Rating Rationale
August 22, 2024 | Mumbai
Valiant Laboratories Limited
Rating downgraded to 'CRISIL BBB+/Negative'
 
Rating Action
Total Bank Loan Facilities RatedRs.50 Crore
Long Term RatingCRISIL BBB+/Negative (Downgraded from 'CRISIL A-/Negative')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has downgraded its rating on the long term bank facilities Valiant Laboratories Ltd (VLL) to ‘CRISIL BBB+/Negative' from ‘CRISIL A-/Negative'.

 

Rating action reflects continued moderation in the business risk profile of the company on account of subdued demand and fall in realization along with lower fixed cost absorption.

 

Revenue for the fiscal 2024 moderated to around Rs 188 crore, a year-on-year degrowth of ~45% mainly due to slower-than-expected recovery over the medium term. Performance in Q1 FY25 remained under pressure owing to subdued demand. Company has reported revenue of Rs 18.88 crore and operating loss of Rs 2.39 crore in Q1 FY25. This plummeting margin is also on account of low-capacity utilization resulting in lower absorption of fixed cost amid tepid demand from the end user segment. The company’s working capital cycle has also been stretched.

 

Despite the weakened operating performance, financial risk profile is likely to remain adequate with the expected benefits from operationalisation of the proposed capex. Debt protection metrics, which is expected to be impacted this fiscal, will gradually improve from next fiscal and will remain monitorable. Despite expected additional debt of Rs 60-80 crore for capex in the fiscal 2025, company’s gearing is expected to remain below unity.

 

Liquidity will be supported by unutilised bank line of Rs 55 crore (in the 12 months ending June-24) and expected annual cash accrual of Rs 5-10 crore over medium term. Company has cash and cash equivalents of Rs 59 crore as on June 30, 2024. Company has Rs.3-4 Crores repayment obligation in FY25. Repayments are expected to be over Rs. 20 crore per annum staring FY26.

 

The ratings continue to reflect the strong market position marked by established customer relationship and diversified product basket, experienced management, and healthy capital structure. These strengths are partially offset by its susceptibility to fluctuations in raw material prices, intense competition and regulatory risks, and its working capital-intensive operations

Analytical Approach

To arrive at the ratings on VLL, CRISIL Ratings has combined the business and financial risk profiles of VLL and its subsidiary Valiant Advanced Sciences Pvt Limited (VASPL).

 

Unsecured loan of Rs 59.4 crore from the promoters has been treated as debt

 

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:

  • Well Established clientele base and Experienced management: Promoters have been engaged in the chemical intermediates business for over three decades which has enabled them to develop strong understanding of market dynamics and establish healthy relations with customers and suppliers. VLL has established presence in the active pharmaceutical ingredient (API) manufacturing business. Presently company manufactures paracetamol. VLL has established healthy and long-term relationship with various customers across India. CRISIL Ratings believes that VLL’s established industry presence, diversified product basket and long and established relations with customers, bolsters its business risk profile

 

  • Healthy capital structure: The financial risk profile is above average with Low reliance on external funds has kept the capital structure healthy, as indicated by gearing of 0.32 time (which is largely on account of unsecured loans of Rs.59.4 Crores) and total outside liabilities to adjusted net worth ratio of 0.45 times as on March 31, 2024, coupled with strong net worth of Rs. 236.8 crores. Company has raised Rs. 152.46 crores through initial public offering (IPO) in October 2023, thereby resulting in further improvement in capital structure. Company is undertaking capex and IPO proceed is expected to partly mitigate the funding risk of capex being undertaken.

 

While debt protection metrics have also been healthy backed by low debt with interest coverage and net cash accrual to total debt ratio stood at 16.37 times and 0.03 time, respectively, for fiscal 2024, it will moderate in FY25.

 

Weaknesses:

  • Susceptibility of operating margin to volatility in raw material prices: The raw material prices are volatile, and their availability is subject to market conditions. The operating margin of VLL has been volatile in range of 0.6%-26% over past five fiscals, on account of fluctuations in raw material prices, which the company can pass on after a lag. Players in the pharmaceutical industry are susceptible to regulatory changes with respect to price controls and approvals. Moreover, intense competition in the pharmaceutical industry further restricts bargaining power. Furthermore, sustenance of operating margin post completion of capex and during ramp up stage will remain monitorable.

 

  • Working capital-intensive operations: Gross current assets were at 124-250 days over the four fiscal periods through 2024. The large working capital requirement stems from sizeable receivables of 91 days and moderate inventory of 19 days. The receivables are high at the end of the fiscal due to high year-end sales and it provides extensive credit to longstanding customers. The working capital cycle will remain a key monitorable

Liquidity: Adequate

Bank limit utilization is Nil for the past twelve months ended July 2024. Cash accruals are expected to be over Rs 4 Crores which is sufficient against term debt obligation of Rs 3-4 Crores over the medium term. In addition, it will act as a cushion to the liquidity of the company. 

 

Current ratio is satisfactory at 6.95 times on March 31, 2024. Moderate cash and cash equivalents of around Rs. 59 Crores as on March 31, 2024. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Outlook: Negative

VLL’s credit profile will remain under pressure on account of subdued operating performance with fall in operating margin

Rating Sensitivity factors

Upward factors:

  • Sustained revenue growth and operating margin improving above 7%, leading to higher cash accrual
  • Timely completion of the on-going capex
  • Improvement in the financial risk profile particularly debt protection metrics

 

 Downward factors:

  • Operating profitability remaining below 3% leading to lower net cash accrual
  • Significant delays in completion and ramp up of revenue from the enhanced capacities
  • Large debt-funded capital expenditure or increase in working capital requirement weakening the capital structure

About the Group

The company is engaged in manufacturing of active pharmaceutical ingredients (API) such as paracetamol and has manufacturing facility located in Tarapur- Maharashtra). Currently, the operations are being managed by Mr. Santosh Vora (Son of Mr. Shantilal Vora ) who is the director in the company. The company has also formed subsidiary Valiant Sciences Pvt Limited. The company is listed on NSE and BSE.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

192.19

333.91

Reported profit after tax

Rs crore

0.32

29.00

PAT margins

%

0.17

8.68

Adjusted Debt/Adjusted Networth

Times

0.32

0.59

Interest coverage

Times

16.37

138.22

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Working Capital Facility NA NA NA 50 NA CRISIL BBB+/Negative

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Valiant Advanced Sciences Pvt Limited

Full

Subsidiary

Valiant Laboratories Limited

Full

Parent company
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 50.0 CRISIL BBB+/Negative 20-02-24 CRISIL A-/Negative 08-12-23 CRISIL A-/Stable 09-09-22 CRISIL A-/Stable   -- --
      --   -- 23-11-23 CRISIL A-/Stable   --   -- --
Non-Fund Based Facilities ST   --   -- 23-11-23 CRISIL A2+ 09-09-22 CRISIL A2+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Working Capital Facility 50 Kotak Mahindra Bank Limited CRISIL BBB+/Negative
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Bank Loan Ratings - process, scale and default recognition
The Rating Process
Understanding CRISILs Ratings and Rating Scales
CRISILs Approach to Recognising Default
CRISILs Criteria for Consolidation

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