Rating Rationale
September 10, 2019 | Mumbai
NGL Fine Chem Limited
Rating outlook revised to 'Positive'; ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.50.89 Crore
Long Term Rating CRISIL BBB/Positive (Outlook revised from 'Stable' and rating reaffirmed)
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has changed its outlook on the long-term bank facilities of NGL Fine Chem Limited (NFC) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL BBB/CRISIL A3+'.
 
The change in outlook reflects CRISIL's belief that the business risk profile will be sustained over the medium term, driven by revenue growth of more than 8% per fiscal and a stable operating margin of over 20%. The growth should be supported by the recently completed capacity expansion and an established market position in manufacturing veterinary active pharmaceutical ingredients (APIs) backed by healthy demand from existing customers. Revenue grew at about 35% y-o-y to Rs 153 crore in fiscal 2019 while the operating margin improved to 25% from 20% in fiscal 2018, leading to better-than-expected cash accrual.
 
The ratings continue to reflect the extensive experience of the promoters in the pharmaceutical industry and a healthy financial risk profile. These strengths are partially offset by a moderate scale, and working capital-intensive nature, of operations.

Analytical Approach

For arriving at the ratings, CRISIL has combined the financial and business risk profiles of NFC and its wholly-owned subsidiary, Macrotech Polychem Private Limited (MPPL). That's because both these companies, together referred to herein as NFC, have a common management, and strong operational and financial links.

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:
* Extensive industry experience of the promoters
The company manufactures bulk drugs and intermediates for human and veterinary diseases. It primarily manufactures APIs under the antiprotozoal therapeutic category. The promoters, Mr Rahul Nachane and Mr Rajesh Lawande, have experience of over three decades in the pharmaceutical industry. Their expertise and experience have helped to establish a presence in the highly fragmented bulk drugs industry and build relationships with clients, which should support the business risk profile over the medium term.
 
* Healthy financial risk profile
 
The networth was healthy, the gearing comfortable, and the debt protection metrics strong. The networth increased to around Rs 91.9 crore as on March 31, 2019, from Rs 71.8 crore as on March 31, 2018, on account of healthy accretion to reserves. The gearing and total outside liabilities to tangible networth ratio were low at 0.3 time and 0.54 time, respectively, as on March 31, 2019. Healthy margins, coupled with low debt, resulted in strong debt protection metrics, with net cash accrual to total debt ratio at 0.97 time and interest coverage ratio at 15 times for fiscal 2019.
 
Weaknesses:
* Moderate scale of operations:
Since its inception in 1981, the company primarily manufactures bulk drugs and intermediates in the animal healthcare segment. Though operating income increased by 35% it remained moderate at Rs 153 crore in fiscal 2019. The moderate scale of operations restricts the ability to negotiate with customers or suppliers vis-Ã' -vis larger players in the sector because of their higher volumes and broader product portfolios. This enables them to invest in better research and development and other infrastructure, thereby fortifying their competitive advantage.
 
* Working capital-intensive operations
The operations of the company are working capital intensive as indicated by gross current asset (GCA) days of 149 days as on 31st March 2019. The company extends credit of 90-120 days to clients. Large raw material inventory of 30-60 days needs to be maintained to cater to urgent market demand and remain competitive. The manufacturing process takes 30-45 days depending on the product. As a result, working capital requirement is large and is funded through credit from suppliers and working capital bank lines.
 
Liquidity: Adequate
NFC has adequate liquidity. NFC is expected to generate cash accruals of close to Rs.23-26 crore over next two fiscal against which the fixed debt obligations are limited to Rs.3.5-4 crore only. Though the operations of the company are working capital intensive, the average bank limit utilization has remained moderate at 46 per cent for past 12 months. The company's current ratio was 1.87 times as on March 31, 2019. Capex of around Rs.7-8 crore is expected to be met through internal accruals. Unencumbered marketable securities of about Rs.8 crore augments the entity's liquidity profile. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.
Outlook: Positive

CRISIL believes NFC will continue to benefit from the industry experience of the promoters and established customer relationships.
 
Rating sensitivity factors:
Upward factors:
* Sustained revenue growth of 8-10% with an operating margin of over 20%, over the medium term
* Stable working capital cycle and capital structure

Downward factors:
* Low revenue growth of below 5% per fiscal or decline in the operating margin to below 20%
* Increase in working capital requirement, larger-than-expected, debt-funded capital expenditure or acquisition, or more-than-expected dividend pay-out, weakening the financial risk profile, particularly liquidity.

About the Company

Incorporated in 1981, NFC is managed by Mr Rahul Nachane and Mr Rajesh Lawande. The company manufactures human and veterinary bulk drugs, intermediates, and formulations. It primarily deals in animal healthcare products such as antiprotozoal, anthelmintics, and growth promoters. The administrative office is in Mumbai and the manufacturing facilities are in Tarapur and Navi Mumbai in Maharashtra.
 
NFC acquired 100% equity shareholding in MPPL in May 2019 for cash consideration of Rs 7 crore. MPPL manufactures pharmaceutical intermediates.

Key Financial Indicators - Standalone
Particulars Unit 2019 2018
Revenue Rs crore 153.2 113.6
Profit after tax (PAT) Rs crore 20.12 12.59
PAT margin % 13.1 11.1
Adjusted debt/adjusted networth Times 0.3 0.37
Interest coverage Times 15.1 12.9

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 Cash Credit NA NA NA 8 CRISIL BBB/Positive
NA Letter of Credit NA NA NA 4.8 CRISIL A3+
NA Packing Credit NA NA NA 8 CRISIL A3+
NA Proposed Long Term
Bank Loan Facility
NA NA NA 4.79 CRISIL BBB/Positive
NA Term Loan NA NA 31-Oct-22 25.3 CRISIL BBB/Positive
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
NGL Fine Chem Ltd Full Common management and strong operational and financial link
Macrotech Polychem Private Limited Full Common management and strong operational and financial link
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  46.09  CRISIL BBB/Positive/ CRISIL A3+      05-07-18  CRISIL BBB/Stable/ CRISIL A3+  06-09-17  CRISIL BBB/Stable/ CRISIL A3+  28-12-16  CRISIL BBB/Stable/ CRISIL A3+  CRISIL BBB-/Positive 
                    09-05-16  CRISIL BBB-/Positive/ CRISIL A3   
                    07-01-16  CRISIL BBB-/Positive   
Non Fund-based Bank Facilities  LT/ST  4.80  CRISIL A3+      05-07-18  CRISIL A3+  06-09-17  CRISIL A3+  28-12-16  CRISIL A3+  CRISIL A3 
                    09-05-16  CRISIL A3   
                    07-01-16  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
Cash Credit 8 CRISIL BBB/Positive Cash Credit 8 CRISIL BBB/Stable
Letter of Credit 4.8 CRISIL A3+ Letter of Credit 4.8 CRISIL A3+
Packing Credit 8 CRISIL A3+ Packing Credit 8 CRISIL A3+
Proposed Long Term Bank Loan Facility 4.79 CRISIL BBB/Positive Proposed Long Term Bank Loan Facility 4.79 CRISIL BBB/Stable
Term Loan 25.3 CRISIL BBB/Positive Term Loan 25.3 CRISIL BBB/Stable
Total 50.89 -- Total 50.89 --
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 Criteria for Consolidation
CRISILs Criteria for rating short term debt

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