Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Excelra Knowledge Solutions Private Limited (Excelra) at 'CRISIL A-/Stable/CRISIL A2+'.

 

The ratings continue to reflect CRISIL Ratings’ expectations that Excelra will continue to report steady organic revenue growth of 10-15% over the medium term and sustain its robust operating profitability of ~30-35%, backed by its niche offerings, clientele and pricing power. In recent years, Excelra’s operating performance has witnessed steady improvement, backed by strong revenue growth, healthy operating profitability, and controlled working capital cycle.

 

Consolidated revenue grew 34% on-year to Rs 179 crore during year-to-date ended November 30, 2022 with operating margin of 32% with further ramp-up expected for remaining part of the year and medium term. Previously, company's revenues registered a healthy compound annual growth rate (CAGR) of 28% over the last four years ended fiscal 2022 reaching Rs 223 crore with a healthy operating margin of 42% in fiscal 2022 (fiscal 2021: 46.0%) led by both organic growth and accretive acquisitions (Anilitiks Inc. acquired in fiscal 2021). The company’s revenue growth has been supported by niche and specialised products, strong client base and business opportunities related to clinical data post the pandemic. The healthy operating margin over the last three fiscals was supported by its pricing power given niche offerings, along with improved fixed cost absorption and cost efficiencies.

 

Complementing the company’s improving business risk profile is also its adequate financial risk profile, supported by steady cash flow from operations and prudent funding policies. Over the medium term, the financial risk profile is expected to remain adequate, driven by steady cash flow from operations, nominal maintenance capex needs, and flexible dividend policy.  Modest debt of Rs 50 crore alongwith cash surpluses stood at Rs.133 crore as of November 30, 2022, allows for bolt on modest acquisitions.

 

The company’s financial risk profile is expected to remain adequate even after factoring in debt of Rs 200 crore for possible acquisition over the medium term. At present, debt protection ratios continue to remain healthy, despite acquisition related debt of Rs.60 crore added last fiscal. For instance, in fiscal 2022, debt to EBITDA ratio stood at 0.64 times while interest coverage was more than 40 times and net cash accrual to debt ratio was 0.77 times. This was also supported by tight working capital control with debtor and inventory (unbilled revenue) days having improved consistently to 53 and 27 days in fiscal 2022 from 104 and 35 days in fiscal 2020.

 

Also, Excelra merged with GVK Davix Research Pvt Ltd (GVK Davix) in July-2022 and was renamed as Excelra with shareholding split equally between the Brar and Reddy families. While a provision of Rs 20 crore has been recognised for stamp-duty related charges, actual cash outgo is expected to be much lower, as per the company management. This transaction does not have any material impact on the business or financial risk profile of Excelra, as GVK Davix did not have significant operations. Excelra has remained largely ring-fenced from the GVK Group and has not provided any temporary or permanent financial support to GVK Group (including GVK Industries Ltd) companies. CRISIL Ratings is given to understand that the status quo will be maintained by Excelra going forward, given the presence of the promoters, Mr Davinder Singh Brar and his family members, with equal stake being held by Mr. Reddy and family.

 

The ratings continue to reflect expertise of the company in data analytics, healthy relationships with customers and adequate financial risk profile backed by the absence of debt. These strengths are partially offset by modest scale of operations, customer concentration in revenue and exposure to foreign exchange (forex) fluctuations.

Analytical Approach

CRISIL Ratings had combined the business and financial risk profiles of Excelra and all subsidiaries. This is because the entities are under a common management and in related businesses. Also, corporate guarantee has been extended to Excelra Inc for debt being availed.

 

Also, CRISIL Ratings has amortised goodwill of Rs 29.33 crore from the acquisition of Anlitiks over ten years; both profit after tax (PAT) and net worth have been adjusted to that extent beginning fiscal 2021.

 

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

• Expertise in data analytics supported by wide range of services: Excelra has expertise of more than 14 years (including when it was a part of Aragen Life Sciences Pvt Ltd [Aragen Life; 'CRISIL AA-/Stable/CRISIL A1+'] across data solutions, indexing and abstraction as well as analytics. It has emerged as one of the leading informatics solutions providers and specialises in content and knowledge development. Its 600-plus-strong scientific talent pool supports business activities. These scientists curate databases as per industry standards.

