| Zydus Healthcare Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 reaffirmed its ‘CRISIL AA+/Positive/CRISIL A1+’ ratings on the bank facilities of Zydus Healthcare Limited (ZHL).
Operating income grew about 9% year-on-year in fiscal 2022, supported by healthy demand for branded formulations as well as one-time sales of Covid-related products in the domestic market. Operating income is expected to witness modest growth in fiscal 2023 on a high base, with opportunity to sell Covid products no longer available. ZHL has realigned its generic business by demerging it to a subsidiary while it continues to focus on branded formulations. Operating margin improved to 33% in fiscal 2022 and should remain at 30-32% over the medium term. Financial risk profile remains strong with nil debt as on March 31, 2022, as the company redeemed the entire preference share capital from the parent.
The ratings continue to reflect the strategic importance of ZHL to parent - Zydus Lifesciences Ltd (Zydus Life; ‘CRISIL AA+/Positive/CRISIL A1+’; part of the Zydus group), and the strong business and financial support it receives from the parent. The ratings also factor in healthy operating margin leading to comfortable debt protection metrics. These strengths are partially offset by exposure to regulatory risks. |
Analytical Approach CRISIL Ratings has applied its criteria for notch-up of ratings based on parent support and has adjusted goodwill, net of amortisation, to arrive at adjusted networth. Preference share capital of Rs 1,007 crore as on March 31, 2021, was treated as debt and was fully redeemed in fiscal 2022. |
Key Rating Drivers & Detailed Description Strengths:
Zydus Life, the flagship company of the Zydus group, has high operational, managerial and financial integration with ZHL. In fiscal 2022, ZHL accounted for 23% and 34% of Zydus Life’s consolidated revenue and operating profit, respectively. In fiscal 2022, revenue grew 9% over the previous fiscal. Established brands, large and therapeutic-focused field force, and product launches are expected to support growth over the medium term.
Led by the leadership position of the group in the domestic formulations market and higher share of chronic therapies, margin should remain healthy at 30-32% over the medium term. Furthermore, the company unit in Sikkim is eligible for fiscal benefits under the industrial policy of Sikkim till fiscal 2026.
Debt outstanding was reduced to nil as on March 31, 2022, by entirely redeeming the preference share capital of Rs 1,007 crore from the parent in fiscal 2022. Adjusted networth was healthy at Rs 2,752 crore as on March 31, 2022 and is expected to increase gradually to over Rs 3,500 crore over the medium term. Financial risk profile will remain comfortable given healthy margin and modest annual capital expenditure (capex) of Rs 100-125 crore.
Weakness:
Since fiscal 2013, drug prices for over 500 medicines have been regulated under the Drug Price Control Order, 2013. Drugs under acute and chronic therapies are added to the National List of Essential Medicines regularly. The regulatory impact of Drug Pricing Control Order and ban on some fixed-dose combinations adversely affected revenue and profit in the past. In fiscal 2017, the Zydus group witnessed slower growth in revenue in the domestic market because of price revisions. |
Liquidity: Strong Liquidity is driven by healthy cash accrual, nil term debt obligation and support from Zydus Life. Liquid surplus was Rs 699 crore as on March 31, 2022. Bank limit of Rs 300 crore was utilised negligibly as incremental working capital requirement was funded through internal accrual and credit from suppliers. The company has a moderate working capital cycle, as reflected in receivables and inventory of 27 days and 83 days, respectively, as on March 31, 2022. It does not have any major capex over the medium term. |
Outlook: Positive ZHL will continue to benefit from its strong market position in the domestic formulations segment. It will remain strategically important to Zydus Life and will continue to benefit from strong support from the parent. The ‘Positive’ outlook is in line with the parent outlook. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company ZHL was set up in 2007 as a partnership between Cadila Healthcare (96% ownership), its wholly owned subsidiary, German Remedies Ltd (2%), and Cadila Healthcare Staff Welfare Trust (2%). In February 2016, ZHL was merged with Cadila Healthcare, which held the entire stake in the amalgamated entity. In November 2016, the human formulations business under the group was consolidated under ZHL. Based in Mumbai, ZHL manufactures formulations for the domestic market. |
About Zydus Life Cadila Laboratories was founded in 1952 by Mr Raman Patel and Mr Indravadan Modi. Cadila Healthcare was incorporated in 1995 following the split of Cadila Laboratories, with Mr Modi and his family's share being moved into a new company. The division that was managed by Mr Raman Patel’s son, Mr Pankaj Patel, was renamed Cadila Healthcare that was again renamed Zydus Life in February 2022. Zydus Life got listed on the Bombay Stock Exchange in 2000. As on September 30, 2022, the promoters held 74.98% stake in Zydus Life, 5.36% held by mutual funds and the balance was held by the public and others. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Fully interchangeable with working capital demand loan ** Fully interchangeable with bank guarantee |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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This Annexure has been updated on 09-Jan-23 in line with the lender-wise facility details as on 29-Nov-21 received from the rated entity.
* Fully interchangeable with working capital demand loan
** Fully interchangeable with bank guarantee
Criteria Details
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