Rating Rationale
August 28, 2020 | Mumbai
Relisys Medical Devices Limited
Rating placed on 'Watch Positive'  
 
Rating Action
Rs.31 Crore Non Convertible Debentures CRISIL B- (Placed on 'Rating Watch with Positive Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its rating on the non-convertible debentures (NCDs) of Relisys Medical Devices Ltd (RMD) on 'Rating Watch with Positive Implications'

The Rating action follows the receipt of non-binding offer for equity infusion of up to Rs 100 crore from an investor. The equity infusion will help in repayment of NCDs which are due in October 2020. CRISIL will remove the ratings from watch and take a final rating action once the clarity on the repayment of NCDs is obtained

The rating continues to reflect large working capital requirement, exposure to high refinancing risk, and constrained financial flexibility on account of large bullet repayment.. These weaknesses are partially offset by the extensive experience of the promoters in the medical devices manufacturing industry and a healthy operating margin.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of RMD and its wholly own subsidiary Multimedics. That's because both the entities, together referred to herein as RMD, are engaged in the same line of business and have significant operational and financial linkages.

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
Weaknesses:
* Large working capital requirement:
Operations are working capital intensive as reflected in gross current assets estimated at 416 days as on March 31, 2020. The high GCA was mainly owing to large receivables of 291 days and inventory of 124 days estimated as on March 31, 2020. The operations are expected to remain working capital intensive over the medium term especially with an increase in product basket.

* Exposure to high refinancing risk:
The principal along with the accumulated interest on the NCDs (about Rs 92.81 crore) is to be repaid as a bullet payment in October 2020. This constrains financial flexibility and also exposes the company to high risk related to timely refinancing of debt. It is expected to infuse Rs 75 crore equity and avail a term loan of Rs 25 crore that will be used to repay the existing NCDs.
 
Strengths:
* Extensive industry experience of the promoters:
The promoters include Dr N Krishna Reddy, Dr B K S Sastry, and Dr N Ramakrishna Rao. Dr Krishna Reddy has extensive experience in the healthcare and medical devices manufacturing industry. Also, Mr. Subramanian Sivaraman, who has over 25 years of experience in new product development, production, and finance in medical devices and other industries, has joined the business. He was a promoter and managing director of a medical consumables manufacturing and marketing company with worldwide sales. He was instrumental in that company's vertical integration in key product areas as well as building it into the second-largest player in the sutures market in India. Benefits from the extensive industry experience of the promoters should continue.
 
* Healthy operating margin:
The margin has remained healthy at 39-49.1% in the three fiscals through 2020. It was volatile because of a change in the revenue mix and remains susceptible to fluctuation in raw material prices and to government regulation on prices of stent systems.
Liquidity Stretched

Liquidity is constrained by working capital intensive nature of operations driven by high inventory and very high receivables. Net cash accrual is expected to be sufficient to meet maturing term debt after repayment of NCDs. The company is accumulating cash for future capex and average cash and bank balances for the last 12 months ending June 2020 was around Rs 8.75 crore.

Rating Sensitivity factors
Upward factor
* Repayment of term debt in a timely manner
* Improvement in working capital cycle
* Improvement in the net cash accrual to long term debt repayment ratio to over 1.5 times
 
Downward factor
* Further stretch in receivables or larger-than-expected capital expenditure, resulting in deterioration in the financial risk profile
* Increase in the gearing to over 3 times
* Any delays in repayment of term debt
About the Company

Set up in 1998, RMD designs, develops, and manufactures critical-care devices such as stents, catheters, and stent systems used to treat cardiovascular, peripheral vascular, neurovascular (stroke), and other life-threatening diseases. Operations are managed by Dr N Krishna Reddy (chairman and managing director) and Mr Subramanian Sivaraman (director-operations).

Key Financial Indicators
As on / for the period ended March 31   2020* 2019*
Operating income Rs crore 81.48 64.74
Reported profit after tax Rs crore 6.67 0.00
PAT margins % 8.77 16.32
Adjusted Debt/Adjusted Net worth Times 2.24 2.33
Interest coverage Times 1.95 1.87
*Consolidated

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of the instrument Date of issuance Coupon Rate Maturity Date Issue size Complexity Level Rating
INE959H07011 Non-Convertible Debentures 22-Oct-2014 22% 30-Oct-2020 25 Simple CRISIL B-/Watch Positive
INE959H07029 Non-Convertible Debentures 30-Oct-2015 22% 30-Oct-2020 6 Simple CRISIL B-/Watch Positive
 
Annexure - List of entities consolidated
Names of entities consolidated Extent of consolidation Rationale for consolidation
RMD Full Same line of business with operational/financial linkages
Multimedics Full Same line of business with operational/financial linkages
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  31.00
31-10-20 		 CRISIL B-/(Watch) Positive      30-08-19  CRISIL B-/Stable  30-08-18  CRISIL B-/Stable  10-08-17  CRISIL B-/Stable  CRISIL B-/Stable 
All amounts are in Rs.Cr.
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
CRISILs Criteria for Consolidation

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