Key Rating Drivers & Detailed Description

Strengths:

Established position in the formulations and probiotics business: Benefits from the five-decade-long experience of the promoters in the formulations and probiotics business, the group’s established position in the healthcare and fermentation segments, and its dominant position in the infertility hormones and probiotic formulations (with the largest prescription base in India) segment should support the business. SPL currently has 60 filings in hand, and another 150 filings in pipeline, covering Europe, Africa, Latin America, CIS countries and Asia.

Healthy operating profitability: Operating margin has been healthy in the range of 30-35% during the five fiscals through 2021, due to a diverse product profile, the management’s focus on complex biology skills, sizeable investment in research and development, and healthy brand recall. Business performance continued to be strong in fiscal 2022 with revenue of Rs 240 crore and operating margin of about 34% for the 8 months ended November 2021.

Strong financial risk profile: Networth and gearing have remained healthy at Rs 336 crore and 0.09 time respectively on March 31, 2021. Debt protection metrics were robust, with net cash accrual to adjusted debt and interest coverage ratios of 2.64 times and 30.6 times in fiscal 2021. Financial  risk profile is expected to remain strong supported by healthy business performance and absence of any major debt funded capex plans.

Weakness:

Working capital-intensive operations: Gross current assets were high at 152 days (after adjusting for the cash balance) on March 31, 2021, driven by inventory of 109 days and receivables of 64 days.

Susceptibility to regulatory changes in the domestic and global markets: Operations remain susceptible to regulatory changes in the domestic and international markets. Further, the group faces intense competition from innovator companies, and is vulnerable to price erosion, and legal and regulatory changes.

Key Financial Indicators

Annexure – List of entities consolidated

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