| Overseas Health Care Private Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has revised its rating outlook on the long-term bank facilities of Overseas Health Care Private Limited (OHCPL) to 'Positive' from 'Stable' and reaffirmed the rating at 'CRISIL BBB-’. The short term rating has been reaffirmed at ‘CRISIL A3'.
The revision in outlook reflects improved market position of OHCPL as indicated by increase in estimated revenue to Rs ~190 crores and estimated operating profitability to 7.24% against the CRISIL expectations of Rs ~177 crores and ~4% respectively in fiscal 2022. The growth is primarily driven by continuous focus of the management on the super specialty segments of Urology and Rheumatology that has started yielding results. With the introduction of new molecules therapy focus areas, robust IT facilities resulting in increased operating efficiency, better performance of C and F agents, the company is expected to record further increase in the revenue in the medium term with the improved operating profitability. However, the sustainability of the increase in scale of operations and operating profitability remains a key monitorable.
The ratings continue to reflect the promoters’ extensive experience in the drug formulations industry and the company’s healthy financial risk profile. These strengths are partially offset by large working capital requirement and exposure to regulatory risk and raw material price volatility. |
Analytical approach Of the total unsecured loans of Rs 4.21 crore, as on March 31, 2022, extended to OHCPL by the promoters, 75% has been treated as equity and the remaining as debt. This is because these loans are subordinate to bank debt and should remain in the business over the medium term. |
Key rating drivers & detailed description Strengths:
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 specializes in nutraceuticals, analgesics, antipyretics and antispasmodics. The company has established healthy relationships with its customers and suppliers and has a large network of 22-25 carrying and forwarding agents, more than 3,000 stockists and a field force of over 1,000 personnel.
The company has a diversified geographical 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 18% over the three fiscals through 2022, supported by addition of product lines, such as carticare, orthopaedic, urology and infertility segments, along with diversification in geographical reach in Karnataka, Delhi and Mumbai. Prior to Covid-19, the revenue share of Carticare was around Rs ~5 crores which increased to Rs ~25 crores in fiscal 2022 and is expected to reach Rs ~36 crores in the current fiscal. The company is in growth stage and has been focusing on the super speciality segments which has started yielding results for them. The company has already achieved Rs ~75 crores of sales till July 2022 and with the installation of new plant doubling the capacity of tablet manufacturing, the company is expected to grow further in in the medium term.
However, the sustainability of the increase in scale of operations and improved operating profitability will remain a key monitorable in the medium term.
Despite the planned capital expenditure (capex) of Rs 10 crore, over the medium term, the financial risk profile is expected to remain healthy in the absence of any major debt to fund the capex. Networth is estimated to have grown to Rs 31 crore as on March 31, 2022, from Rs 28 crore a year earlier, with increase in accretion to reserves. Gearing is estimated to be 0.10 time and is expected to remain below 0.50 time over the medium term. Debt protection metrics were comfortable, as indicated by net cash accrual to total debt and interest coverage ratios of 3.55 times and 31.37 times, respectively, in fiscal 2022.
Weaknesses:
Operations may remain working capital-intensive, driven by sizeable receivables and inventory. However, the working capital has improved significantly in the last five fiscals, as reflected in gross current assets of 102 days estimated as on March 31, 2022, compared with 156 days as on March 31, 2018. Debtors are expected to remain steady in the range of 40-50 days. Inventory is estimated at around 44 days as on March 31, 2022 and the management will continue to maintain the inventory level of 40-60 days. The company procures its raw material from suppliers based in Gujarat and Maharashtra, wherein it gets extended credit. Payables are estimated around 87 days as on March 31, 2022 and are expected to remain in the similar range over the medium term.
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 utilization averaged 9% over the 12 months ended July 31, 2022. Cash accrual, expected to be more than 10 crores per annum, will support liquidity in the absence of any debt obligation over the medium term. Current ratio is estimated to be moderate at 1.27 times as on March 31, 2022. 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: Positive 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 Incorporated in 1993, OHCPL manufactures pharmaceutical formulations in the form of tablets, capsules and syrups for the gynecology, gastroenterology, pediatrics, 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
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 19 | Indian Bank | CRISIL BBB-/Positive |
| Bank Guarantee | 3 | Indian Bank | CRISIL A3 |
This Annexure has been updated on 20-Mar-23 in line with the lender-wise facility details as on 06-Mar-23 received from the rated entity.
Criteria Details
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