Rating Rationale
August 16, 2024 | Mumbai
Denis Chem Lab Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.27.99 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
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 ratings on the bank loan facilities of Denis Chem Lab Ltd (DCLL) to 'CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The upgrade factors in a belief that the business and financial risk profiles of DCLL will continue to improve over the medium term. Turnover increased to Rs 167 crore in fiscal 2024, from Rs 160.82 crore in fiscal 2023, driven by higher capacity utilization and demand. The operating margin also rose to 12.7% from 11.7%; however, sustenance of the margin will remain monitorable.

 

The financial risk profile is expected to remain healthy, aided by accretion of profits and almost negligible debt. Networth is estimated at Rs 80.19 crore, gearing at 0.01 time and total outside liabilities to tangible networth ratio at 0.36 time as on March 31, 2024. Debt protection metrics have been robust, with interest coverage ratio of 52 times and net cash accrual to total debt ratio of 14.65 times for fiscal 2024.

 

The ratings reflect the extensive experience of the promoters in manufacturing intravenous fluids (IVFs) along with established market position and comfortable financial risk profile of the company. These strengths are partially offset by modest scale of operations and large working capital requirement.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters: The key promoter, Mr Himanshu Patel, has a Doctor of Philosophy degree from Columbia University and around four decades of experience in manufacturing IVFs. Expertise of the promoters, their strong understanding of market dynamics and healthy relationships with customers and suppliers should continue to support the business. DCLL manufactures IVFs, which are primarily used as rehydrating agents or courier for other medicines. The company is licensed to manufacture over 110 products. Operating income is projected at Rs 160-170 crore over the medium term, driven by healthy operating margin and almost 95% capacity utilisation.

 

  • Established market presence: The company has a strong market position, backed by a long track record of operations, compliance with norms and wide range of products. DCLL is among the first domestic movers to adopt latest technologies, including the introduction of Euroheads.

 

  • Comfortable financial risk profile: The financial risk profile is expected to remain healthy, aided by accretion of profits and almost negligible debt. The capital structure has improved sharply over fiscals 2017 and 2018 due to equity infusion of Rs 34 crore. Networth is estimated at Rs 80.19 crore, gearing at 0.01 time and total outside liabilities to tangible networth ratio at 0.36 time as on March 31, 2024. Debt protection metrics may continue to be robust, with interest coverage ratio of 52 times and net cash accrual to total debt ratio of 14.65 times for fiscal 2024.

 

Weaknesses:

  • Modest scale of operations: Although revenue increased to Rs 167.82 crore in fiscal 2024 (from Rs 160.82 crore in fiscal 2023), limited presence of the company in the IVF space (only certain segments) amid intense competition may continue to constrain scalability, pricing power and profitability. Further, high logistics expenses make regional players more cost competitive. Revenue is likely to increase over the medium term, with expansion in the production capacity.

 

  • Large working capital requirement: Gross current assets were sizeable at 148 days as on March 31, 2024, driven by debtors of around 69 days and inventory of about 25 days. The working capital cycle may remain at similar levels in the current fiscal as well.

Liquidity: Adequate

Liquidity should remain supported by the ample surplus in cash accrual and bank lines and healthy financial flexibility. Cash accrual is projected at Rs 15-16 crore per annum, against yearly maturing debt of just Rs 0.4 crore over the medium term. The bank lines have been largely unutilized. Unencumbered cash stood at Rs 22 crore as on May 2024. Moderate networth and controlled leverage also aid liquidity.

Outlook: Stable

DCLL will continue to benefit from its established market position and the extensive experience of the promoters. The financial risk profile should remain healthy, in the absence of any large, debt-funded capital expenditure (capex).

Rating Sensitivity factors

Upward factors:

  • Revenue growth of 20-25% per fiscal along with steady operating margin
  • Continued consolidation in the financial risk profile along with improvement in working capital cycle

 

Downward factors:

  • Operating margin below 9% on a sustained basis
  • Large, debt-funded capex or a significant stretch in the working capital cycle

About the Company

Incorporated in July 1980 as a private-limited company by Mr Himanshu C Patel and his family members, the company got converted into a public-limited company in April 1982. DCLL manufactures IVF bottles under three packaging categories: glass bottles, Euroheads and plastic bottles (using the blow-fill-seal technology). The manufacturing facility at Gandhinagar (Gujarat) is World Health Organization-Good Manufacturing Practices-certified. Its installed capacity per annum is 2.3 crore glass bottles, 4.3 crore Eurohead bottles and 5 crore plastic bottles.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024*

2023

Operating income

Rs crore

167.74

160.82

Reported profit after tax (PAT)

Rs crore

11.16

7.86

PAT margin

%

6.65

4.89

Adjusted debt/adjusted networth

Times

0.01

0.03

Interest coverage

Times

52.14

29.31

*Provisional

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank guarantee NA NA NA 5.75 NA CRISIL A3+
NA Cash credit NA NA NA 16.5 NA CRISIL BBB/Stable
NA Foreign exchange forward NA NA NA 0.25 NA CRISIL A3+
NA Letter of credit NA NA NA 4.75 NA CRISIL A3+
NA Working capital term loan NA NA Mar-2025 0.74 NA CRISIL BBB/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 17.49 CRISIL A3+ / CRISIL BBB/Stable   -- 31-05-23 CRISIL BBB-/Stable / CRISIL A3 08-03-22 CRISIL BBB-/Stable / CRISIL A3 31-12-21 CRISIL BB+ /Stable / CRISIL A4+ (Issuer Not Cooperating)* CRISIL BBB-/Stable / CRISIL A3
      --   --   --   -- 07-04-21 CRISIL BBB-/Stable / CRISIL A3 --
      --   --   --   -- 05-03-21 CRISIL BBB-/Stable / CRISIL A3 --
Non-Fund Based Facilities ST 10.5 CRISIL A3+   -- 31-05-23 CRISIL A3 08-03-22 CRISIL A3 31-12-21 CRISIL A4+ (Issuer Not Cooperating)* CRISIL A3
      --   --   --   -- 07-04-21 CRISIL A3 --
      --   --   --   -- 05-03-21 CRISIL A3 --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 2 Bank of India CRISIL A3+
Bank Guarantee 3.75 Axis Bank Limited CRISIL A3+
Cash Credit 0.8 Bank of India CRISIL BBB/Stable
Cash Credit 15.7 Axis Bank Limited CRISIL BBB/Stable
Foreign Exchange Forward 0.25 Axis Bank Limited CRISIL A3+
Letter of Credit 4.75 Axis Bank Limited CRISIL A3+
Working Capital Term Loan 0.74 Axis Bank Limited CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
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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