| Piramal Enterprises Limited | ||||
| 'CRISIL A1+' assigned to Short-Term NCD | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Note: The common independent director on the boards of CRISIL and Piramal Enterprises Ltd did not participate in the rating committee meeting and the rating process for these instruments |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL A1+' rating to the short-term non-convertible debentures of Piramal Enterprises Limited (PEL) and reaffirmed its 'CRISIL A1+' rating on the commercial paper programme. |
| Analytical Approach |
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For arriving at the rating, |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong business risk profile due to diversified revenue streams, and healthy growth prospects in key segments: Over the years, the company has emerged as a leading player in the critical care segment in branded generics and is also one of the main global pharma contract development and manufacturing organisations (CRAMS). It is also present in the OTC segment in the domestic pharmaceutical market. In the HIA business it partners with global pharma companies. Global pharma (including CRAMS and critical care), OTC, and HIA accounted for 73%, 5%, and 22%, respectively of total pharma and HIA sales in fiscal 2019. The company ventured into the HIA business by acquiring Decision Resources Group. The segment's performance has improved in fiscal 2019. In fiscal 2019, HIA revenue grew by about 10% fiscal-on-fiscal to Rs 1,332 crore, led by the launch of new products, while the operating profitability margin improved by 300 bps to 17% driven by cost optimisation through shifting offices and one-third workforce to India from the the US. The company is present in the entire value chain of the pharma lifecycle ' from development and commercial manufacturing to off-patent supplies of active pharmaceutical ingredients (APIs) and formulations. In the critical-care segment, it has a strong portfolio of niche branded generic hospital products, and is also among the top global players in inhalation anaesthetic products. In OTC drugs, it is the fifth-largest player in India with strong brands such as Saridon, Lacto Calamine, and I-pill (8 brands among India's top 100 OTC brands). Pharma segment growth over the medium term is likely to be aided by increase in sales from new acquisitions, launch of new products in the existing segments, and steady revenue in the CRAMS segment. * High operating efficiency supported by an experienced management and accredited manufacturing facilities: The promoters have an experience of nearly three decades in the pharma industry. Also, presence in the niche pharma generics segments in the global pharma space has led to a higher operating margin than domestic peers. PEL has manufacturing facilities across the world, including some acquired. It has CRAMS facilities in North America, Europe, and Asia; with approvals from the US Food and Drugs Administration and Medicines and Healthcare products Regulatory Agency (UK) for key sites abroad and in India. PEL is among the few Indian pharma companies whose facilities have cleared audits conducted by global regulatory agencies, without material observations or stoppage of work. This reflects the company's superior product quality and processes The pharma business is spearheaded by the promoters, the Piramal family members, along with experienced professionals heading various verticals. The growth is largely through acquisitions and key personnel from the acquired entities have been retained to ensure streamlining of, and continuity in, operations. * Adequate financial flexibility as holding company of the group: PEL, as the holding company of the Piramal group, has adequate financial flexibility driven by the sizeable value of its holdings mainly in the financial services businesses, including in the Shriram group. This provides flexibility to raise funds through dilution of equity should the need arise. PEL had invested Rs 4,583 crore in three Shriram group entities; this has increased materially in terms of value. In June 2019, it sold its investment in Shriram Transport Finance Corporation for about Rs 2,300 crore. The company also intends to monetise its investments in Shriram City Union Finance Ltd and Shriram Capital Ltd. The company holds 100% stake in its financial subsidiaries ' PCHFL and PHL Fininvest - in which it has invested equity of Rs 9000 crore over time. Till 2016, the financing business was largely carried out in PEL with limited operations in the financial subsidiaries. In fiscal 2017, following a business restructuring, a sizeable portion of the assets and liabilities relating to the financial business were transferred to the wholly owned subsidiaries. As on March 31, 2019, the financial service business portfolio stood at Rs 54,760 crore, of which real estate financing (construction finance, mezzanine, and lease rent discounting) constituted around 72%, making it one of the largest lenders in this space in India. PEL's financial flexibility is largely dependent on prevailing market sentiments and movement in share prices of key investments, as well as performance of its financial subsidiaries. Any increase in systemic risks, impacting financial flexibility, will be a monitorable. Weaknesses: * Moderate credit metrics: The global pharma, OTC, and HIA businesses have been grown largely through acquisitions (worth about USD 500 million in the past 30 months). While revenue has been ramped up, these acquisitions are yet to contribute materially to profitability and were largely debt-funded, leading to modest credit metrics and return on capital employed for fiscal 2019. The networth, however, was sizeable. Capital expenditure (capex) in the pharma business is expected to be prudent as sufficient capacities exist, while the OTC business functions largely on the outsourcing model. Credit ratios are expected to improve with increasing contribution from recent acquisitions leading to higher profitability, and lower debt. Any large, debt-funded acquisition will be a credit monitorable. * Significant debt obligation: Significant portion of the standalone debt is repayable in fiscal 2020, which may require part refinancing after considering cash generation from operations, available unutilised bank limit and receipt from financial subsidiaries. Nevertheless, the management has demonstrated its ability to arrange for refinancing of debt in a timely manner, and is expected to continue to do so. Further, they intend to monetise investments in Shriram group and are also taking steps to increase long-term funding sources at consolidated level. However, with dependence on refinancing, future steps taken by management to improve its borrowing mix and liability maturity profile will be a key monitorable. |
| Liquidity |
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PEL's liquidity is marked by adequate financial flexibility of the group in form of investments in financial services, including the Shriram group (valued at about Rs 5000 crore) and financial subsidiaries. Furthermore, there has been a sound track record of refinancing and raising funds, including equity to meet requirements. However, there are challenges in refinancing because of the liquidity crisis in the NBFC sector, thus impacting financial flexibility. Significant portion of the standalone debt is short-term in nature and needs to be partly refinanced during fiscal 2020. Ability of the management to improve the financial risk profile through raising external commercial borrowings, monetisation of stake in Shriram group, or future sale of stake in financial subsidiaries, will be an important monitorable. |
| About the Company |
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Founded by Mr Ajay Piramal, PEL manufactures pharmaceuticals for CRAMS, critical care (comprises inhalation and injectable anaesthetics), OTC, and HIA segments. It is also present in the financial services space through PCHFL. PEL also holds substantial stake in Shriram group companies, whose market value has moderated in the past 12 months, in line with the sentiment in the NBFC space, but still remain above the original investment made. |
| Key Financial Indicators: Standalone | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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