Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Modi-Mundipharma Private Limited (MMPL) to ‘CRISIL A-/Stable/CRISIL A2+’  from ‘CRISIL BBB+/Stable/CRISIL A2’

 

The rating upgrade reflects the expected continued improvement in the business risk profile of the entire group.  Group’s estimated revenue of Rs 1078 crore in fiscal 2022 against Rs.914 crores in fiscal 2021 which is line CRISIL Ratings expectation.  In 6MFY23 the group has achieved revenue of Rs. 863 cr. and is expected to increase to more than Rs. 1200-1400 cr.  The growth is supported by strong market position of the group’s product portfolio along with increasing penetration. The group has achieved the growth in all the segment pharma, nutraceuticals and cosmetics. Majority of the group’s sales i.e.  ~70-75% comes from pharma products which includes antiseptic products under the name of Betadine, Hepamez, Norgine, Mederma etc. Group has been maintaining its leadership position under the brand name of Betadine since last several years in this segment and likely to continue the same in near future as well. Moreover, Group is also planning to increase the presence under OTC channel. This will result in further increase in revenue and resultant improvement in profitability.

 

Moreover, business performance of group’s nutraceutical and cosmetics division also improved. Revenue of nutraceuticals division is expected to perform better in the medium term. The expectation of continuous improvement in revenue and operating margin in both the divisions will be critical for sustainability of group’s business profile and a key rating sensitivity factor.

 

The ratings continue to reflect the group's established brands due to tie-ups with reputed international companies, diversified product profile, strong distribution network and stable working capital cycle, moderate financial risk profile. These strengths are partially offset by and susceptibility to intense competition in the pharmaceutical industry and changes in government regulations and high product concentration in the revenue profile of the group.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of MMPL, Win-Medicare Pvt Ltd (WMPL), Modi-Mundipharma Beauty Products Private Limited (MBP), Mundipharma Bangladesh Pvt Ltd (MBPL), Modi-Mundipharma Healthcare Pvt Ltd (MHPL), Mundipharma Trading Bangladesh Pvt Ltd (MTB), Bangadesh Beauty Products Pvt Ltd (BBPPL) and Beauty Products Lanka Pvt Ltd (BPLPL). This is because all these entities, collectively referred to as the Modi Pharma group, have a parent-subsidiary relationship and are in the same business with moderate business linkages. Also, they have extended corporate guarantee and/or funding support for each other's debt.

 

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:

Established brands due to tie-ups with reputed international companies:

The group has established joint ventures (JVs) and alliances with European and American pharmaceutical companies to leverage their technological capabilities. These include Mundipharma, Switzerland (for the Betadine brand); Merz Asia Pacific Pe Ltd, Germany (HepaMerz brand); Anika Therapeutics, USA; Bionorica, Germany; Lavipharm, Greece; Solae, USA (DuPont); Pierre Fabre, France; Sigma Tau, Italy; Zambon, Italy; and Norgine Pharma, UK.

Due to the established presence the company is able to maintain the CAGR growth of 15-17% in the last 3 fiscals ending FY22.

 

Diversified product portfolio and Strong distribution network

The group has a diversified product profile with presence in cardiac, respiratory, analgesics, pain management, urological, etc. in its pharmaceuticals division. Alongside, the group also has various products under nutraceuticals and cosmetics division whose acceptance has increased in markets in recent times. The group has pan-India distribution reach through 5500 stockists, 60 carrying and forwarding agents, and 1750 sales representatives and managers.

 

Stable working capital cycle

Working capital cycle has remained stable over the years as reflected by gross current assets in the range of 180-200 days in last 4 years ending March 31, 2022. During the same period, debtors and inventory have remained in the period 59 to 67 and 44 to 46 days respectively

 

Moderate financial risk profile

Financial risk profile continues to remain moderate with gearing estimated to improve to 1.34 times as on March 31, 2022. Debt protection metrics were also estimated to remain moderate with interest coverage and net cash accrual to adjusted debt estimated at 2.9 times and 0.5 times for fiscal 2022.

