Key Rating Drivers & Detailed Description

Strengths:

Established market presence and extensive industry experience of the promoters: The promoters of RSEPL are in this line of business for more than 3 decades and has good understanding of the industry dynamics, especially in Karnataka. Mr. Prakash Revankar was instrumental in securing exclusive agreements with the manufactures of surgical gloves, Kurian Abrahan Private Limited (KAPL) and Stryker India for distribution across the districts of Karnataka. Over the time, the promoters' have developed good relationships with several suppliers and customers.

Healthy financial profile: RSEPL’s capital structure have been at healthy level due to lower reliance on external funds yielding gearing of 0.2 time and low total outside liabilities to adjusted tangible networth (TOL/ANW) of 0.4 time for year ending on 31st March 2022. RSEPL’s debt protection measures have also been at healthy levels due to its comfortable leverage position and healthy profitability.  The interest coverage and net cash accrual to total debt (NCATD) ratio are at 6.34 times and 0.54 time for fiscal 2022. RSEPL’s debt protection measures are expected to remain at similar level over medium term.

Weaknesses

Exposure to intense competition: Due to presence of large number of organized and unorganized players in the segment driven by low capital requirement, the industry is exposed to intense competition. Therefore, scale of operations determines the negotiating power with suppliers and customers, and ability to withstand business downturns.

Geographical concentration risk in revenue profile: RSEPL has high geographic concentration in its revenue profile.  About 95 percent of revenues is generated from Karnataka region. Any disruptions in supply chain, customer relationships could lead to impact on its revenues. With continuation of similar strategy by the company, CRISIL Ratings expects the revenues to have high geographic concentration over the medium term.

Working capital intensive operations: RSEPL’s intense working capital requirement is reflected in its gross current assets (GCA) of 186 days as on March 31, 2022. It's large working capital requirements arise from its high debtor and inventory levels. Usually, a longer credit period is extended to government as well as top private hospitals, with which RSEPL has a long-term business association. Furthermore, due to its business need, it stocks about 2-3 months of inventory in its warehouses.

Rating Sensitivity factors

Upward factors

• Sustained improvement in revenue and margins leading to cash accruals above Rs. 8 crore over the medium term, while sustaining its comfortable financial risk profile.
• Improvement in working capital cycle, with gross current assets improve to below 150 days, helped by improved debtor realization, on a sustained basis

Downward factors

• Significant decline in revenue and/or margins resulting in cash accruals below Rs. 3 crore on a consistent basis
• Further stretch in working capital cycle due to delayed debtor realisation and/or inventory pile-up

Key Financial Indicators

Annexure - Details of Instrument(s)

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