| Farmson Pharmaceutical Gujarat Private Limited | ||||||
| Short-term rating upgraded to 'CRISIL A1 '; long-term rating reaffirmed; outlook revised to 'Positive'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities of Farmson Pharmaceutical Gujarat Pvt Ltd (FPGPL) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL A-'. The rating on the short-term bank facilities has been upgraded to 'CRISIL A1' from 'CRISIL A2+'.
The outlook revision reflects CRISIL Ratings’ belief that FPGPL’s business and financial risk profiles will further improve over the medium term. The business risk profile is healthy, with strong position in the paracetamol market, as reflected in robust performance during the first nine months of fiscal 2021 with estimated revenue of Rs 736 crore and operating margin of 36%. FPGPL is in the process of capacity expansion; however, full benefit of enhanced capacity will be derived from fiscal 2023. Turnover is expected to grow at 10-30% over the medium term. The realisation of paracetamol improved during the first nine months of fiscal 2021 post Covid-19 due to reduced competition from China and the sharp improvement in realisation. Sustenance of revenue growth and healthy profitability while concluding ongoing expansion will be a key monitorable. Working capital is prudently managed, resulting in low reliance on external debt. Return on capital employed (RoCE) was strong at over 55% in fiscal 2020, and is expected to remain above 30% over the medium term.
The ratings also factor in strong financial risk profile, indicated by a robust capital structure with near debt-free operations, strong debt protection metrics and liquidity with healthy cash accrual and large unencumbered fixed deposits of Rs 165 crore as on December 31, 2020.
The ratings reflect the promoters' extensive experience in pharmaceutical industry, established track record with strong clientele and its healthy financial risk profile. These strengths are partially offset by working capital intensive operations and susceptibility to volatility in key raw material prices. |
Analytical Approach CRISIL Ratings had been combining the business and financial risk profiles of FPGPL and its group entity, JNP Products (JNP), together referred to as the Farmson group, as the entities have significant business and financial linkages and common management. FPGPL acquired JNP on slump-sale basis during the first nine months of fiscal 2021.
Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
FPGPL has been in the bulk drug manufacturing business for more than four decades. It supplies paracetamol in bulk form (active pharmaceutical ingredients), glacial acetic acid, to reputed and diverse clients in India and overseas (including Europe, Africa and 43 other countries). Revenue was Rs 721 crore in fiscal 2020 and Rs 736 crore for the first nine months of fiscal 2021. Revenue is expected grow at 10-30% over the medium term driven by gradual benefit derived from enhanced capacity. The ability of FPGPL to sustain its revenue growth and profitability post timely completion and stabilisation of ongoing capex will be a key monitorable.
Operating margin were healthy, and had increased from 22% in fiscal 2019 to 28% in fiscal 2020 backed by fully integrated plant and economies of scale. The operating margin is expected above 22% over the medium term. The return on capital employed (ROCE) was healthy at 55% in fiscal 2020, and is expected at 30-40% over the medium term.
Financial risk profile is strong, driven by healthy networth of over Rs 368 crore and gearing of 0.05 time as on March 31, 2020. Debt protection measures were robust, as reflected in interest coverage and net cash accrual to total debt ratios of 50 times and 8 times, respectively, in fiscal 2020. The funding mix of ongoing capacity expansion projects remain key monitorable.
Weakness:
Gross current assets estimated in range of 80-90 days in FY21 as against 81 days in FY20 backed by inventory of 29 days and receivable of 45 days. Working capital management amid growing scale and ongoing capacity expansion will remain a monitorable.
Operating margin remains susceptible to fluctuation in raw material prices which moves in tandem to crude oil prices as evident from volatility in operating margins ranging from 12.5-22% for previous five fiscals through 2019. The operating margin improved to 28% in FY20 against 22% in FY19. As FPGPL's customer base persists of large and reputed pharmaceutical companies, increase in input costs cannot be immediately passed on to them. While company has maintain operating margin in range of 14-29%, its ability to maintain healthy operating margin remain key monitorable. |
Liquidity: Strong FPGPL has strong liquidity supported by healthy net cash accruals are expected over Rs 150-160 crore over the medium term against meagre term debt repayment over the medium term, the surplus cash should be used to fund ongoing capacity expansion projects worth over Rs 128 crore which is expected to conclude in May 2021. The bank lines are unutilised during last 12 months ended February 2021. FPGPL has unencumbered cash and bank balance/fixed deposits of Rs 165 crore as on December 31, 2020 (against Rs 98 crore as on March 31, 2020). The current ratio were comfortable at 2.52 times as on March 31, 2020 and expected to remain above 2.5 times over the medium term. |
Outlook: Positive CRISIL Ratings expects FPGPL’s business risk profile would strengthen over the medium term on the back of ongoing capacity expansion, reputed clientele, and diversifying geographical presence; while maintaining robust financial risk profile. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1974, FPGPL is promoted by Mr Vithani, Mr Samir Patel and their family members. The company manufactures paracetamol in bulk form (active pharmaceutical ingredients) at its manufacturing facility in Baroda. JNP was a partnership firm that manufactured para amino phenol for sale entirely to FPGPL. FPGPL has acquired JNP on slump-sale basis during the first nine months of fiscal 2021. |
Key Financial Indicators (consolidated)
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Any other information: Not applicable |
| 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)
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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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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