| Allengers Medical Systems Limited | ||||||
| Ratings upgraded to 'CRISIL A/Stable/CRISIL A1' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities of Allengers Medical Systems Ltd (AMSL) to ‘CRISIL A/Stable/CRISIL A1’ from 'CRISIL A-/Positive/CRISIL A2+'.
The rating action reflects the strong market position of the company resulting in compound annual growth rate of 23% in revenue from Rs 259 crore in fiscal 2018 to Rs 414 crore in fiscal 2021, driven by increased penetration in Tier 2 and 3 cities, hospitals and specialised clinics. Increased government expenditure on healthcare should support revenue growth over the medium term as well. AMSL had revenue of Rs 105 crore in the first quarter of fiscal 2022, buoyed by ability to transfer high raw material costs to customers, resulting in increased selling prices and overall revenue booking. Operating margin (at 17%) improved in fiscal 2021 because of high fixed cost absorption and cost savings on account of lower selling expenses due to fewer medical seminars and limited movement of medical personnel as well as economies of scale. The operating margin is expected to sustain at 17-18% on account of in-house research and development (R&D) facility that helps in innovation and upgrading products, enabling the company to demand a premium.
The financial risk profile is robust driven by healthy networth of Rs 218.34 crore as on March 31, 2021. Absence of debt despite ramp-up of operations has resulted in nil gearing since the past three fiscals, and this should continue over the medium term in the absence of debt-funded capital expenditure (capex). Debt protection metrics were comfortable as reflected in interest coverage of 64.6 times for fiscal 2021. Liquidity remains adequate and bank limit unutilised.
The ratings continue to reflect the company’s strong market position in the domestic X-ray-based medical equipment industry; established marketing and distribution network; diversified product range, geographic reach and clientele; and robust financial risk profile. These strengths are partially offset by large working capital requirement and moderate scale of operations. |
Key Rating Drivers & Detailed Description Strengths Strong market position in the domestic X-ray-based medical equipment industry: Strong marketing and distribution network and a proven track record of delivering quality products have helped the company establish its brand, Allengers. Increasing market penetration has helped cater to small clinics and standalone hospitals and stabilise revenue in the domestic market. Increasing demand for quality healthcare services and government initiatives to promote healthcare shall continue to aid AMSL’s business risk profile. The company will also benefit from the government’s efforts to curtail the high imports (80-90%) of medical devices in India, through measures including imposing tariffs and the Make in India initiative.
Diversified product range, geographic reach and customer base: The company manufactures eight major forms of medical equipment with over 30 variants in segments such as radiology, cardiology, urology, neurology, orthopedics and gastroenterology, and caters to both price-sensitive and feature-driven customers. Products such as C-Arms and high-frequency X-ray equipment were launched such that the high-end variants were supplied to large hospitals/institutes and medium to low-end versions were offered to local doctors/medical practitioners. Furthermore, regular spend on R&D results in better offerings in the existing product segments along with price competitiveness, leading to a steady order flow.
Robust financial risk profile: The networth and the total outside liabilities to tangible networth ratio were healthy at Rs 218 crore and 0.36 time, respectively, as on March 31, 2021, driven by negligible debt. On account of prudent working capital management and healthy accretion to reserve, external debt has been negligible over the past few years and will remain so over the medium term in the absence of debt-funded capex. Debt protection metrics remain healthy with interest coverage ratio at 64.6 times for fiscal 2021.
Weaknesses: Large working capital requirement: The working capital requirement is large because of sizeable receivables as payment from government authorities is often delayed, which also results in more than six months debtor. Additionally, it holds inventory of 45-60 days. Though operations will remain working capital intensive over the medium term, liquidity will continue to be supported by healthy accrual and support from creditors, and cushion available in bank lines.
Moderate scale of operations: Scale of operations of the company have been growing at a CAGR of 23% in the past four fiscals through fiscal 2021, despite that the revenues remain modest at Rs. 414 crores for fiscal 2021. Indian medical devices market is still predominantly dependent on imports, which provides near to medium term visibility for players like AMSL to further improve their penetration in the domestic market. However, improved traction from new geographies/customers leading to substantial growth in revenue will remain a key rating sensitivity factor over the medium term. |
Liquidity: Strong Bank limit utilisation was nil for the 12 months through June 2021. Net cash accrual is expected at Rs 46-55 crore per annum over the medium term against nil debt obligation. Cash and equivalent stood at Rs 80 crore as on June 30, 2021, of which around Rs 75 crore is unencumbered. Low gearing and moderate networth provide financial cushion to withstand adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believes AMSL will continue to benefit from its robust financial risk profile and healthy liquidity. Furthermore, strong market position shall help overcome demand challenges because of Covid-19. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company AMSL was established as a proprietorship concern by Mr Suresh Sharma in Chandigarh in 1987 and was reconstituted as a closely held public limited company in 1997. It manufactures X-ray-based medical diagnostic and imaging equipment. |
Key Financial Indicators
*Provisional |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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