Rating Rationale
March 17, 2025 | Mumbai
 
Zenith Drugs Limited
'Crisil BBB-/Stable/Crisil A3' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.75 Crore
Long Term Rating Crisil BBB-/Stable (Assigned)
Short Term Rating Crisil A3 (Assigned)
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 assigned its ‘Crisil BBB-/Stable/Crisil A3’ ratings to the bank facilities of Zenith Drugs Limited (ZDL).

 

The ratings reflect the extensive industry experience of the company’s promoters, diverse product portfolio supporting scale and extensive distribution and sales network, and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition, vulnerability of profitability to adverse changes in government regulations and working capital-intensive operations.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profiles of ZDL. Unsecured loans of Rs 5.66 crore have been treated as neither debt nor equity as these are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive industry experience of the promoters, diverse product portfolio supporting the scale and extensive distribution and sales network: The two decade-long experience of the promoters in the pharmaceutical industry and their keen grasp over local market dynamics have helped the company to expand scale and reach, as reflected in the healthy compound annual growth rate of 113% in revenue over the three fiscals through 2024, to Rs 131.58 crore in fiscal 2024. Sales till September 2024 were Rs 67.69 crore and are expected to register 8-9% growth on-year for the full fiscal 2025 on the back of outstanding order book of ~Rs 40 crore (to be executed in the next 2-3 months). Furthermore, the company has recently completed the expansion of its liquid lines and a new product line for tablets, which will further enhance overall revenue profile.

 

The company’s product basket is diversified, and includes liquid orals, ointments, ORS powder, liquid externals, capsules and tablets. This mitigates the risk of obsolescence in case of any new product coming into the market. Furthermore, ZDL caters to a diverse range of customers and generates revenue through various avenues, such as marketing of branded generic drugs, third-party jobwork manufacturing, government and institutional business, and exports through merchant dealers. However, overall revenue is still moderate and significant improvement in this will remain monitorable.

 

  • Comfortable financial risk profile: Networth was large at Rs 62 crore while gearing and total outside liabilities to tangible networth (TOLTNW) ratio were strong at 0.29 time and 0.96 time, respectively, as on March 31, 2024. With steady accretion to reserve, networth is expected to be over Rs 67 crore as on March 31, 2025, while gearing and TOLTNW ratio are likely to be less than 0.6 time and 1.2 times, respectively. However, these are expected to moderate marginally in fiscal 2026 owing to debt-funded capital expenditure (capex) plan of Rs 20 crore towards the development of a new product line (funded through term debt of Rs 14 crore and balance through internal accrual); however, the ratios will remain comfortable. Debt protection metrics are expected to be adequate, with interest coverage and net cash accrual to adjusted debt ratios of over 3.5 times and over 0.18 time, respectively, over the medium term. After completion of the capex, financial risk profile is expected to improve with schedule debt repayment and accretion to reserve.

 

Weaknesses:

  • Exposure to intense competition in the formulations industry and vulnerability of profitability to adverse changes in government regulations: Intense competition from large formulation manufacturers, having integrated operations, will continue to restrict pricing power against customers.

 

The pharmaceutical industry is highly regulated by state governments and various government agencies such as Central Drugs Standard Control Organisation and National Pharmaceutical Pricing Authority. These agencies approve new drugs and clinical trials, control the quality of imported drugs, and set prices for many critical drugs; while state authorities regulate manufacture, sales, and distribution. This has resulted in moderation in Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin to 10% in the first-half of fiscal 2025, which is expected to remain around 10% for the full fiscal (compared with 12% in fiscal 2024). Any further decline in Ebitda margin impacting the accrual will remain monitorable.

 

  • Working capital-intensive operations: Gross current assets (GCAs) were 197-297 days over the three fiscals through 2024, and stood at 297 days as on March 31, 2024. This was due to stretched receivables of over 165 days and inventory of 80-90 days. The company has to extend long credit period in the government business and hold large work-in-process and raw material inventory. Improvement in the overall working capital cycle will remain monitorable.

Liquidity: Adequate

Bank limit utilisation was moderate at around 70.35% for the 13 months through December 2024. Cash accrual is expected to be over Rs 7.7 crore against term debt obligation of Rs 2-3 crore per annum over the medium term; and the remaining accrual will cushion liquidity. Current ratio was healthy at 1.78 times as on March 31, 2024. The promoters are likely to extend equity and unsecured loans to meet working capital requirement and debt obligation.

Outlook: Stable

Crisil Ratings believes ZDL will continue to benefit from the extensive experience of its promoters and established relationships with clients.

Rating sensitivity factors

Upward factors

  • Significant improvement in scale of operations and sustenance of operating margin, leading to higher cash accrual
  • Better working capital cycle, with GCAs improving to 250 days

 

Downward factors

  • Fall in revenue and decline in profitability below 7% leading to lower-than-expected net cash accrual
  • Large, debt-funded capex weakening capital structure
  • Substantial increase in GCAs over 350 days weakening liquidity and financial risk profile

About the Company

Incorporated on November 15, 2000, as a private limited company (Zenith Drugs Pvt Ltd), ZDL was reconstituted as a public limited company in September 2023 with the current name. It is promoted by Mr Sandeep Bhardwaj, Mr Bhupesh Soni and Mr Ajay Singh Dassundi.

 

ZDL manufactures and markets pharmaceutical products, including a wide range of formulations in various forms such as ORS powder, liquid oral, ointments, creams, gels, liquid externals, capsules and tablets. Unit is located in Indore, Madhya Pradesh. ZDL was listed in February 2024 on the SME platform of the National Stock Exchange.

