Rating Rationale
May 02, 2022 | Mumbai
Sanzyme Biologics Private Limited
Ratings removed from 'Watch Developing'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.32 Crore
Long Term RatingCRISIL A+/Stable (Removed from ‘Rating Watch with Developing Implications’; Rating Reaffirmed)
Short Term RatingCRISIL A1+ (Removed from ‘Rating Watch with Developing Implications’; Rating Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has removed the ratings on the bank facilities of Sanzyme Biologics Private Limited (SBPL; part of the Sanzyme group) from ‘Rating Watch with Developing Implications’. The ratings have been reaffirmed at CRISIL A+/CRISIL A1+’ and a ‘Stable’ outlook has been assigned to the long-term bank facilities of the company.

 

Earlier, the ratings were placed on “Watch with Developing Implications” on Feb 02, 2022 following the announcement by Sanzyme group regarding the sale of its probiotic and reproductive brands portfolio (in SPL) to J. B. Chemicals and Pharmaceuticals Ltd (JB Chemicals; rated CRISIL AA/Stable/CRISIL A1+) for a sale consideration of Rs 628 crore as CRISIL Ratings was awaiting clarity on the impact of the event on the group’s business and financial risk profiles, and the management’s future plans, including the plan on utilisation of the cash surplus.

 

The ratings have been now removed from Watch with Developing Implications as CRISIL Ratings believes that the sale transaction is unlikely to have any material impact on the overall credit profile of the group. Revenues for the Sanzyme group for fiscal 2023 are expected to be at Rs.280-285 crore, with operating margins at 30-32%, showcasing minimal impact on the business of the sale transaction. Business is also expected to benefit from the export market sales of the products over the medium term. Also, financial risk profile remains strong with limited debt on the books. Additionally, Significant cash surplus as on March 31, 2022, generated from the proceeds, will remain on the books of the group and will be invested in short term funds. With no major capex or acquisition plans, credit profile is expected to remain stable over the medium term.

 

The ratings also reflect the Sanzyme group's established position, healthy operating margins and its robust financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to regulatory changes in the domestic and global markets.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of SPL and Sanzyme Biologics Pvt Ltd (SBPL), collectively referred to as the Sanzyme group, as both the entities have the same promoter, are in similar businesses, and have fungible cash flows.

 

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:

  • Established position in the formulations and probiotics business: Benefits from the five-decade-long experience of the promoters in the formulations and probiotics business, the group’s established position in the healthcare and fermentation segments, and its strong position in the infertility hormones segment should support the business. Though the group has sold the domestic probiotic and hormones businesses (under SPL), it will continue to manufacture and market these products in the export markets. SBPL continues to manufacture specialty probiotics for human, poultry and aquaculture segments and continues to have a dominant market position for these products. The group also continues to focus on export markets and has been registering its products in various highly regulated and semi-regulated markets.

 

  • Healthy operating profitability: Operating margin has been healthy in the range of 30-32% during the five fiscals through 2022, due to a diverse product profile, the management’s focus on complex biology skills, sizeable investment in research and development, and healthy brand recall. Business performance continued to strong in fiscal 2022 with revenue of Rs 350 crore and operating margin of about 30.68% for 2022 and operating margin is expected to remain healthy at about 30% going forward as well.

 

  • Strong financial risk profile: Net worth and gearing were about Rs 789 crore and 0.02 times on March 31, 2022 and are expected to remain healthy at an estimated Rs 846 Crore and 0.02 time respectively as of March 31, 2023 as well. Debt protection metrics were robust, with net cash accrual to adjusted debt and interest coverage ratios of 28.95 times and 33.7 times in fiscal 2022. Financial risk profile is expected to remain strong supported by healthy business performance and absence of any major debt funded capex plans.

 

Weaknesses:

  • Working capital-intensive operations: Gross current assets were high at 193 days (after adjusting for the cash balance) on March 31, 2022, driven by inventory of 112 days and receivables of 45 days.

 

  • Susceptibility to regulatory changes in the domestic and global markets: Operations remain susceptible to regulatory changes in the domestic and international markets. Further, the group faces intense competition from innovator companies, and is vulnerable to price erosion, and legal and regulatory changes.

