Rating Rationale
January 07, 2019 | Mumbai
Kopran Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.98.5 Crore
Long Term Rating CRISIL BBB/Stable (Reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB/Stable/CRISIL A3+' ratings on the bank facilities of Kopran Limited (Kopran; part of the Kopran group).

The ratings continue to reflect the extensive experience of promoters in the pharmaceutical industry, potential benefits from the recent acquisition of the active pharmaceutical ingredient (API) manufacturing unit of Maxheal Pharmaceutical at Panoli, Gujarat, and the above-average financial risk profile despite debt funded capex. These strengths are partially offset by the working capital-intensive operations, and susceptibility to volatile input prices.

Analytical Approach

For arriving at its ratings, CRISIL continues to fully consolidate the business and financial risk profiles of Kopran and its wholly-owned subsidiaries, Kopran Research Laboratories Ltd (KRLL; rated 'CRISIL BBB/Stable/CRISIL A3+'), Kopran Lifesciences Ltd, and Kopran (HK) Ltd, Hong Kong, collectively referred to as the Kopran group, as they are in the similar line of business and have significant operational and financial linkages.

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
* Extensive experience of the promoters: The four-decade-long experience of the promoters in the pharmaceutical industry, their strong relationships with key suppliers and customers, will continue to support the business risk profile. The group has been working on obtaining certifications and approvals for exports to developed markets. Benefits from the extensive experience of the promoters should continue, as demonstrated by several product launches under the formulations segment. The API manufacturing unit of Maxheal Pharmaceutical, acquired recently, should bring additional revenue of Rs 100-150 crore in the medium term further strengthening the business risk profile

* Above-average financial risk profile: Financial risk profile was marked by a healthy networth and moderate total outside liabilities to adjusted networth ratio of Rs 142.04 crore and 1.2 times, respectively, as on March 31, 2018, vis-Ã' -vis Rs 100 crore and 1.6 times, respectively, as on March 31, 2016. The TOL/ANW ratio is likely to sustain at 1.12 times in the medium term, despite the large capital expenditure (capex). Debt protection metrics were healthy, with the interest coverage and net cash accrual to adjusted debt ratios at 4.4 times and 0.2 time, respectively,  in fiscal 2018, and likely to sustain above 4 times and 0.2 time, respectively, in the medium term.

Capex of Rs 40-50 crore,  over the medium term, will be funded via long-term debt. However, the financial risk profile is expected to remain healthy, backed by plough-back of profits into the business and conversion of inter-corporate deposits (ICDs) into equity over the short term. 

Weaknesses
* Working capital-intensive operations: Gross current assets were high at 215 days, driven by receivables and inventory of 117 and 93 days respectively, as on March 31, 2018. GCAs are expected to be remain high at 200-210 days. While significant revenue is derived from South Africa and other African countries, bulk of the sales are backed by letter of credit.

* Volatility in operating margin: Operating margin has ranged between 11.2% and 14.5% over the five fiscals through March 2018, owing to volatility in raw material prices. Though the group has the ability to pass on price fluctuations to customers, it is with a lag, and any sharp volatility impacts profitability.
Outlook: Stable

CRISIL believes the Kopran group will continue to benefit from new product development initiatives, and its established relationships with customers and suppliers. The outlook may be revised to 'Positive' in case of sustained improvement in working capital management, and substantial growth in revenue or profitability, resulting in higher net cash accrual. The outlook may be revised to 'Negative' if weakening of profitability, any large capex, or a stretched working capital cycle weakens the financial risk profile, particularly liquidity.

Liquidity
Net cash accrual of Rs 25-30 crore each in fiscals 2019 and 2020, will more than suffice to cover the maturing debt of Rs 2.8 crore and Rs 4.2 crores, respectively. Bank limit utilisation averaged 87% over the 12 months through October 2018, while the moderate current ratio of around 1.4 times as on March 31, 2018, ensures adequate cushion in working capital limit. Planned capex of around Rs 50 crore in medium term, will be funded via by loan against property (LAP) of Rs 25 crore and additional term loan of Rs 10-15 crore. Accordingly CRISIL believes that NCA along with available bank limits would be sufficient to meet term debt repayment obligations and incremental working capital requirements. Further, expected conversion of ICDs into equity, previously repayable over the medium term, and long tenure of 12 years for the LAP, also support liquidity.

About the Group

Kopran was incorporated in 1958, promoted by the Mumbai-based Somani family. The company, which is a part of the Parijat group, is managed by Mr Surendra Somani. It manufactures pharmaceutical formulations such as antibiotics, anti-malarial, analgesics, and cardiovascular and bulk drugs at its facilities in Mahad and Khopoli in Maharashtra.  In fiscal 2015, the bulk drugs division was transferred to KRLL through a slump sale. Kopran Lifesciences Ltd and Kopran (HK) Ltd, Hong Kong are small entities and nearly defunct.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 306 310
Profit After Tax (PAT) Rs crore 20.0 19.9
PAT Margin % 6.4 6.3
Adjusted debt/Adjusted networth Times 0.9 1.0
Interest coverage Times 4.4 3.4

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)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue
Size
(Rs.Cr)
Rating Assigned  with Outlook
NA Bank Guarantee NA NA NA 0.75 CRISIL A3+
NA Cash Credit NA NA NA 15.0 CRISIL BBB/Stable
NA Letter of Credit NA NA NA 15.0 CRISIL A3+
NA Loan Equivalent Risk Limits NA NA NA 5.25 CRISIL A3+
NA Proposed Long Term Bank Loan Facility NA NA NA 62.5 CRISIL BBB/Stable
 
Annexure: Details of Consolidation
Fully Consolidated Entities:
Kopran Research Laboratories Ltd, Kopran Lifesciences Ltd, and Kopran (HK) Ltd, Hong Kong
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  82.75  CRISIL BBB/Stable/ CRISIL A3+      24-05-18  CRISIL BBB/Stable/ CRISIL A3+      01-12-16  CRISIL BBB-/Stable/ CRISIL A3  CRISIL BBB-/Stable/ CRISIL A3 
            14-02-18  CRISIL BBB/Stable/ CRISIL A3+      22-07-16  CRISIL BBB-/Stable/ CRISIL A3   
Non Fund-based Bank Facilities  LT/ST  15.75  CRISIL A3+      24-05-18  CRISIL A3+      01-12-16  CRISIL A3  CRISIL A3 
            14-02-18  CRISIL A3+      22-07-16  CRISIL A3   
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
Bank Guarantee .75 CRISIL A3+ Bank Guarantee .75 CRISIL A3+
Cash Credit 15 CRISIL BBB/Stable Cash Credit 15 CRISIL BBB/Stable
Letter of Credit 15 CRISIL A3+ Letter of Credit 15 CRISIL A3+
Loan Equivalent Risk Limits 5.25 CRISIL A3+ Loan Equivalent Risk Limits 5.25 CRISIL A3+
Proposed Long Term Bank Loan Facility 62.5 CRISIL BBB/Stable Proposed Long Term Bank Loan Facility 62.5 CRISIL BBB/Stable
Total 98.5 -- Total 98.5 --
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
The Rating Process
Understanding CRISILs Ratings and Rating Scales

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Amit Bhave
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3113
amit.bhave@crisil.com


Jumana Badshah
Associate Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 8324
Jumana.Badshah@crisil.com


Athul Sreelatha
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3046
Athul.Sreelatha@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL