Rating Rationale
May 21, 2019 | Mumbai
Auro Laboratories Limited
'CRISIL BBB-/Stable/CRISIL A3' assigned to bank debt
Rating Action
Total Bank Loan Facilities Rated Rs.18 Crore
Long Term Rating CRISIL BBB-/Stable (Assigned)
Short Term Rating CRISIL A3 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL BBB-/Stable/CRISIL A3' ratings to the bank facilities of Auro Laboratories Limited (ALL).

The ratings reflect extensive experience of the promoters in the pharmaceutical industry, diversified customer base and above-average financial profile marked by comfortable capital structure and adequate debt protection metrics. These strengths are partially offset by modest scale of operations in intensely competitive industry, product concentration in revenues and large working capital requirements.

Analytical Approach

Unsecured loans from promoters is treated as debt.

Key Rating Drivers & Detailed Description
* Extensive industry experience of the promoters: Promoters' extensive experience of over two decade in pharmaceutical industry has given them an understanding of the dynamics of the market, and enabled them to establish strong relationships with suppliers and customers. Addition of new products and customers have helped increase revenues to Rs. 46.4 crores in fiscal 2019, from Rs.27.9 crore in fiscal 2016.
* Diversified and strong customer base: ALL has a strong customer base comprising of large pharmaceutical formulation manufacturers. Top 10 customer contributed 85% and 80% of revenues in fiscal 2018 and fiscal 2019. Geographically, it derives 55% revenues from exports to Egypt, Germany, Malaysia, Singapore, South Africa, Brazil, Spain and United Kingdom countries and remaining from domestic market.
* Above average financial risk profile: As on March 31, 2019, networth is estimated to be moderate at Rs 17.5 crores and capital structure comfortable marked by gearing of 0.43 times and total outside liabilities to adjusted networth of 0.91 times. Debt protection metrics is also adequate with interest coverage of above 5 times and net cash accruals total debt of above 0.5 times, estimated, in fiscal 2019. Financial profile is expected to remain above-average over the medium term.
* Modest scale of operations amid intense competition: ALL's scale of operation is modest as reflected in its revenues of Rs 46.8 crores reported in fiscal 2019  Modest scale restricts bargaining power with customers and suppliers. The Indian API industry is marked by the presence of a large number of unorganized players, which restricts pricing flexibility.
* Product concentration in revenue profile: ALL derives 95% of its revenue through Metformin HCL. Product concentration renders it susceptible to slowdown in demand or price reduction due to replacement products or regulatory interventions, which may impact business significantly.
* Working capital intensive operations: ALL's operations are working capital intensive as reflected in its gross current asset (GCA) of 149 days, estimated, as on March 31, 2019. This is due to high receivables of 78 days and high other current asset which includes GST receivables. Inventory is moderate at 25 days. Working capital requirements are supported by credit from suppliers of around 78 days, leading to moderate dependence on bank lines. Management of working capital will remain key monitorable over the medium term.

ALL has adequate liquidity driven by expected cash accruals of more than Rs.5.5-8.0 crores per annum in fiscal 2019 and fiscal 2020 and cash and cash equivalents of Rs.2.25 crores as on March 31, 2018. ALL's fund based limits of Rs.9 crores, were utilized 19% on an average over the 12 months ended February 2019. The company has term repayment obligations of Rs.0.8 crores in fiscal 2020 and fiscal 2021 and no major capex plans. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements. 

Outlook: Stable

CRISIL believes ALL will continue to benefit from its promoters' extensive industry experience and above-average financial profile. The outlook may be revised to 'Positive' if sustained and substantial increase in revenues while maintaining profitability, leads to stronger financial risk profile. The outlook may be revised to 'Negative' if decline in revenue or profitability, or stretch in working capital cycle, weakens the financial risk profile.

About the Company

ALL, incorporated in 1989 by Mr. Sharat Deorah and Mr. Siddhartha Deorah. It manufactures Active Pharmaceutical Ingredients (API's), majorly Metformin HCL. Its manufacturing facility is located at Tarapur. (Maharashtra). 

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 40.79 35.48
Profit After Tax (PAT) Rs Crore 3.53 0.82
PAT Margin % 8.7 2.3
Adjusted debt/adjusted networth Times 0.71 1.05
Interest coverage Times 5.66 4.22

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Rating assigned with outlook
NA Long Term Loan NA NA Mar-2023 3.4 CRISIL BBB-/Stable
NA Letter of Credit NA NA NA 5 CRISIL A3
NA Export Packing Credit NA NA NA 4.5 CRISIL BBB-/Stable
NA Bank Guarantee NA NA NA 0.6 CRISIL A3
NA Cash Credit NA NA NA 4.5 CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  12.40  CRISIL BBB-/Stable    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  5.60  CRISIL A3    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Loan 3.4 CRISIL BBB-/Stable -- 0 --
Letter of Credit 5 CRISIL A3 -- 0 --
Export Packing Credit 4.5 CRISIL BBB-/Stable -- 0 --
Bank Guarantee .6 CRISIL A3 -- 0 --
Cash Credit 4.5 CRISIL BBB-/Stable -- 0 --
Total 18 -- Total 0 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies

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