Liquidity: Strong

Bank limit utilization (mainly non-fund limits) was low at around 29 percent for the past twelve months ended March 2022. Net Cash accrual is expected to be in the range of Rs 75-90 Crore over the medium term against which the group has negligible term debt obligation. Further sizeable, unencumbered cash & cash equivalent balances support liquidity. The group has also done a one-time share buy-back in fiscal 2022 after which the entre shareholding is now held by the promoter family. 

Outlook: Stable

CRISIL Ratings believes Sanzyme group’s credit profile will continue to remain strong over the medium term supported by its established market position.

Rating Sensitivity factors

Upward factors

  • Healthy revenue growth of 40-50% along with sustenance of operating margin at about 35%, along with prudent working capital management
  • Substantial revenue growth, aided by diversification of product profile and geographical concentration in revenue

 

Downward factors

  • Any large, unanticipated, debt funded capital expenditure/acquisition or any large cash outflow, weakening the financial risk profile and liquidity
  • Sharp decline in revenue and operating margin to below 25% along with stretch in working capital cycle

About the Group

Sanzyme was founded in 1969, in collaboration with Sankyo Company Japan, and is a pioneer in the manufacturing of probiotics and pro-fertility treatments in India. The group exports to countries in the European Union, Latin America, Asia and United States of America. The group has four state-of-the-art manufacturing facilities, meeting international cGMP's. The group is promoted by Mr. Jay Soman (Chairman & Managing Director). Mr. Dhruv Soman and Dr. Raunak Soman both sons of Mr. Jay Soman, representing 3rd generation of Promotor family joined the business and handling business operations of SBPL. Mr. KVS Prasad, an Independent Professional, is Executive Director and CEO of Sanzyme Pvt. Ltd, looks after business operation of SPL.

 

Earlier, SPL had two businesses – healthcare division (formulation of nutraceuticals, pro-fertility hormones and probiotics) and ferments division (manufacturing of bulk probiotic strains for different applications such as human, veterinary, aquaculture). During fiscal 2018, the ferments business was demerged from SPL and was transferred to SBPL.

Key Financial Indicators

SBPL

 

 

 

As on / for the period ended March 31

 

2022*

2021

Operating income

Rs crore

159.34

148.87

Reported profit after tax

Rs crore

47.06

50.52

PAT margins

%

29.53

33.94

Adjusted Debt/Adjusted Net worth

Times

0.06

0.10

Interest coverage

Times

30.80

31.73

*Povisional

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)

ISIN

Name of instrument

Date of allotment

Coupon

rate (%)

Maturity

date

Issue size

(Rs crore)

Complexity levels

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

10

NA

CRISIL A+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

18

NA

CRISIL A+/Stable

NA

Inland/Import Letter of Credit

NA

NA

NA

4

NA

CRISIL A1+

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Sanzyme Biologics Private Limited

Full

Similar line of business with common promoters and fungible cash flows

Sanzyme Private Limited

Full

Similar line of business with common promoters and fungible cash flows

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 28.0 CRISIL A+/Stable 02-02-22 CRISIL A+/Watch Developing 08-09-21 CRISIL A+/Stable   -- 25-10-19 CRISIL A+/Stable CRISIL A/Positive
      --   -- 21-01-21 CRISIL A+/Stable   -- 11-10-19 CRISIL A+/Stable --
Non-Fund Based Facilities ST 4.0 CRISIL A1+ 02-02-22 CRISIL A1+/Watch Developing 08-09-21 CRISIL A1+   -- 25-10-19 CRISIL A1 CRISIL A1
      --   -- 21-01-21 CRISIL A1+   -- 11-10-19 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 10 Kotak Mahindra Bank Limited CRISIL A+/Stable
Inland/Import Letter of Credit 4 Kotak Mahindra Bank Limited CRISIL A1+
Proposed Long Term Bank Loan Facility 18 Not Applicable CRISIL A+/Stable

This Annexure has been updated on 02-May-22 in line with the lender-wise facility details as on 03-Aug-21 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for the Pharmaceutical Industry
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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