| Lincoln Pharmaceuticals Limited | ||||||
| Ratings upgraded to 'CRISIL A/CRISIL A1 '; outlook revised to 'Stable' | ||||||
| Rating Action | ||||||
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| 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 ratings on the bank facilities of Lincoln Pharmaceuticals Limited (LPL; part of Lincoln group) to ‘CRISIL A/Stable/CRISIL A1’ from CRISIL A-/Positive/CRISIL A2+.
The rating upgrade reflects the Lincoln group’s improved business profile and the continued consolidation in the financial risk profile. Lincoln is an established player in pharmaceutical industry with 1700 registered products across more than 15 therapeutic segments and generates 55-60% revenue through exports. The group has maintained a healthy annual revenue growth rate of around 15% (through four years to fiscal 2022) while simultaneously improving its operating profitability to above 20% as against sub-15% earlier. Over the medium term, the group is expected to maintain its growth trajectory and healthy margin. This shall be supported by addition of Cephalosporin which has potential to add around 30% to the topline over next three fiscals. Further, group’s European market foray shall provide additional fillip to the business profile.
The Lincoln group’s financial risk profile remains strong, backed by healthy capital structure indicated by estimated networth of more than Rs. 400 cr as on March 31, 2022, with largely debt free balance sheet. Debt protection measures have remained comfortable in absence of debt coupled with healthy profitability. With expected accruals adequately covering the incremental capex and working capital requirements, the financial profile should remain strong.
The ratings reflect the extensive experience of the group's promoters in the pharmaceutical industry, and its established market position and healthy financial risk profile and liquidity. These strengths are partially offset by a working capital intensive operations, exposure to risks related to unfavourable regulations, and intense competitive pressure. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of LPL, Lincoln Parenteral Ltd (Lincoln Parenteral), and Zullinc Healthcare Ltd (ZHL). This is because the companies, collectively referred to as the Lincoln group, are in the same line of business, and have common promoter and management team. They also support each other in the event of an exigency and have significant transactions. Furthermore, LPL holds the entire stake in ZHL, and 98.58% stake in Lincoln Parenteral.
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:
Benefits from the promoters’ experience of more than three decades should continue to support business risk profile. Over the years, promoters have developed keen understanding of markets and a close relationship with customers and suppliers.
Lincoln group’s business profile is underpinned by an established market position, widespread geographic reach, and healthy customer and product base. The group has presence in more than 15 therapeutic segments and exports to more than 60 countries. Revenue is Rs. 424 crore in fiscal 2021.
Financial risk profile is healthy with networth of Rs 366 crore with negligible debt as on March 31, 2021. Debt protection metrics are comfortable, too, with interest coverage and net cash accrual to total debt ratios of 57.6 times and 134.33 times, respectively, in fiscal 2021. The financial risk profile is estimated to have further strengthened in fiscal 2022 supported by healthy profits and minimal borrowings
Weaknesses:
Operations are working capital intensive as reflected in gross current assets (GCA) days of around six months as on March 31, 2021. The group had debtors and inventory of 99 days and 51 days, respectively. Credit received from suppliers partially funds the working capital.
Susceptibility to regulatory risk with regards to pharmaceutical formulations, and intense competition persists. The group needs to continuously comply with stringent quality and pricing norms. Also, with increasing export base, regulatory requirements of a wider base of countries need to be met as well. |
Liquidity: Strong The group is expected to generate annual cash accruals in the range of Rs. 75-85 cr against which it does not have any major term debt obligations. The group currently has liquid investments of around Rs.90 cr in FD, mutual funds. Bank limit have been rarely utilized by the company. Current ratio was healthy at 4.1 times on March 31, 2021. Further, the group does not have any major capex plans and annual investment remaining below Rs. 50 cr over medium term. Low gearing and moderate net worth support its financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believes the Lincoln group will benefit over the medium term from its established market presence and healthy financial profile. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Group LPL was set up as a partnership firm in 1979 and reconstituted as a public limited company in January 1995. It is listed on the Bombay Stock Exchange. LPL manufactures and sells pharmaceutical formulations related to respiratory, genitourinary, and musculoskeletal systems, alimentary tract and metabolism, and anti-infectives among others.
Lincoln Parenteral was incorporated in 1991 and manufactures dry powder, liquid injectibles, and syrup variants at its facilities in Ahmedabad (Gujarat). The company is in process of merger with LPL.
ZHL trades in and markets pharmaceutical products.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 6 | State Bank of India | CRISIL A1 |
| Cash Credit | 15 | State Bank of India | CRISIL A/Stable |
| Cash Credit | 1 | YES Bank Limited | CRISIL A/Stable |
| Export Packing Credit | 40 | State Bank of India | CRISIL A1 |
| Export Packing Credit | 11 | YES Bank Limited | CRISIL A1 |
| Letter of Credit | 6 | State Bank of India | CRISIL A1 |
| Letter of Credit | 5 | YES Bank Limited | CRISIL A1 |
| Proposed Long Term Bank Loan Facility | 9.41 | State Bank of India | CRISIL A/Stable |
This Annexure has been updated on 13-Mar-2023 in line with the lender-wise facility details as on 02-Mar-2023 received from the rated entity.
Criteria Details
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