Rating Rationale
July 10, 2024 | Mumbai
Lactose India Limited
Rating upgraded to 'CRISIL BBB-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.50 Crore
Long Term RatingCRISIL BBB-/Stable (Upgraded from 'CRISIL BB+/Stable')
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 has upgraded its rating on the long term bank facilities of Lactose India Ltd (LIL) to ‘CRISIL BBB-/Stable’ from ‘CRISIL BB+/Stable’.

 

The upgrade reflects the growing business profile of the company with a topline of Rs. 113.9 crores in fiscal 2024 with an operating margin maintained at 17.1%. The GCA days improved from 170 days in fiscal 2023 to 113 days in fiscal 2024. The growth in the revenue is due to the focus on direct sales after they discontinued the job work for Kerry group and higher capacity utilization.

 

CRISIL Ratings believes that with the support of higher exports and incremental capacity utilization of both lactose and lactulose, the revenue profile of the company is expected to grow by 20% year on year over the medium term. The liquidity and financial risk profile shall continue to grow at a comfortable level.

 

The rating also reflects LIL's extensive industry experience of the promoters, consistently growing business profile and above average financial profile. These strengths are partially offset by its susceptibility to fluctuations in raw material prices, intense competition, and regulatory risks, modest scale of operations and working capital intensive operations.

Analytical Approach

CRISIL Ratings has considered standalone financials of LIL for the credit rating exercise.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters: LIL was set up by the promoter, Mr Atul Maheshwari in 1991. His father, late Mr SM Maheshwari had experience of over three decades in the pharmaceutical industry. Longstanding presence of the promoters and their strong expertise have helped the company strengthen its market position, as reflected in the steady growth in revenue. The company has been working on the marketing strategy for the last couple of years and is now associated with 70-80 registered customers.

 

  • Consistently growing business risk profile: The business risk profile of the company has been consistently growing over the past few fiscal years. Post the association with the Kerry group, the company has focused on marketing and direct sales. The company has registered an average ROCE of over 10% and is expecting a ROCE of over 15% over the medium term.

 

The company was able to achieve a revenue of Rs. 113.9 crores in fiscal 2024 with an EBITDA margin of 17.1%. There is a revenue growth of 75% from fiscal 2023 to fiscal 2024 because of direct sales and minimum job work and also the increase in the capacity utilization of their manufacturing capacities.

 

Investment in Double drum drier will save the treatment cost improving the operating margin. The orderbook maintained quarterly consists of orders worth Rs. 25 to 30 crores on average and is recurring in nature.

 

CRISIL Ratings believes that with the support of higher exports and incremental capacity utilization of both lactose and lactulose, the revenue profile of the company is expected to grow by 20% year on year over the medium term. The liquidity and financial risk profile continue to grow at a comfortable level.

 

  • Above average financial profile: Capital structure is aided by low reliance on external debt, as reflected in moderate gearing of 0.81 time and total outside liabilities to adjusted net worth (TOL/ANW) ratio of 1.4 times, respectively, as on March 31, 2024. The estimated adjusted net worth remained at Rs. 47 crores as of March 31, 2024.  Debt protection metrics are comfortable too, despite leverage due to the term debt obligation. Interest coverage and net cash accrual to total debt ratios are estimated at 3.72 times and 0.32 time, respectively, for fiscal 2024. With better accretion to reserves, the financial risk profile is expected to improve further over medium term.

 

Weaknesses:

  • Susceptibility to fluctuations in raw material prices, intense competition and regulatory risk: Presence of numerous domestic as well as global players has led to intense competition in the bulk drugs industry. Players such as LIL need to remain cost competitive to maintain their profitability.

 

  • Modest scale of Operations: The revenue increased to Rs. 113.9 crores in fiscal 2024 from Rs. 65 crores in the previous fiscal 2023 backed by incremental capacity utilization and direct sales, however, remains modest. The modest scale limits pricing flexibility and profitability. However, the business profile of the company is growing on a year-on-year basis. The ability of the company to grow its operations and maintain profitability will remain monitorable.

