| Medi Pharma Drug House | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| 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 revised its outlook on the bank facilities of Medi Pharma Drug House to ‘Positive’ from ‘Stable’ and has reaffirmed the rating at ‘CRISIL BB+’. The short-term rating has been reaffirmed at ‘CRISIL A4+’
The revision in outlook reflects expected sustenance of improvement in the business risk profile over the medium term, supported by increase in realizations, with slight moderation expected in volume. Revenue is estimated at around Rs 510 crore in fiscal 2022, registering growth of more than 80% over previous year. While operating margin is expected to moderate, business risk profile is expected to continue to benefit from the sustenance of higher volume sales compared to past 3 years through fiscal 2021. Further, company’s debt protection metrics has improved, its sustenance to remain key rating sensitivity factors.
The ratings continue to reflect the extensive experience of the partners and an established market position in the bulk drugs (API) trading business. These rating strengths are partially offset by working capital-intensive operations and moderate debt protection metrics. |
Analytical Approach Unsecured loan from partner and related parties to the tune of Rs 3.74 crore as on March 31, 2022 have been treated as neither debt nor equity as the same is expected to be retained in business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: Extensive industry experience of the partners Promoter’s i.e, Sanghavi family have an experience of over 5 decades in the bulk drug (API) trading business and have established relationships with suppliers and customers. The promoters have developed a strong understanding of the industry dynamics, which has helped them successfully navigate several business cycles as well as build long standing relationships with customers.
Established market position The firm’s established market position in the bulk drug trading (API) business is supported by a wide product range and large customer base of over 850. It can be seen from healthy revenue of around Rs 510 crore in fiscal 2022. Firm’s large customer base mainly consists of manufacturers.
Weakness: Working capital-intensive operations Gross current assets are expected to be around 140 days as on March 31, 2022, because of stretched receivables of around 90 days; inventory, however, was lower at around 35 days. GCA days is expected to remain high on account of nature of business.
Moderate debt protection metrics Due to intense competition faced in API business, the margins are expected to be around in the range of 3-4% over medium term. While the margins improved in fiscal 2022, sustenance is to be seen. This has led to improve in debt protection metrics particularly interest coverage estimated at 5.18 times in fiscal 2022. Sustenance of improved debt protection metrics with interest coverage ratio remaining above 2 times to remain rating sensitivity over the medium term |
Liquidity: Adequate Bank limit utilisation is low at around 55.18 percent for the past twelve months ended 31st March 2022. Cash accruals are expected to be over Rs 18 crore which are sufficient against no term debt obligation over the medium term. In addition, it will be act as cushion to the liquidity of the company.
No major debt funded capex plans over medium term. Current ratio are moderate at 1.27 times on March 31, 2022. Cash and bank balance is expected to be around 11.05 crore as on March 31, 2022 |
Outlook Positive CRISIL Ratings believes MPDH will continue to benefit over the medium term from the extensive experience of its promoters. |
Rating Sensitivity factors Upward factor • Sustenance in growth of revenues with stable operating margin resulting significantly higher cash accruals • Improvement in working capital management and financial risk profile with interest coverage ratio remaining above 2 times
Downward factor • Decline in revenues by over 30% or with operating margins declining to below 2.5%. • Increase in working capital requirement, larger-than-expected debt-funded capex or acquisition, or more-than-expected capital withdrawals, weakening the financial risk profile, particularly liquidity. |
About the Company Established in 1963, MPDH is currently managed by Dr. Sanghavi along with his son & daughter, Mr Het and Ms Twisha. The firm procures bulk drugs (API) largely from China for sale to pharmaceutical companies in India. |
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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 65 | Union Bank of India | CRISIL BB+/Positive |
| Letter of Credit | 25 | Union Bank of India | CRISIL A4+ |
This Annexure has been updated on 16-Feb-23 in line with the lender-wise facility details as on 25-Jan-23 received from the rated entity.
Criteria Details
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