sustenance of strong financial risk profile and improvement in working capital cycle

 

Downward factors

• Decline in operating margins below 9% or lower than expected revenues leading to lower cash accruals
• Large debt-funded capital expenditure or stretch in working capital cycle weakening the financial profile of the company

About the Company

Established in 1985, LPIL manufactures and markets branded generic formulations, in the form of injections, eye drops, tablets, capsules and ointments. The company has a wide range of about 1500 formulations, mostly over the counter (OTC) like eye infection drops, pain killers, antibiotics and dermatology and ayurvedic medicines. The company was founded by the Panipat-based Bhatia family. It manufactures pharmaceuticals and cosmetics from its plants in Panipat (Haryana) and Paonta Sahib (Himachal Pradesh). The company’s domestic business can be divided into three verticals—the elite division, the GPP division and the personal care division.

Status of non cooperation with previous CRA

LPIL has not co-operated with ICRA Limited which has classified it as non-cooperative vide release dated 24th April 2024. The reason provided by ICRA Limited is non-furnishing of information for monitoring of ratings.

Any other information: Not Applicable