Rating Rationale

Strengths:
* Extensive experience of the promoters: The promoters have an experience of more than 20 years in the medical devices industry. This has helped get business in a quality-conscious industry. Since incorporation, the company has established itself in the coronary stent industry. The extensive industry experience of the promoters and the established market presence will enable the company to derive maximum benefits from the integration of operations with MIVT India Pvt Ltd (MIVTI), which was recently taken over by Purple.

* Healthy operating margin: The margin has remained at 14.5-16.5% over the four fiscals ending 2019. The margin is likely to remain at a similar level over the medium term owing to continuation of reduction in purchase cost arising from backward integration.

* Moderate financial risk profile: The total outside liabilities to adjusted networth ratio is estimated at a moderate 1.45 times, though the networth was modest, estimated at Rs 21.53 crore, as on March 31, 2019. The interest coverage and net cash accrual to adjusted debt ratios are estimated at 2.57 times and 0.17 time, respectively, for fiscal 2019. In the absence of any debt-funded capital expenditure (capex) plans and improvement in the networth because of accretion to reserves, the financial risk profile should improve further over the medium term.

Weaknesses
* Modest scale of operations and susceptibility to regulatory changes: The coronary stents industry is highly fragmented with the presence of both domestic and international players. The company faces competition from premier organised players such as Sahajanand Medical Technologies Pvt Ltd and Merriland Translumina amongst others. The scale of operations is likely to remain marginal over the medium term due to exposure to intense competition and the presence of large players in the industry. Further, any adverse impact of regulatory changes with respect to pricing will impact the business risk profile.

* Large working capital requirement: Gross current assets were high at 307 days, driven by large receivables of 217 days and inventory at 87 days, as on March 31, 2019. Operations are likely to remain working capital intensive owing to continuation of high debtor period and inventory holding.

Liquidity: Adequate
Liquidity is adequate due to sufficient cash accrual to meet repayment obligations, though partially constrained by high working capital requirement. Cash accrual is expected at Rs 3.25-4.00 crore, against which repayment obligation of Rs 3.15-1.37 crore, per fiscal in fiscals 2020 and 2021. Any shortfall in liquidity is supported by unsecured loans from the promoters (outstanding at Rs 1.25 crore as on March 31, 2019). Working capital-intensive operations have led to high bank limit utilisation at an average of 90% during the 12 months through March 2019. Liquidity is likely to remain adequate in the absence of any major capex plans over the medium term and retention of profits in the business to fund incremental working capital requirement.