| Axa Parenterals 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 A-/Stable/CRISIL A2+’ ratings on the bank facilities of Axa Parenterals Limited (Axa).
The rating factors in company’s stable business risk profile, predominantly supported by its sound operating efficiencies, hence leading to comfortable net cash accruals. Operating profitability has remained healthy, ranging 19%-22%, over the past few fiscals through fy21. This, with capacity utilization of over 85-90% over the years has resulted in robust return on capital employed (RoCE) for Axa, 17-21% over the past few fiscals; 20.4% during fy21. Though scalability remains moderate with revenue of Rs 120-140 crore over the past few fiscals; Rs 138 crore during fy21, capacity expansion plans of the management amidst accreditation received from new geographies will aid the business growth over the medium term.
The rating also factors in company’s healthy financial risk profile, which improved significantly in fy21 (as against previous years) on the back healthy accretion to reserves and reduced dependence on external debt. Though debt level shall increase over the medium term due to debt funded capex plans, financial risk profile will continue to remain healthy with expected gearing ratio of less than 0.5 time. Furthermore, robust debt protection metrics (backed by healthy operating profitability), limited reliance on external debt for working capital needs due to improved net cash accruals, unencumbered cash and bank balances and financial flexibility available with the management to raise additional funds (if required), further supports the financial risk profile of Axa.
The rating continues to reflect company’s established market position backed by its promoter’s extensive industry experience, healthy operating efficiencies and company’s healthy financial risk profile. These strengths are partially offset by company’s moderate scale of operations amid dismal revenue growth over the past few years and its working capital-intensive operations. |
Analytical Approach Unsecured loans of Rs 7.74 crore as on March 31, 2021, have been treated as neither debt nor equity (NDNE) as these are from promoters and are expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths: • Established market presenceThe promoter's experience of over 15 years, his strong understanding of industry dynamics, and healthy relationships with suppliers and customers have resulted in diverse product and customer portfolio, along with presence of own brand “Axa”. Clientele base includes industry majors along with export presence in over 51 countries. Resultantly, the customer concentration stood low, with top 10 customers contributing 35% and 22% in export and domestic markets respectively, during FY21. With new accreditations expected from other countries, the geographical reach will further strengthen over the medium term. Apart of parenterals, Axa also deals in other product segments such as eye drops, respules and nasal drops. The growth in these product segment will diversify the revenue profile and further aides the business risk profile of the company.
• Healthy operating efficienciesOperating profitability has remained healthy in the range of 19-22% over the past four fiscals ended fiscal 2021 and is supported by healthy realization mainly from export segment. Export contribution in overall sales stood at 45% in FY21 (30% in FY20), and with plans of foraying into new geographies (on the back of new accreditations), operating profitability shall continue to remain healthy. Return on capital employed (RoCE) has been healthy too, ranging 17-21% over the past 3-4 years; 20.4% in fiscal 2021, driven by better economies of scale and reduced dependence on external debt.
• Healthy financial risk profileCapital structure continues to remain healthy as reflected in networth and total outside liabilities to tangible networth ratio at Rs 106.56 crore and 0.2 times, respectively, as on March 31st, 2021. Networth has improved consistently over the years, on account of healthy accretion to reserves and nil dividend payout. Debt protection metrics were also robust, with interest coverage and net cash accrual to adjusted debt ratios at 23 times and 2.6 time, respectively, for fiscal 2021, aided by healthy operating margins. Despite debt funded capex plans to increase production capacities, the financial risk profile will continue to remain healthy over the medium term as well.
Weaknesses: • Moderate scale of operations:On account of limited capacity addition, revenue growth over the years has remained low, evinced by compound annual growth rate of 4% over past four fiscals through FY21. Though growth from other business segments such eye drops, respules etc. supports the business risk profile of Axa, the contribution from the stated segments stood low at around 15-20% over past four years. Revenue diversity due to higher contribution from specialty products like eye drops, respules will support the business risk profile as parenteral segment is exposed to intense competition. Capacity addition plans undertaken by the management shall support the revenue growth over the medium term and will support the company with higher economies of scale. However, timely stabilization of the stated capex and extent of growth rate achieved thereafter, will remain a key rating sensitivity factor.
• Working capital intensive operationsOperations are working capital intensive as reflected in Gross current assets (GCAs) of 161-183 days over the three fiscals ended March 31, 2021. GCAs were 161 days as on March 31, 2021, driven by stretched receivables of 81 days and inventory of 57 days. Debtor credit ranges up to 30 days for domestic sale while for export sale, open credit ranges from 45-60 days with credit period in LC backed sale going up to 90 days. Delay in realization from certain customers also resulted in more than six months debtors for Axa, which increased to Rs.10.07 crore as at Mar 31, 2021, from Rs.6.29 crore as on same date during previous year. Working capital is partially supported by the credit of 85 days offered by suppliers because of the company's reputation and longstanding relations. Any further increase in GCA days and thereby, impacting financial risk profile will remain a key monitorable. |
Liquidity: Adequate Bank limit utilization is low at 25 percent for the past twelve months ended July 2021 as the company is generating sufficient cash accruals of over Rs. 24 crore which are sufficient against minimal term debt obligation and to fulfil the day-to-day working capital requirements, leading to low dependence on bank lines. In addition, it will be act as cushion to the liquidity of the company. Current ratio is healthy at 3 times on March 31, 2021. The promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations. High cash and bank balance of around Rs. 22-24 crore over the medium term also supports liquidity. |
Outlook: Stable The credit risk profile of Axa will continue to remain supported by its established market position, sound operating efficiencies and healthy financial risk profile |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Axa, incorporated in 2005 by Mr Manoj Agarwal, is a Roorkee (Uttarakhand)-based company that manufactures intravenous fluids and large & small volume parenteral range that include eye drops, ear drops, nasal drops, respules, and injectables. The company also undertakes contract manufacturing for other brands. |
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)
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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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 9 | YES Bank Limited | CRISIL A-/Stable |
| Proposed Cash Credit Limit | 7 | Not Applicable | CRISIL A-/Stable |
| Proposed Letter of Credit | 7 | Not Applicable | CRISIL A2+ |
| Proposed Long Term Bank Loan Facility | 7 | Not Applicable | CRISIL A-/Stable |
This Annexure has been updated on 09-Feb-23 in line with the lender-wise facility details as on 18-Jan-23 received from the rated entity.
Criteria Details
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