Key Rating Drivers & Detailed Description

Strengths:

Strong market position and established presence in export markets

The Arjuna group benefits from its established market position in the nutraceuticals segment, supported by its promoters' extensive experience, strong research and development capabilities, and established product lines. The promoters, Mr P J Kunjachan and Mr Benny Antony, have been instrumental in successfully commercialising various herbal extracts and continuously developing products. The group's flagship product, BCM 95, maintains its stronghold as one of the leading bioavailable curcumin extracts in the market (bioavailability denotes the degree to which a drug is absorbed in a patient's body). The business risk profile will likely remain supported by its established market position in the nutraceutical segment and the extensive experience of the promoters.

Strong financial risk profile

The financial risk profile should remain supported by steady accretion to reserve and the absence of any large, debt-funded capital expenditure (capex). Networth and total outside liabilities to tangible networth (TOL/TNW) were healthy at Rs 241 crore and 0.19 time, respectively, as on March 31, 2020. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 22.80 times and 2.09 times, respectively, for fiscal 2020.

Weakness:

Product concentration risk and large working capital requirement

The Arjuna group has a diverse product profile of over 50 products. However, majority of its revenue is derived from only 3-4 products, which exposes it to risks related to product concentration. Operations are also working capital intensive; gross current assets were sizeable at 232 days as on March 31, 2020, driven by huge inventory of up to 100 days and debtors of about 70 days.  

Susceptibility to fluctuations in raw material availability and prices

Raw materials, being agricultural commodities, are subject to risks of availability owing to adverse climatic conditions and the resultant volatility in prices. This was seen during 2009 and 2010 when severe crop failure had resulted in input prices increasing sharply. While operating profitability should remain healthy over the medium term, any significant volatility in raw material prices and inability to pass on such price increases to end customers immediately could constrain operating profitability and cash accrual.

Key Financial Indicators

*Provisional

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