| 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 rating upgrade factors in the improvement in the group’s business risk profile as reflected by increase in sales to Rs. 115 crore in Fiscal 2021 from Rs.90.5 crore in Fiscal 2020. The company is expected to achieve sales of more than Rs.150 crore in current fiscal while continuing to sustain operating margins at more than 20%. The rating action also reflects continued comfortable financial risk profile marked by low overall gearing and improving liquidity profile with lower reliance on bank borrowings.
The rating continues to reflect the group’s established presence in the pharmaceutical industry, reputed and diversified clientele, comfortable financial risk profile, and sound operating efficiencies. These strengths are partially offset by moderate scale of operations amid intense competition, large working capital requirement, and exposure to the risk of unfavourable regulatory changes. |
Analytical Approach To arrive at its rating, CRISIL Ratings has combined the business and financial risk profiles of BDL with its subsidiaries, Adley Formulation Pvt Ltd (AFPL) and Adley Lab Ltd (ADL; both wholly owned subsidiaries), acquired during the fiscal 2019 and 2020, respectively. This is because all these entities, together 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 & Detailed Description Strengths:
The promoter’s experience of more than two decades, his strong understanding of local market dynamics, and healthy relationships with customers and suppliers should continue to support the business. Customers mainly include renowned pharmaceutical companies leading to stable business risk profile. The group has achieved healthy sales growth to Rs.115 crore in fiscal 2021 from Rs.65.7 crore in fiscal 2019. In first nine months of current fiscal, group has achieved around Rs.135 crore of sales.
Due to low reliance on external funds, gearing and total outside liabilities to tangible networth ratios were low at 0.27 time and 0.72 time, respectively, as on March 31, 2021. Networth was healthy at Rs 64.95 crore. Debt protection metrics were comfortable because of heathy profitability: net cash accrual to total debt and interest coverage ratios were 1.05 time and 10.85 times, respectively, in fiscal 2021. The financial profile has further improved with networth increasing to Rs.80 crore as on September 30, 2021. With no major debt-funded capex planned, the metrics are likely to remain healthy over the medium term.
Operating efficiencies should remain healthy over the medium term because of large economies of scale and pharma products for critical ailments. Operating margin and return on capital employed were 21.4% and 23.2%, respectively, in fiscal 2021.
Weaknesses:
Intense competition continues to constrain scalability: sales was moderate at Rs 115.40 crore in fiscal 2021. Although sales grew 38% year-on-year in the fiscal and is expected to improve over the medium term backed by higher demand and expansion in the export market, scale will continue to be moderate. Sales was around Rs 135 crore in the first 9 months of Fiscal 2022 through December 2021 and is expected to achieve more than Rs. 170 crore for Fiscal 2021. The growth momentum is expected to continue with launch of new products and demand prospects of oncology drugs the company manufactures.
Operations will remain working capital intensive over the medium term: gross current assets (GCA) were 204 days as on March 31, 2021, driven by inventory and receivables of 65 days and 107 days, respectively. However, payables of 60-122 days support working capital. GCA days expected to remain around 190-210 days. Efficient working capital management would remain a key rating monitorable going forward.
The pharmaceutical industry is closely monitored and regulated and as such, there are inherent risks and liabilities associated with the products and their manufacturing. Furthermore, the price of key raw material (active pharmaceuticals ingredients) is volatile in nature. Therefore, susceptibility to the risk of variations in commodity price persists.
However, since Adley was essentially backward integration for BDL’s operations, the group is expected to benefit out of integrated operations now in-house. |
Liquidity: Adequate Liquidity is adequate as reflected from low Bank Limits Utilisation level of 7% through past 12 months ending Nov 2021(Out of the sanctioned working capital limits of 5 crore). The cash accruals are expected to be healthy at Rs. 30 crore for Fiscal 2022 and Rs. 35 crore for Fiscal 2023 as against debt repayment obligation of Rs. 4-4.5 crore yearly repayment. Current ratio also comfortable at 2.04 times as on mar 31, 2021 and expected to be 2.24 times for Mar 31, 2022. Same used to be 1.4-1.5 times over last few years. The group also had free cash and bank balance of around Rs. 13 crore as on Sep 30, 2021. |
Outlook: Stable CRISIL Ratings believes Group will continue to benefit from the extensive experience of its promoter and healthy relationships with clients. |
Rating Sensitivity factors Upward factors
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About the Company Incorporated in 2005 and promoted by Mr Vijay Batra, BDL manufactures oncology products such as anti-cancer tablets, capsules, and injections (including the lyophilized variant). Facility is in Solan (Himachal Pradesh). The company is listed on National Stock Exchange (NSE). |
About the Group AFPL is a wholly owned subsidiary of BDL It was a proprietorship firm of Mr Vijay Kumar Batra and was 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 and was already supplying to BDL. In October 2019, BDL acquired ADL in the light of backward integration and to create synergies.
BDL has reported consolidated sales of Rs. 88.09 crore and PAT of Rs. 11.75 crore in first 6 months period ended Sept 30, 2021 against sales and PAT of Rs. 51.38 and Rs 5.18, respectively for same period last year |
Key Financial Indicators
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Status of non cooperation with previous CRA: BDL had not cooperated with Brickwork Ratings India Pvt Ltd, which classified the company as non-cooperative through a release dated June 17, 2020. The reason provided by Brickwork Ratings India Pvt Ltd is non-furnishing of information by BDL for monitoring of ratings. |
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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 5 | HDFC Bank Limited | CRISIL BBB/Stable |
| Term Loan | 3 | Small Industries Development Bank of India | CRISIL BBB/Stable |
This Annexure has been updated on 27-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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