Rating Rationale
September 29, 2021 | Mumbai
Lee Pharma Limited
Ratings upgraded to 'CRISIL BBB / Stable / CRISIL A3+ '; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.178 Crore (Enhanced from Rs.126 Crore)
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB- / Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3 ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded the ratings on the bank facilities of Lee Pharma Limited (LPL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The upgrade factors in the expectation of LPL’s sustenance of improvement in operating performance over the medium term. Operating income has improved at a compounded annual growth rate of 27 percent to Rs.443 crore in Fiscal 2021, despite the disruptions from pandemic, largely supported by improved capacity utilization and healthy demand for its new products; i.e. anti-viral drugs, anti-smoking drugs and anti-diabetic drugs. Operating profitability has remained sustained at around 12-13 percent over the same period. The company is likely to report steady growth in this fiscal as well, supported by improving demand for its products and continued investment in capacity addition as well as capacities for backward integration for manufacturing of its products. Steady improvement in turnover along with sustainability of operating profitability is expected to result in strong cash accrual of around Rs.40-50 crore over the medium term that shall be adequate to meet repayment obligations of Rs.10-15 crore.

 

The ratings continue reflect the extensive experience of LPL's promoters in the pharmaceutical industry and its relationship with customers. The rating also factors in the above average financial risk profile, marked by a moderate gearing and above average debt protection metrics. These rating strengths are partially offset by the large working-capital-requirements, and exposure to intense competition in the pharmaceuticals industry.

Key Rating Drivers & Detailed Description

Strengths

  • Extensive experience of LPL's promoters in the pharmaceutical industry and its established relationship with customers:  The promoters have experience of more than 2 decades in the pharmaceutical industry; which has supported the improvement in revenues over the last 5 fiscals. Supported by the extensive experience of the promoters, the company has been able to establish healthy relationships with its customers. CRISIL Rating’s believes that LPL shall continue to benefit from the extensive experience of its promoters over the medium term.

 

  • Above average financial risk profile: Financial risk profile is above average marked by above average debt protection metrics and a healthy capital structure. The gearing was at around 1.25 times as on March 31, 2021. Despite debt capital expenditure, the gearing is expected to gradually improve over the medium term; supported by healthy accretion to reserves. The debt protection metrics are marked by an interest coverage and net cash accrual to total debt ratio of around 3.54 times and 22 percent for fiscal 2021.

 

Weaknesses

•        Exposure to intense competition in the pharmaceutical industry: LPL is present in the pharmaceutical industry, which is highly fragmented. Exposure to competition can constrain LPL’s pricing flexibility; which can impact its operating effeciencies adversely

 

  • Exposure to risks related to ramp up and implementation of operations in its upcoming facility: The company is undertaking capital expenditure for the second and third phase of its upcoming manufacturing facility. The second phase of the capital expenditure is expected to be commercialised from October 2021 and the third phase by December 2021 Any time or cost over runs in the implementation and ramp up of this capital expenditure can impact the financial risk profile adversely

Liquidity ~ Adequate

LPL’s liquidity is expected to remain adequate over the medium term marked by adequate cash accrual for debt repayment and moderate utilization of fund based working capital limits. LPL is expected to generate cash accrual of around Rs.40-50 crore over the medium term adequate to meet repayment obligations of Rs.10-15 crore. The fund based working capital limits have been utilised at an average of 81 percent over the last six months ended August 2021. Liquidity is further supported by funding support in the form of unsecured loans from promoters; which was at around Rs.4.5 crore as on March 31, 2021 (Rs.0.66 crore as on March 31, 2020).

Outlook Stable

CRISIL Ratings believes that LPL shall continue to benefit over the medium term from the extensive experience of its promoters and established customer relationship

Rating Sensitivity factors

Upward Factors

  • Improvement in interest coverage to more than 4.5 times
  • Steady improvement in turnover while sustaining operating profitability

 

Downward Factors

  • Decline in operating profitability to less than 10 percent
  • Any higher than expected debt funded capital expenditure adversely impacting the financial risk profile             

About the Company

Incorporated in 1997 by Mr. A Venkata Reddy and his family members, Lee is engaged in manufacturing of active pharmaceuticals ingredients (APIs), bulk drugs advance intermediate chemicals (AIC) and formulations. It also has a research facility, Lee Advanced Research Centre, in Medak (Telangana). The company is based out of Hyderabad

Key Financial Indicators

Particulars

Unit

2021

2020

Revenue

Rs.Cr

443.74

327.36

Profit After Tax (PAT)

Rs.Cr

23.88

14.43

PAT Margin

%

5.4

4.4

Adjusted debt/adjusted networth

Times

1.26

1.10

Interest coverage

Times

3.54

298

 

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)

ISIN

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size
(Rs. Crore)

Complexity
Levels

Rating Assigned with Outlook

NA

Term Loan

NA

NA

Mar-25

62.2

NA

CRISIL BBB/Stable

NA

Long term loan

NA

NA

Mar-24

12.3

NA

CRISIL BBB/Stable

NA

Bank Guarantee

NA

NA

NA

1.5

NA

CRISIL A3+

NA

Cash Credit

NA

NA

NA

68

NA

CRISIL BBB/Stable

NA

Letter of Credit

NA

NA

NA

20.0

NA

CRISIL A3+

NA

Packing Credit in foreign currency

NA

NA

NA

1

NA

CRISIL BBB/Stable

NA

Proposed Cash Credit Limit

NA

NA

NA

13

NA

CRISIL BBB/Stable

 

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 156.5 CRISIL BBB/Stable   -- 24-06-20 CRISIL BBB-/Stable 26-08-19 CRISIL BBB-/Negative 18-04-18 CRISIL BBB-/Negative CRISIL BBB-/Negative
      --   --   -- 05-03-19 CRISIL BBB-/Negative 04-04-18 CRISIL BBB-/Negative --
Non-Fund Based Facilities ST 21.5 CRISIL A3+   -- 24-06-20 CRISIL A3 26-08-19 CRISIL A3 18-04-18 CRISIL A3 CRISIL A3
      --   --   -- 05-03-19 CRISIL A3 04-04-18 CRISIL A3 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1.5 State Bank of India CRISIL A3+
Cash Credit 23 Canara Bank CRISIL BBB/Stable
Cash Credit 5 HDFC Bank Limited CRISIL BBB/Stable
Cash Credit 9 SVC Co-Operative Bank Limited CRISIL BBB/Stable
Cash Credit 31 State Bank of India CRISIL BBB/Stable
Letter of Credit 15 State Bank of India CRISIL A3+
Letter of Credit 5 HDFC Bank Limited CRISIL A3+
Long Term Loan 12.3 SVC Co-Operative Bank Limited CRISIL BBB/Stable
Packing Credit in Foreign Currency 1 HDFC Bank Limited CRISIL BBB/Stable
Proposed Cash Credit Limit 13 - CRISIL BBB/Stable
Term Loan 25 State Bank of India CRISIL BBB/Stable
Term Loan 3.2 Canara Bank CRISIL BBB/Stable
Term Loan 19 SVC Co-Operative Bank Limited CRISIL BBB/Stable
Term Loan 15 SVC Co-Operative Bank Limited CRISIL BBB/Stable

This Annexure has been updated on 29-Sep-2021 in line with the lender-wise facility details as on 29-Sep-2021 received from the rated entity.

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 Approach to Recognising Default
CRISILs Criteria for rating short term debt

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