Rating Rationale
March 28, 2024 | Mumbai
NGL Fine Chem Limited
Ratings reaffirmed at 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.183.71 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
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 reaffirmed its ‘CRISIL BBB+/Stable/CRISIL A2’ ratings on the bank loan facilities of NGL Fine Chem Limited (NGL).

 

The rating reflects the improvement in business risk profile of the group marked by improvement in scale of operations, group’s scale has improved to Rs 239 crores for 9MFY24 majorly on account of improvement in volume sales. While Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins have improved in fiscal 2024 ~16% for 9M FY24 compared to 13.6% for fiscal 2023.

 

Group’s financial risk profile is comfortable marked by networth of over Rs 240 crores as on September 30, 2023. Despite debt funded capex, financial risk profile is expected to remain comfortable. However, it will remain key monitorable over the medium term.

 

The ratings continue to reflect extensive experience of the promoters in animal health API industry, and the established and diversified customer base. Rating also factors in NGL's healthy financial risk profile. These strengths are partially offset by vulnerability of profitability to volatility in raw material prices, high product concentration risk with major presence in animal health API and large working capital requirement.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the financial and business risk profiles of NGL Fine Chem Limited and its wholly owned subsidiary, Macrotech Polychem Pvt Ltd (MPPL). That is because both these companies, together referred to herein as NGL, have a common management and strong operational and financial links.

 

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:

  • Extensive experience of management in animal health API industry: Incorporated in 1981, NGL primarily manufactures veterinary pharmaceutical APIs and intermediates catering to the anti-protozoal and anthelmintic therapeutic segments. Veterinary API contributes to ~80-85% of the total business in this fiscal. The company's directors, Mr. Rajesh Lawande and Mr. Rahul Nachane, have extensive experience of over three decades in the manufacturing of animal health APIs 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 and diversified customer base: NGL derives 75-80% of its sales from the international market i.e., export sales to countries in Europe, Asia Pacific, Middle East, Latin America etc. NGL's customer base is diversified with the top five customers accounting for less than 22% in fiscal 2023. Also, group has been taping new markets to expand their business reach.

 

  • Healthy financial risk profile: Group’s financial risk profile has remained healthy supported by low debt levels and healthy accretion to reserve. The financial risk profile is marked by improvement in networth to Rs 222 crore, gearing of 0.15 times and total outside liabilities to tangible networth (TOL/TNW) ratio of 0.29 times as on March 31, 2023. Debt protection metrics are also comfortable as indicated by interest coverage and net cash accruals to adjusted debt ratio of 20.5 times and 0.94 times respectively in fiscal 2023. Interest coverage ratio was more than 20 times during 9 months of fiscal 2024.

 

The group has planned a capex of Rs 140 crore (40 crores already incurred) which will be funded through debt and internal accruals. Despite this capex, the financial risk profile is expected to remain healthy given healthy net cash accruals and will remain key monitorable.

 

Weaknesses:

  • Vulnerability of profitability to volatility in raw material prices: NGL's major raw materials are intermediates (N-2 and N-3 level intermediates) and solvents used for manufacturing the APIs. The group's operating profitability remains exposed to the adverse movements in the raw materials prices that cannot be fully passed onto to the customers. This can be seen from EBITDA margins declined to 13.5% for fiscal year 2023. But prices have now stabilized this can be seen from improvement in EBITDA margins seen in fiscal 2024. Group’s EBITDA Margins were ~16% for 9MFY24 and will remain monitorable over the medium term.

 

  • High product concentration risk with major presence in animal health API: NGL primarily manufactures various veterinary APIs, which account for 85-90% of the total annual sales, while the rest are derived from intermediates, formulations, and human APIs. Top 5 products still occupy 50% of the total sales in fiscal 2023.

 

  • Large working capital requirement: Group’s gross current assets were at 161 days as on March 31, 2023 primarily on account of increase in inventory and receivable days of 41 days and 88 days respectively. However, Group’s inventory has now increased to previous levels. GCA days are expected to be in the same range over the medium term.

Liquidity: Adequate

Net cash accruals are expected to be over Rs 40 crores against repayment obligations of Rs 2-20 crores over the medium term. Bank Limit Utilization is 30.8% utilized for the last 15 months ending February 2024. Group has investments of Rs 47 crore as on September 30,2023 in liquid Mutual funds. NGL has sufficient headroom to avail debt for this capex. Net cash accrual, unutilised bank limit, and cash and cash equivalent will be sufficient to cover incremental working capital requirement, debt obligation and capex over the medium term.

Outlook: Stable

NGL is expected to exhibit improved operating performance supported by healthy demand and established customer relationships.

Rating Sensitivity factors

Upward factors

  • Sustained revenue growth of over 20% per fiscal with diversification in product profiles, and operating margin sustaining above 16%, resulting in much higher net cash accruals.
  • Sustained improvement in working capital cycle.

 

Downward factors

  • Sharp decline in revenue or drop in operating profitability resulting in cash accruals lower than Rs 25 crores.
  • Higher-than-expected increase in working capital requirements; larger-than-expected, debt-funded capex or acquisition or dividend pay-out; weakening the financial risk profile and liquidity.

About the Group

NGL, incorporated in 1981, manufactures human and veterinary bulk drugs, intermediates, and formulations. It primarily deals in animal healthcare products such as antiprotozoal, anthelmintics, and growth promoters. The administrative office is in Mumbai and manufacturing facilities are in Tarapur and Navi Mumbai in Maharashtra. Mr Rahul Nachane and Mr Rajesh Lawande manage the business. In May 2019, NGL Fine Chem Limited acquired 100% equity shareholding in MPPL, which manufactures pharmaceutical intermediates.

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

278.08

317.50

Reported profit after tax

Rs crore

20.50

49.90

PAT margins

%

7.4

15.7

Adjusted Debt/Adjusted Net worth

Times

0.15

0.15

Interest coverage

Times

20.56

37.96

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 instrument

Date of allotment

Coupon
rate (%)

Maturity

date

Issue size

(Rs crore)

Complexity

levels

Rating Assigned

with Outlook

NA

Cash Credit

NA

NA

NA

37

NA

CRISIL BBB+/Stable

NA

Letter of Credit

NA

NA

NA

8

NA

CRISIL A2

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

136.64

NA

CRISIL BBB+/Stable

NA

Term Loan

NA

NA

Feb-2025

2.07

NA

CRISIL BBB+/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Macrotech Polychem Private Limited

Full

Common management and strong operational and financial link

NGL Fine Chem Limited

Full

Common management and strong operational and financial link
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 175.71 CRISIL BBB+/Stable   -- 06-01-23 CRISIL BBB+/Stable 28-03-22 CRISIL BBB+/Positive   -- CRISIL BBB+/Stable / CRISIL A2
      --   --   -- 28-02-22 CRISIL BBB+/Positive   -- --
Non-Fund Based Facilities ST 8.0 CRISIL A2   -- 06-01-23 CRISIL A2 28-03-22 CRISIL A2   -- CRISIL A2
      --   --   -- 28-02-22 CRISIL A2   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 15 Kotak Mahindra Bank Limited CRISIL BBB+/Stable
Cash Credit 22 HDFC Bank Limited CRISIL BBB+/Stable
Letter of Credit 8 HDFC Bank Limited CRISIL A2
Proposed Long Term Bank Loan Facility 136.64 Not Applicable CRISIL BBB+/Stable
Term Loan 2.07 HDFC Bank Limited 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
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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