Key Financial Indicators – Crisil Ratings-adjusted numbers

As on / for the period ended March 31

 

2024

2023

Operating income

Rs crore

132.60

114.75

Reported profit after tax (PAT)

Rs crore

4.67

4.88

PAT margin

%

3.52

4.25

Adjusted debt/adjusted networth

Times

0.29

1.17

Interest coverage

Times

5.31

4.35

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 Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 15.11 NA Crisil A3
NA Cash Credit NA NA NA 35.00 NA Crisil BBB-/Stable
NA Term Loan NA NA 31-Mar-30 9.29 NA Crisil BBB-/Stable
NA Term Loan NA NA 31-Mar-30 14.49 NA Crisil BBB-/Stable
NA Working Capital Term Loan NA NA 31-Mar-27 1.11 NA Crisil BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 59.89 Crisil BBB-/Stable 13-01-25 Withdrawn (Issuer Not Cooperating)* 23-10-24 Crisil B+ /Stable(Issuer Not Cooperating)* 16-08-23 Crisil B+ /Stable(Issuer Not Cooperating)* 08-06-22 Crisil B+ /Stable(Issuer Not Cooperating)* Crisil B+ /Stable(Issuer Not Cooperating)*
Non-Fund Based Facilities ST 15.11 Crisil A3   --   --   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 11.11 HDFC Bank Limited Crisil A3
Bank Guarantee 4 State Bank of India Crisil A3
Cash Credit 9 HDFC Bank Limited Crisil BBB-/Stable
Cash Credit 26 State Bank of India Crisil BBB-/Stable
Term Loan 9.29 State Bank of India Crisil BBB-/Stable
Term Loan 14.49 HDFC Bank Limited Crisil BBB-/Stable
Working Capital Term Loan 1.11 State Bank of India Crisil BBB-/Stable
Criteria Details
Links to related criteria
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)

Media Relations
Analytical Contacts
Customer Service Helpdesk

Ramkumar Uppara
Media Relations
Crisil Limited
M: +91 98201 77907
B: +91 22 6137 3000
ramkumar.uppara@crisil.com

Sanjay Lawrence
Media Relations
Crisil Limited
M: +91 89833 21061
B: +91 22 6137 3000
sanjay.lawrence@crisil.com


Nitin Kansal
Director
Crisil Ratings Limited
B:+91 124 672 2000
nitin.kansal@crisil.com

Nilesh Agarwal
Associate Director
Crisil Ratings Limited
B:+91 79 4024 4500
nilesh.agarwal1@crisil.com

Jinagna Dixit Shah
Senior Rating Analyst
Crisil Ratings Limited
B:+91 79 4024 4500
Jinagna.Shah@crisil.com

Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 3850

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com



 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to Crisil Ratings. However, Crisil Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About Crisil Ratings Limited (A subsidiary of Crisil Limited, an S&P Global Company)

Crisil Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).

Crisil Ratings Limited ('Crisil Ratings') is a wholly-owned subsidiary of Crisil Limited ('Crisil'). Crisil Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").

For more information, visit www.crisilratings.com 

 



About Crisil Limited

Crisil is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
Crisil respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from Crisil. For further information on Crisil's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') provided by Crisil Ratings Limited ('Crisil Ratings'). For the avoidance of doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for use only within the jurisdiction of India. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as Crisil Ratings provision or intention to provide any services in jurisdictions where Crisil Ratings does not have the necessary licenses and/or registration to carry out its business activities. Access or use of this report does not create a client relationship between Crisil Ratings and the user.

The report is a statement of opinion as on the date it is expressed, and it is not intended to and does not constitute investment advice within meaning of any laws or regulations (including US laws and regulations). The report is not an offer to sell or an offer to purchase or subscribe to any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way.

Crisil Ratings and its associates do not act as a fiduciary. The report is based on the information believed to be reliable as of the date it is published, Crisil Ratings does not perform an audit or undertake due diligence or independent verification of any information it receives and/or relies on for preparation of the report. THE REPORT IS PROVIDED ON “AS IS” BASIS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, CRISIL RATINGS DISCLAIMS WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR OTHER WARRANTIES OR CONDITIONS, INCLUDING WARRANTIES OF MERCHANTABILITY, ACCURACY, COMPLETENESS, ERROR-FREE, NON-INFRINGEMENT, NON-INTERRUPTION, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR INTENDED USAGE. In no event shall Crisil Ratings, its associates, third-party providers, as well as their directors, officers, shareholders, employees or agents be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

The report is confidential information of Crisil Ratings and Crisil Ratings reserves all rights, titles and interest in the rating report. The report shall not be altered, disseminated, distributed, redistributed, licensed, sub-licensed, sold, assigned or published any content thereof or offer access to any third party without prior written consent of Crisil Ratings.

Crisil Ratings or its associates may have other commercial transactions with the entity to which the report pertains or its associates. Ratings are subject to revision or withdrawal at any time by Crisil Ratings. Crisil Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors.

Crisil Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For more detail, please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html. Public ratings and analysis by Crisil Ratings, as are required to be disclosed under the Securities and Exchange Board of India regulations (and other applicable regulations, if any), are made available on its websites, www.crisilratings.com and https://www.ratingsanalytica.com (free of charge). Crisil Ratings shall not have the obligation to update the information in the Crisil Ratings report following its publication although Crisil Ratings may disseminate its opinion and/or analysis. Reports with more detail and additional information may be available for subscription at a fee.  Rating criteria by Crisil Ratings are available on the Crisil Ratings website, www.crisilratings.com. For the latest rating information on any company rated by Crisil Ratings, you may contact the Crisil Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

Crisil Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on Crisil Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisilratings.com/en/home/our-business/ratings/credit-ratings-scale.html