Rating Rationale
March 29, 2019 | Mumbai
BDH Industries Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.40 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable/CRISIL A3' ratings on the bank facilities of BDH Industries Limited (BDH).
 
The ratings continue to reflect the company's above-average financial risk profile and its longstanding presence in the pharmaceutical formulations and contract-manufacturing business. These strengths are partially offset by significant customer concentration, modest scale of operations, and exposure to intense competition.

Key Rating Drivers & Detailed Description
Strengths:
* Above-average financial risk profile: Networth was moderate at Rs 29.9 crore and total outside liabilities to adjusted networth was comfortable at 0.86 time as on March 31, 2018. Debt protection metrics are robust, with interest coverage ratio of 21.3 times in fiscal 2018. Despite planed capex in fiscal 2020, financial risk profile should remain above average due to expected improvement in accrual, absence of debt funding for capex, and moderate reliance on bank lines to meet working capital requirement.
 
* Long standing presence in the pharmaceutical formulations and contract manufacturing business: Eight-decade-long experience of the promoters in the business has helped the company establish itself in a competitive industry. Over the years, it has developed strong relationships with various government agencies in nearly 30 countries. The company has expanded its portfolio to nearly 200 products, which include antimicrobials, vitamins, and minerals and dosages for the treatment of skin-related diseases and other illnesses, such as cancer, malaria, and tuberculosis.
 
Weakness
* Significant customer concentration: A single customer, Ipca Laboratories Ltd (Ipca), accounted for around 46% of the revenue in fiscal 2018. While BDH's relationship with Ipca is more than a decade old, revenue is dependent on successful orders placed by the customer.
 
* Modest scale of operations and exposure to intense competition: Intense competition in the formulations market constrains scalability-revenue was a modest Rs 40.0 crore in fiscal 2018. Entry of several cost-competitive domestic players in the industry has resulted in heavy fragmentation, with sizeable presence of the unorganised sector.
Liquidity

Net cash accrual was Rs 2.79 crore in fiscal 2018 and is expected at around Rs 4-4.5 crore per annum over the medium term against absence of any maturing debt. Operations are moderately working capital-intensive, with gross current assets of 146 days. Bank limit utilisation over the 12 months through January 2019 was low at 28%. Capital expenditure, expected at Rs 8-9 crore in fiscal 2019, should be adequately funded by liquid assets and internal accrual. Cash and bank balance of Rs 16.47 crore as on March 31, 2018, provides a cushion to liquidity.

Outlook: Stable

CRISIL believes BDH's financial risk profile will remain above average over the medium term, supported by a healthy capital structure and established relationship with customers. The outlook may be revised to 'Positive' if scale of operations and profitability improves significantly while maintaining the financial risk profile. The outlook may be revised to 'Negative' if pressure on profitability or scale of operations, unprecedented stretch in the working capital cycle, or any large, debt-funded capital expenditure (capex) weakens the financial risk profile

About the Company

Established in 1990, BDH manufactures pharmaceutical formulations. Mr S C Kachhara, the joint managing director, manages operations. Products include formulations for anticancer, antifungal, anti-malarial, and other treatments in the form of tablets, capsules, injectables, and external preparations.

Key Financial Indicators
Particulars Unit 2018 2017
Reported Revenue Rs crore 41.89 45.87
Reported Profit after tax (PAT) Rs crore 3.76 3.33
PAT margin % 8.97 7.25
Adjusted debt/Adjusted networth Times 0.25 0.30
Interest coverage Times 21.32 13.83

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 Bank Guarantee NA NA NA 2.5 CRISIL A3
NA Cash Credit NA NA NA 0.5 CRISIL BBB-/Stable
NA Export Bill Purchase NA NA NA 2.5 CRISIL A3
NA Export Packing Credit NA NA NA 6.0 CRISIL A3
NA Export Bill Negotiation NA NA NA 2.5 CRISIL BBB-/Stable
NA Letter of Credit NA NA NA 1.0 CRISIL A3
NA Proposed Long-term bank loan facility NA NA NA 25 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  34.00  CRISIL BBB-/Stable/ CRISIL A3          12-12-17  CRISIL BBB-/Stable/ CRISIL A3  02-09-16  CRISIL BBB-/Stable/ CRISIL A3  CRISIL BBB-/Stable/ CRISIL A3 
Non Fund-based Bank Facilities  LT/ST  6.00  CRISIL BBB-/Stable/ CRISIL A3          12-12-17  CRISIL BBB-/Stable/ CRISIL A3  02-09-16  CRISIL A3  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
Bank Guarantee 2.5 CRISIL A3 Bank Guarantee 2.5 CRISIL A3
Cash Credit .5 CRISIL BBB-/Stable Cash Credit .5 CRISIL BBB-/Stable
Export Bill Negotiation 2.5 CRISIL BBB-/Stable Export Bill Negotiation 2.5 CRISIL BBB-/Stable
Export Bill Purchase 2.5 CRISIL A3 Export Bill Purchase 2.5 CRISIL A3
Export Packing Credit 6 CRISIL A3 Export Packing Credit 6 CRISIL A3
Letter of Credit 1 CRISIL A3 Letter of Credit 1 CRISIL A3
Proposed Long Term Bank Loan Facility 25 CRISIL BBB-/Stable Proposed Long Term Bank Loan Facility 25 CRISIL BBB-/Stable
Total 40 -- Total 40 --
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
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for rating short term debt

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