Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB/Stable/CRISIL A3+’ ratings on bank facilities of Saraca Laboratories Limited (Saraca).

The ratings continue to reflect Saraca’s established market position as a manufacturer of the active pharmaceutical ingredient for Ranitidine, and its moderate financial risk profile, supported by low leverage. These strengths are partially offset by modest profitability, exposure to regulatory risk, intense competition, and volatile raw material prices.

Revenues grew by 19% year on year to Rs 314 crores in fiscal 2022 from Rs. 264 crores in fiscal 2021 primarily led by increased in price realisation of its major product Ranitidine by ~44% even as volumes declined by ~6%. Ranitidine formed ~63% of overall revenue. Revenues from other portfolio of drugs remained flattish at Rs. 115 crore as aginst Rs. 117 crore previous year.v With export opportunities for Ranitidine opening up in new geographies like China, Iran, Bangladesh, Saudi Arabia, Marshall Islands etc., introduction of new products and  scale up of other products in the portfolio, revenue is expected to grow at 5-8% over the medium term.

Operating Margins remained negative in fiscal 2022 owing to sharp moderation in gross margins by ~400 bps. Company met ~60% of its raw material requirement from China which saw a drastic increase in prices during the year following COVID related lockdowns and supply chain disruptions. Company has currently changed its procurement policy and dependence on China has come down to ~30% with balance being procured from the domestic market. This coupled with further increase in realizations of Ranitidine and other products and gaining traction in ROW markets is expected to drive margins to ~3.5-5% over the medium term.

Saraca’s financial risk profile remained adequate with a strong balance sheet. Healthy net worth of Rs 152 crores with year-end working capital debt of ~Rs 18 crores resulted in strong gearing of 0.12 times. Other debt protection metrics, however, were weak due to operating losses in fiscal 2022. With limited capital spending needs and a expected improvement in business performance, debt metrics are expected to gradually recover over the near to medium term.

Key Financial Indicators

Annexure - Details of Instrument(s)

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