 

Weakness:

Susceptibility to intense competition in the pharmaceutical industry and to changes in government regulations:

Though revenue estimated at around Rs 1073 crore for fiscal 2022 was moderate, there is intense competition for some specific products like company has launched nutraceutical products in 2017 and still the product segment contributes only 5-6% of the groups revenue.   Moreover, the group has to adhere to National Pharmaceutical Pricing Authority's price ceiling for essential drugs as its majority of the products currently fall under the drug price control and any change in the regulations may have impact on the business risk profile of the group.

 

High product concentration in revenue profile: Companies business risk profile is dependent over the one product as more than 50% of the turnover is derived from betadine products and any adverse impact over the product may impact the revenue of the company. However, the Betadine’ is trusted brand in the antiseptic segment and has very limited competition in the market.

Liquidity: Adequate

MMPL on standalone basis has total limit of Rs. 55 cr. utilized average of 83 for last 12 months ending Sep 2022. Group is expected to generate healthy cash accruals of over Rs.70-80 crore on annual basis against annual repayment obligation of Rs. 5-10 crore over the medium term.

Outlook: Stable

CRISIL Ratings believes the Modi Pharma group will continue to benefit from its established brands and extensive industry experience of the promoters.

Rating Sensitivity Factors

Upward factors:

• Significant improvement in revenue of the group with more than 20% and operating profitability maintained at 10% on sustainable basis.
• Improvement in the financial risk profile of the company with gearing and remained at below 1.3 times and with interest coverage of more than 3 times on sustained basis.

 

Downward Factors:

• Significant decline in revenue and operating profitability leading to decline in net cash accruals below Rs. 50 cr.
• Significant debt funded capital expenditure impacting financial risk profile of the group

About the Group

Incorporated in 1990, MMPL is an equal JV between the Umesh K Modi group, India, and the Mundipharma group, Switzerland. The company sells formulations in various therapeutic segments including respiratory, cardiology, gynaecology, pain, and other chronic therapy segments.

 
WMPL, incorporated in 1982, sells formulations in various therapeutic segments including antiseptic, analgesic, gastroenterology, gynaecology, dermatology, and neurocare, and protein supplements. MMPL acquired WMPL, owner of the Betadine brand.

 

WHPL and BBPPL are 100% subsidiaries of WMPL. WHPL is non-operational.

 
MBPL is a subsidiary of WMPL and is engaged in the formulation of drugs. It commenced operations in 2012 and is based in Bangladesh.

 
MHPL was earlier known as Modi-Omega Pharma (India) Pvt Ltd, and was an equal JV between MMPL and Omega Pharma Holding (Netherlands) BV. It trades in health and lifestyle products for skincare, anti-snoring, dietary supplements, and others. MMPL bought back shares and became the sole shareholder of the company in fiscal 2015.

 
MTB is a 100% subsidiary of MBPL.

 
Formed in 1994, Modi Revlon Pvt Ltd (MRPL) was a 74:26 JV between MMPL and Revlon, USA. In fiscal 2017, MMPL bought all the shares from the latter, and became sole owner of MRPL, whose name was later changed to Modi-Mundipharma Beauty Products Pvt Ltd (MMBPL). In India, Revlon has brands such as Revlon Super Lustrous, Revlon Nail Enamel, ColorStay, Street Wear, Revlon Absolute C, Flex, Charlie, Fire & Ice, and ColorSilk. The brand Revlon continually introduces new products and colour trends, and draws expertise from Revlon's research centre in Edison, New Jersey, USA. It also has a research and development centre in Modi Nagar, Uttar Pradesh.

 

BPLPL is a 100% subsidiary of MMBPL.

Key Financial Indicators - Standalone Financials*

Particulars	Unit	2022	2021
Revenue	Rs.Crore	356	318
Profit After Tax (PAT)	Rs.Crore	38.9	11.9
PAT Margin	%	10.94	3.74
Adjusted debt/adjusted networth	Times	0.57	0.67
Interest coverage	Times	6.33	2.6

*FY22 provisional figures and Crisil adjusted numbers.

 

Key Financial Indicators - Consolidated Financials*

Particulars	Unit	2022	2021
Revenue	Rs.Crore	1077	914
Profit After Tax (PAT)	Rs.Crore	84.84	40.12
PAT Margin	%	7.87%	4.38%
Adjusted debt/adjusted networth	Times	1.34	1.86
Interest coverage	Times	2.90	2.58

*FY22 provisional figures and CRISIL Ratings adjusted numbers.

Any other information: Not applicable