Rating Rationale
April 13, 2020 | Mumbai
Beta Drugs Limited
Rating upgraded to 'CRISIL BBB-/Stable'
 
Rating Action
Total Bank Loan Facilities Rated Rs.8 Crore
Long Term Rating CRISIL BBB-/Stable (Upgraded from 'CRISIL BB+/Stable')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long term bank facilities of Beta Drugs Limited (BDL) to 'CRISIL BBB-/Stable' from 'CRISIL BB+/Stable'.
 
The upgrade reflects CRISIL's expectation that Beta group's business risk profile will continue to improve over the medium term. With revenues increasing to an estimated Rs 89 crore in fiscal 2020 and earnings before interest tax depreciation and amortisation margin of above 18.5%, BDL's cash accruals have improved significantly. Revenue grew 31% in fiscal 2019 over the previous year, while operating margin was comfortable at 18%. The financial risk profile is expected to remain comfortable over the medium term. The total outside liabilities to tangible networth ratio was 1.01 time as on March 31, 2019 while interest coverage ratio remained at 8.26 times in fiscal 2019. Bank limit was utilised 61% in the past 1 year. Additionally, with limited term debt on the books, liquidity is expected to remain adequate.

The rating continues to reflect the established presence in the pharmaceutical industry, and BDL's reputed and diversified clientele, above-average 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

CRISIL has revised its analytical approach and consolidated BDL''s business and financial risk profile with its subsidiaries, set up and acquired during the last fiscal. CRISIL has consolidated the business and financial risk profiles of BDL with its Adley Formulation Pvt. Ltd. and Adley Lab Limited (both wholly-owned subsidiaries). This is because, the group referred to as the Beta group, is engaged in similar business activities and 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: 
* Established presence and diversified clientele
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 such as Zydus Healthcare Ltd, Intas Biopharmaceuticals Ltd, Torrent Pharmaceuticals Ltd, Cadila Healthcare Ltd, and Hetero Drugs Ltd.
 
* Above-average financial risk profile
Due to low reliance on external funds, gearing and total outside liabilities to tangible networth ratios were low at 0.49 time and 1.01 times, respectively, as on March 31, 2019. Networth was healthy at Rs 40.48 crore, and estimated at around 57.71 crore in fiscal 2020. Debt protection metrics were comfortable because of heathy profitability: net cash accrual to total debt and interest coverage ratios were 0.55 time and 8.26 times, respectively, in fiscal 2019. The metrics are likely to remain healthy over the medium term.
 
* Sound operating efficiencies
Operating efficiencies are healthy and should remain so over the medium term because of large economies of scale and experienced management. Operating margin and return on capital employed are estimated at 15.6% and 17.8%, respectively, in fiscal 2019.
 
Weaknesses:
* Moderate scale of operations amid intense competition
Intense competition continues to constrain scalability: revenue was moderate at Rs 65.67 crore in fiscal 2019. Although revenue grew 31% year-on-year in fiscal 2019 and is expected to improve over the medium term, backed by higher demand and expansion in the export market, scale should remain moderate. Revenue was around Rs 81 crore in the 11 months through February 2020 and is estimated at around Rs 89 crore for the full year. Moreover, around 25% of the products are manufactured under own brand (Adley) and the remaining 75% under other companies' brand names; this limits bargaining power.
 
* Large working capital requirement
Operations are working capital intensive and should remain so over the medium term: gross current assets were 216 days as on March 31, 2019, driven by inventory and debtors of 65 and 139 days, respectively. However, payables of 60-90 days support working capital.
 
* Exposure to regulatory risks and raw material price volatility
The pharmaceutical industry is closely monitored and regulated, and as such, there are inherent risks and liabilities associated with the products and their manufacturing. Further, the price of key raw material (active pharmaceuticals ingredients) is volatile in nature. Therefore, susceptibility to the risk of variations in commodity price persists.
Liquidity Adequate

Liquidity should remain adequate over the medium term, despite working capital-intensive operations. Net cash accrual, estimated at Rs 12-14 crore in fiscal 2020 and expected around similar levels in 2021, should comfortably cover annual debt obligation of Rs 2-3 crore. Utilisation of bank limit averaged 61% in the 12 months through December 2019. Current ratio was moderate at 1.41 times as on March 31, 2019.

Outlook: Stable

CRISIL believes BDL will continue to benefit from the extensive experience of its promoter and healthy relationships with clients.

Rating Sensitivity factors
Upward factors
* Increase in operating margin to 20%, leading to higher cash accrual
* Improvement in working capital cycle

Downward factors
* Decline in operating profitability by over 200 basis points on a sustainable basis
* Large debt-funded capital expenditure weakening the capital structure
* Substantial increase in working capital requirement, weakening the liquidity and financial profile.
About the Company

Incorporated in 2005 by Mr Vijay Batra, BDL manufactures oncology products: anti-cancer tablets, capsules, and injections (including the lyophilised variant). The manufacturing facility is in Solan (Himachal Pradesh).
 
About Group Companies
AFPL is a wholly-owned subsidiary of BDL It was a a proprietorship firm of Mr Vijay Kumar Batra and was acquired by BDL. The company manufactures 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.

Key Financial Indicators
Particulars Unit 2019 2018
Revenue Rs crore 65.67 50.22
Profit After Tax (PAT) Rs crore 8.04 7.96
PAT Margin % 12.24 15.85
Adjusted debt/adjusted networth Times 0.49 0.23
Interest coverage Times 8.26 9.56
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 crore)		 Rating assigned
With outlook
NA Cash Credit NA NA NA 5.0 CRISIL BBB-/Stable
NA Term Loan NA NA Jan-2025 3.0 CRISIL BBB-/Stable
 
Annexure - List of entities consolidated
Name of entities Extent of Consolidation Rationale for Consolidation
Beta Drugs Ltd. 100% consolidation Adley Formulation Pvt. Ltd. and Adley Lab Limited are wholly owned subsidiary of BDL. The group referred to as the Beta group
Adley Formulation Pvt. Ltd. 100% consolidation Adley Formulation Pvt. Ltd. and Adley Lab Limited are wholly owned subsidiary of BDL. The group referred to as the Beta group
Adley Lab Limited 100% consolidation Adley Formulation Pvt. Ltd. and Adley Lab Limited are wholly owned subsidiary of BDL. The group referred to as the Beta group
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  8.00  CRISIL BBB-/Stable      30-05-19  CRISIL BB+/Stable    --    --  -- 
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
Cash Credit 5 CRISIL BBB-/Stable Cash Credit 5 CRISIL BB+/Stable
Term Loan 3 CRISIL BBB-/Stable Term Loan 3 CRISIL BB+/Stable
Total 8 -- Total 8 --
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 Bank Loan Ratings
CRISILs Criteria for Consolidation

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