 

  • Working capital Intensive operations: The Gross current asset days have remained between 160 to 170 days for the past few fiscal years till fiscal 2023. It is required to extend a long credit period in line with the industry standards and maintaining inventory of around 4 to 5 months.  Furthermore, to meet its business requirements, it does large work in process & inventory. However, the working capital cycle is expected to improve over the coming years.

 

However, the working capital cycle of the company has improved in fiscal 2024 with an estimated GCA days of 113 days, from fiscal 2023 with GCA of 170 days. The inventory built up was higher in fiscal 2023 due to the shift of the company from job work for the Kerry group to direct sales and higher utilization of their manufacturing facilities. However, the management has worked in controlling the inventory days to around 60 to 65 days and debtor days are maintained around 60 days. The working capital cycle is expected to be on a similar level over the medium term.

Liquidity: Adequate

Bank limit utilisation is moderate averaging around 56% for the 12 months ended May 31, 2024. Expected cash accrual of Rs 18-22 crore should suffice to cover the term debt obligation of Rs 6.2-7.7 crore over the medium term. Current ratio is moderate estimated at 1.40 times on March 31, 2024.

Outlook: Stable

CRISIL Ratings believes LIL will continue to benefit from the extensive experience of its promoters and their established relationships with clients in the pharmaceutical industry. Steady operating margin and growing topline, along with sustenance of working capital cycle at a healthy level, remains a key monitorable.

Rating Sensitivity factors

Upward factors:

  • Sustained growth in revenue and operating margin, leading to cash accrual of over Rs 20 crore
  • Sustained working capital cycle, with GCAs consistently below 120 days.

 

Downward factors:

  • Decline in revenue (by 20%) and operating margin below 14%, leading to lower cash accrual
  • Large debt-funded capital expenditure, weakening the capital structure
  • Substantial increase in working capital requirement, weakening financial risk profile and liquidity

About the Company

LIL was incorporated in 1991. The company manufactures products such as lactose powder, lactulose and pharmaceutical tablets at its manufacturing facility in Vadodara, Gujarat. The unit has an installed capacity of 10,000 million tonne per annum (MTPA) for lactose powder, 2400 MTPA (lactulose) and 20 lakh tablets per day. It has been listed on Bombay Stock Exchange (BSE) since 1991.

 

Daily operations are managed by Mr Atul Maheshwari (Managing Director), Mrs Sangita Maheshwari (director) and Mr Ranjit Kshirsagar (Chief Executive Officer).

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

(Provisional)

2023

(Audited)

Operating income

Rs crore

113.89

65.80

Reported profit after tax

Rs crore

6.78

1.29

PAT margin

%

6.0

1.84

Adjusted debt/Adjusted networth

Times

0.81

0.96

Interest coverage

Times

3.72

1.93

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 Cash credit NA NA   NA 13 NA CRISIL BBB-/Stable
NA Proposed working capital facility NA NA  NA 3.89 NA CRISIL BBB-/Stable
NA Term loan NA NA Apr-2026 2.13 NA CRISIL BBB-/Stable
NA Term loan NA NA Apr-2026 2 NA CRISIL BBB-/Stable
NA Term loan NA NA Apr-2026 3.65 NA CRISIL BBB-/Stable
NA Term loan NA NA Apr-2026 25.33 NA CRISIL BBB-/Stable
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 50.0 CRISIL BBB-/Stable 28-02-24 CRISIL BB+/Stable   --   --   -- Withdrawn
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 13 Bank of Baroda CRISIL BBB-/Stable
Proposed Working Capital Facility 3.89 Bank of Baroda CRISIL BBB-/Stable
Term Loan 2.13 Bank of Baroda CRISIL BBB-/Stable
Term Loan 2 Bank of Baroda CRISIL BBB-/Stable
Term Loan 3.65 Bank of Baroda CRISIL BBB-/Stable
Term Loan 25.33 Bank of Baroda CRISIL BBB-/Stable
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
Understanding CRISILs Ratings and Rating Scales

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