| Aarti Pharmalabs Ltd. | ||||
| Rating upgraded to 'Crisil AA-/Stable' | ||||
| 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 upgraded its rating on the long-term bank facilities of Aarti Pharmalabs Ltd (APL) to 'Crisil AA-/Stable' from 'Crisil A+/Positive'.
The upgrade reflects sustained improvement in APL’s business risk profile while sustaining a strong financial profile. APL reported revenues of Rs 2115 crore fiscal 2025, compared to Rs. 1853 crores in fiscal 2024, driven by healthy demand across all the segments (Xanthine, API& Intermediaries and CDMO), and product additions. Revenue growth is expected to sustain, driven by capacity additions (In Xanthine and API & Intermediaries) and higher revenues from CDMO business. Operating margins also improved to above 22% in fiscal 2025 from 20.84% in fiscal 2024, driven by increased contribution from high margin CDMO business, and is expected to sustain above 22% over the medium term. Financial profile remained strong and despite large working capital requirements and capacity expansion plans, it is expected to remain strong over the medium term. Liquidity is strong with high expected cash accruals in medium term against moderate repayment obligations and average bank limit utilization.
The ratings continue to reflect the established market position in the active pharmaceutical ingredients (APIs) and Xanthine Derivatives & Allied Products business marked by diverse product profile and established customer base, experienced management, healthy profitability driven by integrated unit and strong financial risk profile. These strengths are partially offset by susceptibility to fluctuations in raw material prices, intense competition and regulatory risks and large working capital requirement. |
Analytical Approach Crisil Ratings has consolidated the business and financial risk profiles of APL and its subsidiaries and joint ventures, which are strategically important to, and have a significant degree of operational integration with APL. These companies are Aarti Pharmachem Ltd, Aarti USA Inc. and Ganesh Polychem Ltd.
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: APL is currently one of the Largest Indian manufacturers of Xanthine Derivatives, including Caffeine (largest capacity in India), with a global market share of around 15-20%. Experienced management: The promoters have been in the pharmaceutical and chemical industry for more than 36 years. They are technocrats and have extensive technical expertise and experience in projects, operations, process development, and local and international markets. This has led them to build healthy relations with customers and suppliers. Healthy operating margin driven by integrated operations: APL has healthy operating profitability of 21-22%, driven by increase in revenues from high margin CDMO business, and due to backward integration into manufacturing of intermediates for APIs and strong research and development team. Furthermore, focus of the company majorly in critical drugs having higher margins only. With the development of new products and large economies of scale, operating margin is expected to remain at similar level over the medium term. Strong financial risk profile: Financial risk profile is strong with networth of Rs 1889 crore as on March 31, 2025. With moderate reliance on external debt, capital structure has been comfortable with gearing and total outside liabilities to adjusted networth ratios of 0.21 and 0.49 time, respectively, as on March 31, 2025. It is expected to remain at similar levels over the medium term backed by healthy accretion to reserve, despite debt-funded capex of Rs.100-125 crore. Debt protection metrics is healthy with interest coverage and net cash accrual to adjusted debt ratios of 18.44 and 0.83 times, respectively, for fiscal 2025. Financial risk profile is expected to remain strong with healthy accretion to reserve and low reliance on external debt. Weaknesses: Large working capital requirement: Operations are working capital intensive as reflected in gross current assets (GCAs) of 219 days as on March 31, 2025. APL provides a credit period of 90-100 days to its customers and is expected to remain in a similar range going forward. Inventory holding is high at 130-150 days because of the variety of products and high shipping time for imports and exports. Inventory holding is expected to remain in a similar range going forward. Overall, operations are expected to remain working capital intensive over the medium term. |
Liquidity: Strong Expected cash accrual of Rs 346-450 crore should comfortably cover repayment obligations of around Rs 33.75-45 crore over the medium term. In addition, it will act as a cushion to the liquidity of the company. Bank limits of Rs.450 crore have been utilised at 58% over the 12 months ended March 2025. Company has healthy cash and bank balance including investments in marketable securities of Rs 47.5 crore as on March 31, 2025. APL has sufficient gearing headroom, to raise additional debt to meet its capex and incremental working capital requirements. |
Outlook: Stable Crisil Ratings believe APL will continue to benefit from the established market position , and established relationships with clients. |
Rating Sensitivity Factors Upward factors:
Downward factors: |
About the Company APL, formerly known as Aarti Organics Ltd, was incorporated 2019 as a wholly owned subsidiary of Aarti Industries Ltd (AIL, rated Crisil AA/Stable/Crisil A1+), and started operations in July 2021, with demerger of Xanthine and pharmaceutical business of AIL into APL. It is promoted by Gogri family with Mr. Rashesh Gogri as the chairman who looks after the overall business operations of the company.
APL is engaged in the manufacturing of APIs, intermediates and xanthine derivatives, CDMO/CMO. APL facilities are located at Tarapur and Dombivali (Maharashtra) and Vapi (Gujarat). It is setting up a unit in Attali, Gujarat.
It is listed in both NSE and BSE. |
Key Financial Indicators - Consolidated
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| 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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Criteria Details
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