| Neuland Laboratories Limited | ||||||
| Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank facilities of Neuland Laboratories Limited (NLL; part of Neuland group).
The ratings continue to reflect the extensive industry experience of the group's promoters & established market position in API segment, well established customer base, geographical diversification in revenues, healthy product diversity support the scale and sustainability and healthy financial profile. These strengths are partially offset by its susceptibility to fluctuations in raw material prices, intense competition, and regulatory risks, working capital intensive operations and vulnerability of operating margin to fluctuations in forex rates. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Neuland Laboratories Ltd (Neuland) and with its wholly owned subsidiaries i.e. Neuland Laboratories Inc- USA and Neuland Laboratories K.K-Japan, have synergistic businesses and are operated by the same promoters and management.
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 & establish market position in API’s segment: Neuland moderate scale provides it an operating flexibility in an intensely competitive industry. Further, it also benefits from the promoters' experience of over the 4 decades, their strong understanding of market dynamics, and healthy relations with customers and suppliers and will continue to support the business.
Well established customer base: Group has three business segments namely Prime API, Niche/Specialty APIs & CMS. Group largely caters to small/mid-size venture backed biotech companies which are working on new products for CMS segment. In Prime API segment group works on molecules either with a business leadership approach or partnership with client on maintaining cost efficiencies. In Niche/Specialty API segment group continues to focus on niche APIs with complex chemistry and working on filing IP for non-infringing processes. In CMS business, Group woks as a virtual extension to developers R&D team and thus was able to build healthy relationship with the customers. The revenue contribution from the prime API segment reduced to 42% in FY22 (9 months) (FY18: 58%), while the niche API and CMS revenue contribution increased to 24% and 30% respectively from 20% and 22% during the same period. The revenue contribution from niche API and CMS would continue to increase over the next three years while that of prime API segment is expected to reduce to under 40%. Healthy relationship with top pharma players and strong research and development capabilities ensures a healthy operating margin.
Geographical diversification in revenues: The group caters to a wide number of clients, both in India and overseas. It consistently derives over 75% of its revenue from exports. In CMS business, entire revenue is derived from the regulated markets of the US, Europe and Japan. Diversity in geographic reach and clientele should continue to support the business risk profile.
Healthy product diversity supports the scale and sustainability: The group is an established player in the market and in operations for over 35 years, the scale of operations remains healthy. Neuland Labs has developed more than 300 processes and 75 APIs and has filed over 903+ Regulatory filings in the US (60 active US DMFs), the European Union (EU) and other geographies. As the group product basket in diversified, mitigating it to risk of obsolescence in case of any new technology coming into the market. Top 10 Products contribute close to 98% of Prime API, 76% in niche API and 87% in CMS segment revenues.
Healthy financial profile: The group’s capital structure is expected to continue at healthy level due to lower reliance on external funds with estimated gearing of 0.35 and low total outside liabilities to adj tangible networth (TOL/ANW) of 1.03 for year ending on 31st March 2022. The group’s debt protection measures are expected to be healthy due to low leverage and healthy profitability. The interest coverage and net cash accrual to total debt (NCATD) ratio are estimated at 9.25 times and 0.51 times for fiscal 2022 .The group debt protection measures are expected to remain at similar level over medium term.
Weakness: Susceptibility to fluctuations in raw material prices, intense competition, and regulatory risks: The bulk drugs industry is highly competitive due to presence of numerous domestic as well as global players, which exerts pricing pressure on individual entities. For instance, the group’s revenues declined by 10% in 2017-18 which led to lower absorption of fixed costs and was also impacted by higher raw material cost. In 2018-19 the major reason for decline is sharp increase in raw material cost which resulted in contribution margins for both API & CMS business coming down from 59% & 46% to 52% and 38% respectively. This necessitates the company to remain cost competitive to maintain profitability.
Working capital intensive operations: Gross current assets were at 203-231 days over the three fiscals ended March 31, 2021. Its intensive working capital management is reflected in its gross current assets (GCA) of 229 days estimated as on March 31, 2022. Large working capital requirements arise from its high debtor and inventory levels. It is required to extend long credit period. Furthermore, due to its business need, it holds large work in process & inventory. |
Liquidity: Strong Liquidity profile of Neuland group is marked by a healthy cushion between cash accrual and maturing debt obligations and low bank limit utilization. Bank limit utilization was low around 28 percent for the past twelve months ended January 2022. Cash accruals are expected to be over Rs 100-120 crore which are sufficient against term debt obligation of Rs 25-30 crore over the medium term. Low gearing and healthy net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believe that the group will continue to benefit from its established market position and extensive experience of the promoters. |
Rating Sensitivity Factors Upward factors
Downward factor
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About the Company Neuland was incorporated as a private limited company in 1984 by Dr. D R Rao and Mr. G V K Rama Rao, later it got reconstituted as a public limited company with the present name in 1994. It is engaged in manufacturing of active pharmaceutical ingredients (API) for global pharmaceutical companies and also provides end-to-end solutions to the pharmaceutical industry for chemistry-related services. It has 3 manufacturing facilities located in and around Hyderabad- Telangana. The Company is listed on Bombay Stock Exchange and National Stock Exchange of India Ltd |
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 – 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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 21-Apr-2022 in line with the lender-wise facility details as on 18-Aug-2021 received from the rated entity.
Criteria Details
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