| Omniactive Health Technologies Limited | ||||
| Rating upgraded to 'CRISIL A+/Stable’ | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of OmniActive Health Technologies Ltd (OHTL; part of the OHTL group) to 'CRISIL A+/Stable' from 'CRISIL A/Positive'.
The rating upgrade reflects the expected sustained improvement in the operating performance of the OHTL group and its continued adequate financial risk profile. The group registered healthy operating margin of around 32% and revenue growth of 5-7% in the first nine months of fiscal 2022 driven by continued focus on cost optimisation and reducing travelling and marketing cost. The operating margin is expected at 27-29% over the medium term.
The financial risk profile also improved as reflected in comfortable gearing of 0.3 time as on December 31, 2021, and debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio estimated at 0.6 time in fiscal 2022. The company plans modest capital expenditure (capex) of Rs 30-40 crore annually and is evaluating inorganic growth opportunities. While the capex will be funded through internal accrual, any acquisition is likely to funded partly through debt, which may lead to moderation in the capital structure and debt metrics over the medium term. Nonetheless, peak gearing is expected to remain below 1 time and peak debt to Ebitda below 2 times. Larger-than-expected debt-funded capex or acquisition could impact the financial risk profile and will be a key monitorable.
The rating continues to reflect the established market position of the OHTL group in the nutraceutical segment and its adequate financial risk profile. These strengths are partially offset by working capital-intensive operations; high geographic, customer and product concentration in revenue; and susceptibility to fluctuations in raw material availability and prices. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of OHTL and its subsidiaries, because of their common business and integrated operations. All the entities are collectively referred to as the OHTL group.
CRISIL Ratings has amortised goodwill on acquisition of Indfrag in 2017 over five years. Profit after tax (PAT) and networth have been adjusted accordingly.
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 market position in the nutraceuticals segment The OHTL group benefits from its established market position in the nutraceuticals segment, supported by its promoters' extensive experience, strong research and development capabilities, and established product lines. The promoter, Mr Sanjay Mariwala, has experience of more than three decades in the natural foods and supplement ingredients industry which, along with strong in-house research and development capabilities, has led to a portfolio of branded, innovative natural products with clinically proven health benefits. The group has complementing products in the speciality and botanical segments that account for about 80% and 20%, respectively, of its revenue. It has speciality products such as Lutemax 2020, Omnixan, Capsimax, Gingever, enXtra for therapeutic segments of vision, cognition and mental health, metabolic health and weight management, active wellness and natural energy. Some of the key products are market leaders in their respective segment. Longstanding relationships with customers through co-development and co-branding of products give the group an edge in the market.
The OHTL group established its presence in the botanical extracts market through the acquisition of Indfrag in fiscal 2017. The group reported healthy revenue of Rs 490 crore in the first nine months of fiscal 2022. Revenue is expected to grow 14-16% annually over the medium term, supported by new product launches, geographic expansion plan, and the healthy demand for nutraceuticals to prevent lifestyle-related health conditions, specifically in the wake of the pandemic.
Healthy operating profitability The OHTL group has vertically integrated operations for major products, including direct sourcing of marigold and paprika from farmers ensuring quality. This also helps control cost and maintain healthy product margins. The operating profitability was healthy around 32% in the first nine months of fiscal 2022 and is expected at 27-29% in the near term, supported by vertically integrated operations, moderate R&D spend, focus on high-margin speciality products, and continued benefit of cost rationalisation.
Adequate financial risk profile The financial risk profile has improved as reflected in comfortable gearing of 0.3 time as on December 31, 2021 (0.9 time as on March 31, 2020) and debt to Ebitda ratio of 0.6 time in fiscal 2022 (2.7 times in fiscal 2020). This is due to improved profitability and accrual as well as debt reduction undertaken by OHTL group with long-term debt declining to Rs 12 crore as on December 31, 2021, from Rs 98 crore as on March 31, 2020.