 

• Healthy relationships with customers: The Company caters to 15 of the top 20 global pharmaceutical (pharma) players and has longstanding ties with most of them. Products and services are used by agrochemical and life sciences companies and by academic institutions across the globe. Key markets include the USA, European Union, Japan, and Asia-Pacific.

 

• Adequate financial risk profile: Net worth (net of intangibles), which stood at Rs 111 crore as on March 31, 2022, remains modest because of the modest scale of operations; however, it should see steady growth driven by sustenance of strong profitability. With low-cost dollar denominated acquisition debt on the books, debt protection metrics remained healthy in fiscal 2022 with interest coverage and net cash accrual to debt ratio of more than 40 times and 0.77 times as compared to more than 200 times and 1.85 times in fiscal 2021. Debt improved to Rs 50 crore as of November 30, 2022 as compared to Rs 60 crore as of March 31, 2022. Debt/EBITDA stood 0.7 times in fiscal 2022 as compared to 0.3 times in fiscal 2021. The company’s financial risk profile is expected to remain adequate even after factoring in additional debt for bolt-on acquisition, resulting in peak debt/EBITDA of 1.6 times over the medium term. Nonetheless, any sizeable debt-funded acquisition will remain a monitorable.

 

Weaknesses

• Modest scale of operations relative to market size: Revenue of Rs 223 crore in fiscal 2022 reflects the company's moderate scale and limits its bargaining power. The company has initiated several measures related to product development, technological improvements, and acquisitions to drive growth which has helped it to grow from Rs 89 crore in fiscal 2020. Similar measures and acquisitions over the medium term would further enhance scale and will be key monitorables.

 

• Customer concentration: The clientele comprises several marquee customers. The share of revenue from the top five customers was high at 60% in fiscal 2022.  However, the strong clientele and established customer connects, provides some comfort.

 

• Exposure to forex fluctuations: Most of the revenue is in foreign currency, thus exposing profitability to volatility in forex rates. The company follows an approved hedging policy and covers exposures at its budgeted rate on a continuous and rolling basis. Nevertheless, any adverse movement in forex rates could impact profitability to a certain extent.

Liquidity: Adequate

Expected cash accruals, before dividends of Rs 70-80 crore per annum over the medium term against nominal maintenance capex and minimal debt obligations of Rs 8 crore and Rs 15 crore in fiscal 2023 and 2024, respectively will continue to support liquidity. No working capital lines are utilised because of sufficient cash surplus. Cash and bank balance of Rs 133 crore as of November 30, 2022, provides additional cushion to liquidity.

Outlook: Stable

Excelra will sustain its business risk profile over the medium term, backed by steady revenue growth and healthy profitability. The company is also expected to sustain its adequate financial profile, even as it pursues inorganic growth opportunities, supported by strong annual cash flow generating ability and low debt on its balance sheet.

Rating Sensitivity Factors

Upward Factors

•    Sustained annual revenue growth above 20% with operating profitability above 35% along with diversification of customer base
•     Sustained improvement in financial risk profile and maintenance of healthy debt metrics; even in the event of acquisitions

 

Downward Factors

• Revenue de-growth coupled with decline in operating profitability to below 28-30% impacting cash flow generation
• Any large debt-funded capex or acquisition or working capital elongation resulting in weakening of debt metrics
• Higher-than-expected and materially depletion in cash surpluses owing to dividend pay-outs, acquisition funding, etc.

About the Company

Excelra was incorporated on March 4, 2014, as GVK Informatics Pvt Ltd following the transfer of the informatics business from GVK Bio. The company was renamed in fiscal 2016. Excelra provides data and pharma analytics to major pharma and biotech companies across the world. It specialises in content and knowledge development.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
NA	Standby Letter of Credit	NA	NA	NA	47.50	NA	CRISIL A-/Stable
NA	Working Capital Facility*	NA	NA	NA	15.0	NA	CRISIL A-/Stable
NA	Letter of Credit**	NA	NA	NA	12.50	NA	CRISIL A2+

*includes sub-limits of Rs 15 crore of EPC/PCFC limits and Rs 1 crore cash credit

**includes sub-limits of Rs 6 crore for LC and Rs 12.5 crore for forward contracts