| Beta Drugs Limited | ||||
| Rating upgraded to 'CRISIL BBB+/Stable' | ||||
| 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 upgraded its rating on the long-term bank facilities of Beta Drugs Limited (BDL; part of the Beta group) to ‘CRISIL BBB+/Stable’ from ‘CRISIL BBB/Stable’.
The upgrade reflects the improvement in the business risk profile supported by revenue growth at compound annual rate of 35% for the past three fiscals driven by increasing export exposure, addition of clientele and repeat orders from existing clients. Revenue is expected at Rs 230-235 crore in fiscal 2023. On account of large own-brand sales (around 50% of total business), the group enjoys healthy operating margin of 20-22%. With increasing exposure in the export business and branded sales, the operating margin is expected above 23% in fiscal 2023. Return on capital employed (RoCE) was healthy at 37.2% in fiscal 2022 driven by better economies of scale and reduced dependence on external debt. The group has benefitted from the integrated in-house operations as Adley was essentially a backward integration for BDL.
The rating action also factors in the strengthening of the financial risk profile and liquidity, with gearing comfortable below 0.2 time as on 31-Mar-2023, and lower reliance on external debt to meet working capital requirement.
The rating reflects the group’s established presence in the pharmaceutical industry, reputed and diversified clientele and comfortable financial risk profile. These strengths are partially offset by modest scale of operations amid intense competition and susceptibility to unfavorable regulatory changes. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of BDL and its wholly owned subsidiaries, Adley Formulations Pvt Ltd (AFPL) and Adley Lab Ltd (ADL). This is because these entities, collectively referred to as the Beta group, are in the same business. Also, BDL holds significant control over other entities.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key rating drivers and detailed description Strengths:
The promoter’s experience of more than two decades in the pharmaceutical industry has enabled the group to rapidly expand presence in the export and contract manufacturing market by building relationships with major pharmaceutical companies and continuously expanding their product portfolio. Contract manufacturing accounts for around 50% of revenue. The group is expected to achieve revenue of Rs 230-235 crore in fiscal 2023 (25% year-on-year growth, as against Rs 183 crore in fiscal 2022).
Networth and gearing are expected above Rs 115 crore and below 0.2 time, respectively, as on March 31, 2023, owing to low reliance on external debt (Rs 88 crore and 0.23 time, respectively, as on March 31, 2022). Debt is likely to remain limited owing to adequate cash accrual against working capital requirement and capex. Debt protection metrics were robust, as reflected in interest coverage and net cash accrual to adjusted debt ratios of 22.7 times and 1.5 times, respectively, in fiscal 2022, and will likely remain comfortable in fiscal 2023.
Weaknesses:
Intense competition will continue to constrain scalability, with revenue expected at Rs 230-235 crore in fiscal 2023, despite growing by 25% from Rs 183 crore in fiscal 2022. Revenue will improve over the medium term backed by launch of new products, demand prospects of oncology drugs and expansion in the export market, and will remain a key monitorable in the near term.
The pharmaceutical industry is closely monitored and regulated, and there are inherent risks and liabilities associated with the products and their manufacturing. The contract manufacturing market is highly competitive and hence players have limited bargaining power. Furthermore, prices of key raw materials (active pharmaceuticals ingredients) are volatile. Therefore, susceptibility to risks related to variations in commodity prices persists. |
Liquidity: Adequate Bank limit utilisation was nil for the 20 months through December 2022. Cash accrual, expected at Rs 40 crore in fiscal 2023 and Rs 45 crore in fiscal 2024, will comfortably cover yearly debt obligation of Rs 4-5 crore. Current ratio was comfortable at 1.98 times as on 31-Mar-2022 and is expected above 2.2 times as on 31-Mar- 2023. The group had current account balance and free fixed deposit receipts of Rs 14 crore as on 31-Dec-2022 (Rs 15 crore as on 31-Mar-2022). |
Outlook: Stable CRISIL Ratings believes the Beta group will continue to benefit from the extensive experience of its promoter and healthy relationships with clients. |
Rating sensitivity factors Upward factors
Downward factors
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About the group Incorporated in 2005 and promoted by Mr Vijay Batra, BDL manufactures oncology products such as anti-cancer tablets, capsules and injections (including the lyophilised variant). Its facility is in Solan, Himachal Pradesh. The company is listed on the National Stock Exchange (NSE).
AFPL is a wholly owned subsidiary of BDL. It was a proprietorship firm of Mr Vijay Kumar Batra and acquired by BDL. The company has been manufacturing pharmaceutical drugs in the form of tablets and injectables since 2008.
Incorporated in 1992, ADL manufactures active pharmaceutical ingredients. It was already supplying to BDL before BDL acquired the company in October 2019 in light of backward integration. |
Key financial indicators (consolidated)
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Status of non-cooperation with previous CRA: BDL has not cooperated with Brickwork Ratings, which has classified the company as non-cooperative through release dated June 17, 2020. The reason provided by Brickwork Ratings is non-furnishing of information for monitoring the rating. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of instrument(s)
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Annexure – List of entities consolidated
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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 | ||||||||||||||||
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This Annexure has been updated on 28-Feb-23 in line with the lender-wise facility details as on 15-Feb-23 received from the rated entity.
Criteria Details
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