Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank loan facilities of Poly Medicure Limited (PolyMed; part of PolyMed group) at 'CRISIL AA-/Stable/CRISIL A1+'.

 

The ratings continues to reflect PolyMed groups strong market position in the organized medical disposable devices market with strong brand positioning due to high quality products used in infusion therapy, blood management, surgery, dialysis, and other segments. The continuous growth double-digit growth group had reported over last three fiscals ending fiscal 2022 has been attributed to healthy market position in 'intravenous (IV) cannula' product segment which have continued to contribute 56-57% to total revenue in fiscal 2022. Poly Med's diversified client base spread across domestic and international markets and its own high brand sales contributing around 70-72% in fiscal 2022 will continue to aid group's business risk profile over medium term.

 

The groups revenue has increased from Rs. 787 cr. in fiscal 2021 to Rs. 925 cr. in fiscal 2022, driven by healthy demand flow for medical disposal devices both in domestic as well as exports market. In H1FY23 group has already achieved revenue of Rs. 524 crore and is expected to grow at a healthy pace of 18-20% in FY23 due to an increase in penetration of group's products in large chain hospitals, path labs and dialysis centres. Further, company's market position should improve supported by launch of new products on continuous basis and government support in form of PLI incentives, which will in turn boost the growth of organized players like Poly Medi. Operating profitability remains sustained at around 23-25% in last three fiscals ending FY22 and however due to the increase in the raw material prices the margins of the company in H1FY23 declined to ~21%. The margins of the company are expected to rebound supported by stabilization in commodity prices along with improved economies of scale group is expected to maintain the EBITDA margins of 23-25% in the medium term.

 

The ratings continues to reflect the PolyMed group's strong market position in the intravenous (IV) cannula product segment, strong operating efficiencies and comfortable financial risk profile. These strengths are partially offset by the exposure to fluctuations in raw material prices and foreign exchange (forex) rates, susceptibility to regulatory changes and exposure to intense competition.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of PolyMed and its wholly-owned subsidiaries, Poly Medicure (Laiyang) Co Ltd (PMLCL; based in China), Poly Medicure BV Netherland (PMBV), Plan1 Health India Pvt Ltd, and Plan1Health SRL (100% subsidiary of PMBV), Ultra For Medical Products Company (Wholly owned subsidiary of PolyMed) and Poly Health Medical Inc.(USA), a step-down Subsidiary. These entities are collectively referred to herein as the PolyMed group.

 

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:

Strong market position

Revenue has been steadily increasing at a compound annual growth rate of 15% over the five fiscals through 2022; this trend of 18-20% growth is likely to continue over the medium term, supported by continuous capacity addition and product innovation and development. The IV cannula segment, sold across more than 100 countries, contributed around 56-57% in fiscal 2022. The group has over 300 registered patents across the countries. Continuous capacity addition and product innovation and development will support revenue growth over the medium term.

 

Strong operating efficiencies

The operating efficiency - reflected in healthy operating margin of 23-25% during the three fiscals through 2022 - is driven by labour-cost advantage over global competitors and in-house tool design and research and development (R&D) facilities. While the operating margin slipped to ~21% in the first half of fiscal 2023 because of higher raw material prices, it is expected to recover to 23-25% over the medium term as commodity prices stabilise and the group improves economies of scale, supported by steady capacity utilisation, modernisation of facilities and cost-cutting initiatives.

 

Strong financial risk profile

The financial risk profile has improved on account of Rs 400 crore raised through a qualified institutional placement (QIP) in fiscal 2021. The strong capital structure is reflected in networth of Rs 1,036 crore, TOLTNW ratio of 0.28 time and gearing of 0.13 time as on March 31, 2022. The networth is expected to increase due to accretion to reserve over the medium term. Net debt has remained negligible due to the strong liquidity of the group. The debt protection metrics were strong, too, as indicated by interest coverage and NCAAD ratios of 37 times and 1.32 time, respectively, in fiscal 2022. The group plans capex of Rs 150-200 crore in fiscal 2023, which is expected to be funded largely through internal accrual.  

 

Weakness:

Exposure to fluctuations in raw material prices and forex rates

Price of the key material (plastic) is directly linked to the highly volatile crude oil prices. Since cost of procuring plastic accounts for a bulk of production expense, even a slight variation in rate can drastically impact profitability. Further, as exports contribute to around two-third of the sales, the operating margin will remain exposed to any unfavourable fluctuation in forex rates.

 

Susceptibility to change in regulations and Exposure to intense competition

The group exports products to highly quality-conscious markets such as Europe. Its Unit-II at Faridabad, Haryana, was audited by the US Food and Drug Authority; all plants received CE certifications, permitting exports to Europe. Any change in the policies in these markets can impact profitability. Intense competitive pressure, both locally (from unorganised players) and globally (from reputed players such as Baxter, Becton Dickinson, B Braun and Boston Scientific), may continue to constrain scalability, pricing power and profitability. Further, lower expenditure than international players on R&D activities limits the capability to develop new products for global markets.

Liquidity: Superior

Liquidity of the group is superior as reflected by healthy liquid investment and unencumbered cash and bank balance of Rs.328 crore outstanding as on Sep 30, 2022 aided by fund raised through QIP route in February, 2021 itself. Bank lines were moderately utilized at 40-50% for last 12 months ending Aug 2022.

 

At group level, group is expected to generate net cash accrual over Rs.200 crore on an annual basis against debt obligations worth Rs 30-40 crore on annual basis. The repayment obligations has reduced compared to previous years as the group has pre-paid certain portion of its long-term loans from the funds raised through QIP.

Outlook: Stable

The PolyMed group will continue to benefit from its healthy market position in the medical devices industry, and continuous focus on product development.

Rating Sensitivity Factors

Upward Factor

• Sustained healthy double-digit growth in revenue, with operating profitability maintained above 25% on sustained basis leading to healthy cash accruals.
• Continued maintenance of superior financial risk profile, esp. liquidity

 

Downward Factor

• Moderation of revenue and profitability due to intense competition or impact of any adverse action; for instance, operating profitability declining below 20% on sustainable basis
• Higher than expected capital spending or large debt funded capital expenditure or acquisition, leading to moderation in credit metrics

About the Group

The PolyMed group is promoted by Mr Himanshu Baid and Mr Rishi Baid. The group's flagship company, PolyMed was incorporated in 1995; it manufactures disposable medical items, such as IV cannula, blood bags, blood collection tubes, and infusion and transfusion sets. The company is currently listed on the Bombay Stock Exchange and the National Stock Exchange.

 

PMLCL, started commercial operations in April 2009. PolyMed also has a joint venture, Ultra For Medical Products Co, Egypt, with the El-Agar group, which directly caters to the African and other markets. In fiscal 2019, PolyMed also acquired Plan1Health SRL (100% subsidiary of Poly Medicure B.V., Netherlands), an Italy-based company that manufactures mainly cancer related devices and other critical devices.

 

The group currently has five manufacturing facilities in India: three in Faridabad (Haryana), one each in Jaipur (Rajasthan), and Haridwar (Uttarakhand), all under PolyMed.

Key Financial Indicators: (Consolidated)*

As on/for the period ended March 31	Unit	2022	2021
Operating income	Rs crore	923.06	786.46
Reported profit after tax	Rs crore	146.50	135.87
PAT margins	%	15.87	17.28
Adjusted Debt/Adjusted Networth	Times	0.13	0.15
Interest coverage	Times	37.22	21.28

*CRISIL Ratings adjusted figures.

Any other information: Not applicable