Detailed Rationale

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

 

The ratings continue to reflect the healthy business risk profile of the group marked by year-on-year growth in revenue. In the first 9 months of fiscal 2024, the group achieved revenue of Rs 997 crore against Rs 808 crore in the corresponding period in fiscal 2023 and is likely to grow to Rs 1,300-1,350 crore in fiscal 2024. The PolyMed group has a strong market position in the organised medical disposable devices market with strong brand positioning due to high quality products used in infusion therapy, blood management, surgery, dialysis, and other segments. PolyMed's diversified client base spread across domestic and international markets and its own high brand sales contributing around 70% in recent fiscals and will continue to aid the group's business risk profile over the medium term. However, further diversification in its product portfolio leading to lower dependence on core products will be a key monitorable. Operating margin has also remained healthy at 25.8% in fiscal 2023 and 26.2% in the first 9 months of fiscal 2024. CRISIL Ratings expects operating margin to remain at 25-26% over the medium term.

 

The group’s financial risk profile continues to be healthy with total outside liabilities to tangible networth (TOL/TNW) and gearing ratios expected below 0.3 time over the medium term and debt protection metrics at robust levels. Liquidity is superior with low bank limit utilisation, healthy accrual vs low repayment obligations and sizeable unencumbered cash and liquid investments.

 

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

Analytical Approach

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 (CAGR) of 17% over the five fiscals through 2023; 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 group has over 300 registered patents across  countries. Continuous capacity addition and product innovation and development will support revenue growth over the medium term as well. Further diversification in its product portfolio leading to lower dependence on core products will be a key monitorable.

 

• Strong operating efficiency: The operating efficiency - reflected in healthy operating margin of 25-29% during the three fiscals through 2023 - is driven by labour-cost advantage over global competitors and in-house tool design and research and development (R&D) facilities. Operating margin is expected to remain at 25-26% over the medium term and stood at 26.2% in the first nine months of fiscal 2024. Margins should be supported by the group improving its economies of scale, aided by steady capacity utilisation, modernisation of facilities and cost-cutting initiatives.

 

• Above average financial risk profile: The strong capital structure is reflected in networth estimated over Rs 1,380 crore as on March 31, 2024 with gearing and TOL/TNW expected below 0.3 time over the medium term. Networth is projected to increase due to accretion to reserve over the medium term. Net debt has remained negligible due to the strong liquidity of the group. Debt protection metrics were robust too, as indicated by interest coverage and net cash accrual to adjusted debt (NCAAD) ratios expected over 30 times and 1.9 times, respectively, for fiscal 2024. The group is planning capex of Rs 150-200 crore in the coming fiscals, which is likely to be funded largely through internal accrual.

 

Weaknesses:

• High, though reducing, dependence on core products: The group has high dependence on core products segment; infusion therapy products with ~67% sales in fiscal 2023 are from this segment. Though the group has been adding new products to its portfolio, revenue contribution from these remain low and will take time to penetrate the markets. Benefits of these new launches will accrue over time and will help gradually reduce the dependence on core categories. The group will, therefore, remain exposed to the risk of concentration of revenue in its core product categories over medium term. These risks are mitigated by the strong market position of the group in these segments.

 

• 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 the 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-thirds of the sales, 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 in the healthy liquid investment in mutual funds of Rs 118.6 crore and fixed deposits of Rs 186 crore, part of which has been used for overdraft (OD) limits, and remaining unencumbered. Unencumbered liquidity is estimated at a similar amount as on date. Bank lines were moderately utilised at 46% over the 12 months through October 2023.

 

At the group level, expected annual cash accrual of Rs 265 crore should comfortably cover debt obligation of Rs 22.5 crore in fiscal 2024 and Rs 17.5 crore in fiscal 2025 with the remaining cushioning liquidity. CRISIL Ratings notes that the group will undertake capex of Rs 150-200 crore per annum in the coming fiscals, which will be largely funded via internal accrual.  

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 factors:

• Growth in revenue with increasing contribution from newer products and operating profitability maintained at 25-26% on a sustained basis leading to healthy cash accrual.
• Continued maintenance of superior financial risk profile, especially. liquidity

 

Downward factors:

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

About the Company

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 has 12 manufacturing facilities across 4 countries. 9 manufacturing facilities in India (6 facilities in Faridabad, 2 in Jaipur and 1 in Haridwar), 3 facilities overseas (1 facility in China – wholly owned subsidiary, 1 joint venture in Egypt, 1 facility in Italy).

Key Financial Indicators

As on / for the period ended March 31	Unit	2023	2022
Operating income	Rs crore	1,118.5	925.0
Reported profit after tax (PAT)	Rs crore	178.9	146.2
PAT margin	%	16.0%	15.8%
Adjusted debt/Adjusted networth	Times	0.12	0.13
Interest coverage	Times	26.72	37.22

 

Any other information: Not Applicable