| Overseas Health Care Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB- / Stable / CRISIL A3 ' | ||||||
| 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 BBB-/Stable/CRISIL A3’ ratings on the bank facilities of Overseas Health Care Pvt Ltd (OHCPL).
The ratings continue to reflect the healthy market position of OHCPL, the extensive experience of the promoters in the drug formulations industry and a healthy financial risk profile. These strengths are partially offset by modest scale of operations in the competitive pharmaceutical formulations industry, large working capital requirement and exposure to regulatory risks and volatility in raw material prices. |
Analytical Approach Of the total unsecured loan of Rs 4.21 crore provided by the promoters as on March 31, 2021, 75% has been treated as equity and the remaining as debt, as the loan is subordinated to bank debt and is expected to remain in the business over the medium term. |
Key Rating Drivers & Detailed Description Strengths Healthy market position and promoters’ extensive experience The promoters have over three decades of experience in the pharmaceutical industry. The company has positioned itself as an ethical drug manufacturer, with strong brands such as Beminal Forte, Fexid and DVN (drotaverine hydrochloride). It primarily specialises in nutraceuticals, analgesics, antipyretics and antispasmodics. The company has established strong relationships with its customers and suppliers and has a strong network of 22-25 carrying and forwarding agents, above 3,000 stockists and a field force of over 800 personnel.
The company has a diversified geographic reach and operates in Uttar Pradesh, Rajasthan, Haryana, Punjab and Gujarat. It also supplies to various institutions, such as Employees’ State Insurance, the armed forces and state governments. The company has been able to register moderate compound annual growth rate (CAGR) of 14% over the three years through fiscal 2021, supported by addition of product lines, such as the orthopaedic products, urology and infertility segments, along with diversification in geographical reach in Karnataka, Delhi and Mumbai. Its strong market position has helped the company establish a comfortable base for its Covid-19 drugs, which were well received in the market during the pandemic.
Healthy financial risk profile Despite the impact of the Covid-19 pandemic on the business risk profile, the financial risk profile should remain healthy over the medium term in the absence of any major debt-funded capital expenditure (capex). Networth is estimated to have grown to Rs 26.28 crore as on March 31, 2021 from Rs 23.49 crore a year earlier, with increase in accretion to reserve; gearing is estimated at 0.15 time and is expected at 0.12-0.15 time over the medium term. Debt protection metrics were comfortable, indicted by net cash accrual to total debt and interest coverage ratios of 0.98 time and 6.51 times, respectively, in fiscal 2021.
Weaknesses Modest scale of operations amid intense competition OHCPL operates in the pharmaceutical formulations industry. The company’s presence is restricted to the domestic market, which faces high fragmentation because of low capital intensity and minimal gestation period. The domestic market comprises 300-400 organised players, and the top five players—Cipla Ltd, Ranbaxy Laboratories Ltd, GlaxoSmithKline Pharmaceuticals Ltd, Cadila Healthcare Ltd (rated ‘CRISIL AA+/Stable/CRISIL A1+’) and Piramal Healthcare Ltd—account for a significant portion of the market share. This is expected to intensify competition in the long run because of the aggressive pricing strategies of mid-sized formulators. Scale has been modest, indicated by estimated net revenue of Rs 150.99 in fiscal 2021. Intense competition has led to pricing pressure and made the company adopt aggressive marketing strategies, with the operating margin remaining stagnant at 4-4.5% on account of intense competition.
Large working capital requirement Operations may remain working capital-intensive, driven by sizeable receivables and large inventory. However, the working capital has improved significantly in the last five fiscals, as reflected in gross current assets of 125 days as on March 31, 2021, compared with 160 days as on March 31, 2017, driven by receivables of around 56 days. Debtors may steadily improve over the medium term because of faster sales realisation at the stockist’s end and the management’s sustained efforts to improve receivables collection, supported by an enhanced brand image. Inventory was around 53 days as on March 31, 2021, on account of diversification in the product portfolio and increased geographical reach. The company procures its raw material from suppliers based in Gujarat and Maharashtra, wherein it gets extended credit. Payables were around 125 days as on March 31, 2021, and are expected to decrease marginally over the medium term.
Exposure to regulatory risk and volatility in raw material prices The pharmaceutical industry is closely monitored and regulated and, as such, there are inherent risks and liabilities associated with the products and their manufacturing. Furthermore, the key raw material required for the manufacturing primarily includes active pharmaceutical ingredients, prices of which are volatile. Hence, the company remains susceptible to the risk of fluctuations in commodity prices. |
Liquidity: Adequate Bank limit utilisation averaged 10% over the 12 months ended June 30, 2021. Cash accrual, expected at Rs 5-5.5 crore per annum, will support liquidity in the absence of any debt obligation over the medium term. Current ratio was moderate at 1.13 times on March 31, 2021. Liquidity is further supported by expected equity and unsecured loans from the promoters. Low gearing and moderate networth support financial flexibility and provide a financial cushion in case of any adverse conditions or downturns in the business. |
Outlook Stable OHCPL will continue to benefit from the promoters’ extensive experience and continuous funding support and its strong distribution network. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company OHCPL, incorporated in 1993, manufactures pharmaceutical formulations in the form of tablets, capsules and syrups for the gynaecology, gastroenterology, paediatrics, nutraceuticals, urology, antihypertensive, anti-tuberculosis and anti-diabetic segments. Based in Jalandhar, Punjab, the company gets some formulations manufactured on a contract basis. Mr DP Soni, Mr Baldev Singh, Ms Rekha Soni and Mr Kuldeep Singh are the promoters of the company. |
Key Financial Indicators
*Provisional |
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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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