Rating Rationale
July 13, 2020 | Mumbai
Poly Medicure Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.220 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1' ratings on the bank facilities of Poly Medicure Ltd (PolyMed; a part of the PolyMed group).
 
The reaffirmation factors in the PolyMed group's performance in fiscal 2020 and anticipated resilience in fiscal 2021 amid Covid-19 pandemic. The PolyMed group generated revenue and cash accruals of Rs 684 crore and Rs 91 crore in fiscal 2020, in line with CRISIL's expectations.
 
The operations of the group in India (contributing 94% to the total revenue) were slightly impacted in March because of the nationwide lockdown announced by the government on March 22, 2020. The operations re-started on April 3, 2020, once the plant was permitted under essential services. Group's foreign operations in Italy operated as usual, but operations in China remained shut for two weeks.
 
In fiscal 2021, the PolyMed group is expected to continue to grow because of its strong presence in export market ' it contributes to two-third of total revenue every year - to be supported by the introduction of products related to Covid-19 such as sterilized VTM Testing Kits,  Personal Protection Kits and Face Protective Shield. The company's strong market position in its current product categories is supported by the expectation of continued healthy growth of the new products, which should contribute less than 5% for the entire year.
 
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 change in regulations and exposure to intense competition.

Analytical Approach
For arriving at the ratings, CRISIL 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) collectively referred to 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 growth' registering a 12% compounded annual rate over the five periods through fiscal 2020'is expected to continue at a moderate pace. The major product, IV cannula, contributed around 29% of total sales in fiscal 2020 (28% in fiscal 2019), across more than 100 countries. The company also has over 200 registered patents across countries. Continuous capacity addition and product innovation and development will support revenue growth over the medium term.
 
* Strong operating efficiencies
Strong operating efficiencies are driven by labour-cost advantage over global competitors and in-house tool design and research and development (R&D) facilities. Operating margin is expected at 20'23% over the medium term, supported by comfortable capacity utilisation and modernisation of existing facilities.
 
* Comfortable financial risk profile
Group's total outside liabilities to tangible networth ratio was 0.8 time and gearing 0.5 time as on March 31, 2020, with networth over Rs 400 crore. Debt protection metrics are strong, indictaed by interest coverage and net cash accrual to adjusted debt ratios of 8.9 times and 0.45 time, respectively, in fiscal 2020.
 
Weaknesses:
* Exposure to fluctuations in raw material prices and forex rates
Operating margin is susceptible to fluctuation in the prices of the key raw material, plastics; these prices are directly linked to the highly volatile crude oil prices. Further, as exports contribute to around two-third of the sales, the margin is exposed to fluctuations in forex rates.
 
* Susceptibility to change in regulations
The group mainly exports products to highly quality-conscious markets such as Europe. Its Unit-II at Faridabad, Haryana, has been audited by the US Food and Drug Authority, and all other plants have CE certifications for exports to Europe. Any change in policies in these markets can impact profitability.
 
* Exposure to intense competition
There is intense competition from players such as Baxter, Becton Dickinson, B Braun, and Boston Scientific in the global market. Lower expenditure than international players on R&D activities limits the capability to develop new products for global markets. Moreover, the group is exposed to stiff competition in the domestic market from unorganised players.
Liquidity Strong

Net cash accrual, expected at more than Rs 120 crore in fiscal 2021, will sufficiently cover maturing debt of Rs 35 crore. Unencumbered fixed deposits and liquid investments were over Rs 50 crore and Rs 18 crore respectively as on March 31, 2020. Utilization of fund-based limit of Rs 70 crore averaged at 59% over the 12 months through February 2020. The group does not have any major debt-funded capital expenditure over the medium term.

Outlook: Stable

CRISIL believes the PolyMed group's business risk profile will remain strong over the medium term, supported by its healthy market position in the medical devices industry, and continuous focus on product development.

Rating Sensitivity factors
Upward factor
* Sustained improvement in scale of operation and operating margin leading to higher than anticipated cash accruals.
* Net long term debt at zero with strong liquidity maintained in form of fixed deposits and market instruments over Rs 100 crore on a sustainable basis
 
Downward factor
* Decline in net cash accruals below Rs 80 crore on account of decline in revenue or operating profits.
* Large debt-funded capital expenditure or any acquisition which weakens capital structure
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 cancer related 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   2020 2019
Operating income Rs crore 687.2 610.8
Reported profit after tax Rs crore 93.74 64.59
PAT margin % 13.64 10.57
Adjusted debt/Adjusted networth Times 0.49 0.48
Interest coverage Times 8.9 9.7

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
 ISIN Name of Instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Complexity Level Rating assigned
with outlook
NA Fund-Based Limits NA NA NA 82.5 NA CRISIL A+/Stable
NA Non-Fund Based Limits NA NA NA 55 NA CRISIL A1
NA Long Term Loan NA NA Oct-2024 82.5 NA CRISIL A+/Stable
 
Annexure - List of entities consolidated
Name of the company Extent of consolidation Rationale for Consolidation
Poly Medicure (Laiyang) Co Ltd  Full Wholly owned subsidiary of PolyMed
Poly Medicure BV Netherland  Full Wholly owned subsidiary of PolyMed
Plan1Health SRL  Full Wholly owned subsidiary of PMBV
Plan1 Health India Pvt Ltd  Full Wholly owned subsidiary of PolyMed
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  165.00  CRISIL A+/Stable      25-07-19  CRISIL A+/Stable  11-06-18  CRISIL A+/Stable  29-04-17  CRISIL A+/Stable  CRISIL A+/Stable 
                    21-04-17  CRISIL A+/Stable   
Non Fund-based Bank Facilities  LT/ST  55.00  CRISIL A1      25-07-19  CRISIL A1  11-06-18  CRISIL A1  29-04-17  CRISIL A1  CRISIL A1 
                    21-04-17  CRISIL A1   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities 82.5 CRISIL A+/Stable Fund-Based Facilities 75 CRISIL A+/Stable
Long Term Loan 82.5 CRISIL A+/Stable Long Term Loan 94 CRISIL A+/Stable
Non-Fund Based Limit 55 CRISIL A1 Non-Fund Based Limit 51 CRISIL A1
Total 220 -- Total 220 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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