The company plans modest organic capex of Rs 30-40 crore annually over the medium term and is actively evaluating inorganic growth opportunities. Any acquisition is likely to be partly debt-funded which could moderate the capital structure and debt protection metrics over the medium term. Nonetheless, peak gearing is expected to remain below 1 time and peak debt to Ebitda ratio below 2 times. Larger-than-expected debt-funded capex or acquisition could impact the financial risk profile and will be a key monitorable.
OHTL benefits from its strategic investor, TA OA Associates (TA), a global private equity firm with majority stake of 55.36% in OHTL as on March 31, 2022. This provides operational support in the group’s global expansion plans and financial flexibility for fund infusion to support its inorganic expansion plans. CRISIL Ratings has been given to understand that TA will remain invested for five years and there is no obligation on OHTL or the promoter family to provide an exit or assured return to the investor.
Weakness: Working capital-intensive operations Operations are working capital intensive because of the seasonal availability of raw materials, being agriculture commodities. Gross current assets are expected to remain around 225 days on account of large inventory of 145-160 days with raw material stocking during the peak procurement season and receivables of 60-65 days. The business risk profile will remain constrained by working capital-intensive operations.
High geographic, customer and product concentration risk While the OHTL group has a growing presence in Europe, Asia and Africa, it derives around 75% of revenue from the US market, thereby resulting in high geographic concentration. It is also susceptible to fluctuations in forex risk, as majority of revenue is from the US, while raw material procurement is largely domestic, and the group does not hedge its forex exposure.
The group derives about 50% of revenue from the top 10 customers. Any loss of customer or reduced demand from key clients could adversely impact operating performance. However, the group benefits from established relationship with its customers and co-branded products.
The OHTL group has a diverse product profile of 20-25 products, with 45-50% of the revenue coming from Lutemax 2020 and Lutein family products in the eye care segment. Ability to launch new products and increase value offerings in other segments will remain a key monitorable.
Susceptibility to fluctuations in raw material availability and prices The group’s products are natural and manufactured from flower extract and botanical plants. Raw materials, being agricultural commodities, their availability depends on climatic conditions, resulting in volatility in prices. The group’s vertically integrated supply chain for key products such as marigold and paprika ensure consistent quality of output. While operating profitability should remain healthy over the medium term, any significant volatility in raw material prices and inability to pass on price increases to end customers immediately could put pressure on operating profitability and cash accrual. |
Liquidity: Adequate The OHTL group has adequate liquidity backed by expected annual cash accrual of over Rs 150 crore over the medium term, comfortable to meet the debt repayment obligation and partly fund the organic capex of Rs. 30-40 crore and acquisitions, if any. The bank lines were utilised 68% on average over the 12 months through March 2022. Liquid surplus was healthy at Rs 62 crore as on December 31, 2021, after factoring in partial payment of Rs 12-15 crore to ENovate Biolife for acquisition of the enXtra brand. |
Outlook Stable CRISIL Ratings believes the OHTL group’s business risk profile will improve backed by its established market position in the nutraceutical segment and healthy revenue growth along with sustenance of the improved operating profitability. The financial risk profile should remain adequate with steady working capital cycle and adequate debt metrics. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company OHTL, incorporated in 2003, manufactures nutritional innovations and solutions, specialty botanical and extracts. It is engaged in natural active pharmaceutical ingredients and novel delivery systems for nutrients and active ingredients, and offers a range of quality ingredients which are innovative and scientifically validated for dietary supplementation, colouring, flavour enhancement and personal care applications.
In January 2021, TA acquired majority stake in OHTL. As on March 31, 2022, TA held 55.36% stake in OHTL and the Mariwala family held 39.27% while the rest is held by other shareholders.
On a consolidated basis, net profit was Rs 87 crore in the nine months ended December 31, 2021, on revenue of Rs 490 crore. |
Key Financial Indicators (consolidated)
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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)
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Annexure – List of entities consolidated
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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 | ||||||||||||||||||||||||
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This Annexure has been updated on 01-Jun-2022 in line with the lender-wise facility details as on 09-Dec-2021 received from the rated entity.
Criteria Details
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