| Galpha Laboratories Limited | ||||
| Rating upgraded to 'CRISIL BBB-'; outlook revised to 'Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the bank facilities of Galpha Laboratories Limited (Galpha) to ‘CRISIL BBB-/Stable’ from 'CRISIL BB+/Positive’.
The upgrade reflects improvement in business risk profile with revenues increased to around Rs. 382 crores in fiscal 2022, from Rs. 303 crores in fiscal 2021, driven by new products and higher demand. Operating margins also improved in fiscal 2022 and expected to remain at 7-8% going forward. This has led to improvement in financial risk profile with total outside liabilities to adjusted networth estimated below 3 times as on March 31, 2022, and healthy debt protection metrics. Liquidity profile also improved with cash accruals estimated above Rs. 25 crores and no repayment obligations.
The rating continues to reflect the extensive experience of the promoters of Galpha in the pharmaceutical business, diversified product portfolio, comfortable debt protection metrics and improved operating margins. These strengths are partially offset by its highly leveraged capital structure, working capital intensive operations, exposure to intense competition. |
Analytical Approach Unsecured loans of Rs 36 crores crore as on March 31, 2021 from the promoters, have been treated as 75% equity and 25% debt |
Key Rating Drivers & Detailed Description Strengths:
The four-decade long experience of the promoters in the pharmaceutical industry and their strong understanding of the local market dynamics have helped to create a well-established distribution network in the domestic markets and establish its brand as well as strong relationship with customers and suppliers. Revenue has grown from Rs 303.69 Crore in FY2021 to an estimated revenue of Rs 382 Crore in FY2022.
Galpha sells more than 30 brands with different variations as well as formulations in the anti-inflammatory, antibiotics, multi vitamin, analgesic and gynecological segments thus reducing its dependence on one segment. This has also helped establish a diverse customer base with revenue of 40% from top 5 customers.
With improvement in operating margin, debt protection metrics have improved further in fiscal 2022, interest coverage and net cash accrual to adjusted debt ratios are estimated to be 7.21 times and 0.39 time. With margins expected to remain at similar levels over the medium term, debt protection metrics should continue to be comfortable.
Weaknesses:
Owing to decline in networth due to losses incurred in previous fiscals, capital structure remains highly leveraged with networth estimated to be Rs 57 crore and gearing and total outside liabilities to adjusted networth ratios of 1.2 and 3 times, respectively, in fiscal 2022. With accretion to reserve, capital structure is expected to improve, but remain highly leveraged over the medium term.
Gross current assets are estimated to be at 175-185 days as on March 31, 2022, driven by a long receivables cycle of around 80-85 days and inventory of 40 days. The receivables cycle is sizeable because of the extensive credit given to distributors. However, payables of 92 days leading to moderate reliance on bank lines partly supports working capital.
Intense competition constrains scalability as well as limits the bargaining power of the company with key customers and constrains the ability to pass on any hike in raw material prices to them. While there are several standalone manufacturers, many formulators are also backward integrated into bulk drug production. |
Liquidity: Adequate Net cash accrual, expected at Rs 26-30 crore in fiscals 2023 and 2024, should support liquidity in the absence of any debt obligation over the medium term. Utilization of the fund-based limit of Rs 80 crore averaged 81% over the 12 months through February 2022. Liquidity is also cushioned by unsecured loans extended by the promoters. |
Outlook: Stable CRISIL believes Galpha will continue to benefit from the promoters' extensive experience. |
Rating Sensitivity factors Upward Factors:
Downward Factors:
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About the Company Galpha, established in 1975 as a partnership firm and reconstituted as a company in 1986, is promoted by Mr. N K Singh. It manufactures formulations in the anti–inflammatory, antibiotics, multi-vitamin, analgesic, and gynaecological segments at its manufacturing facilities in Ankleshwar (Gujarat) and Solan (Himachal Pradesh). |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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This Annexure has been updated on 02-May-2022 in line with the lender-wise facility details as on 28-Mar-2022 received from the rated entity.
Criteria Details
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