Rating Rationale
August 02, 2023 | Mumbai
Solara Active Pharma Sciences Limited
Ratings reaffirmed at 'CRISIL BBB+/Negative/CRISIL A2 '
 
Rating Action
Total Bank Loan Facilities RatedRs.1484 Crore
Long Term RatingCRISIL BBB+/Negative (Reaffirmed)
Short Term RatingCRISIL A2 (Reaffirmed)
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

This Rating Rationale (RR) is being published in continuation to the RR dated July 28, 2023, which communicated that the rating was under appeal. Upon due consideration of the additional information received, the rating has been reaffirmed. The detailed rationale follows:

 

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Solara Active Pharma Sciences Limited (Solara) at ‘CRISIL BBB+/Negative/CRISIL A2’.

 

The ratings continue to reflect Solara's established market position in its key APIs, such as Ibuprofen and Praziquantel, and strong relationships with its customers and suppliers. The ratings also factor in the company's above average financial risk profile. These strengths are partially offset by susceptibility of operations to regulatory changes, large working capital requirement, and exposure to risks related to stabilisation and ramp up of the production at Visakhapatnam plant.

Analytical Approach

For arriving at the rating CRISIL Ratings has consolidated the business and financial risk profiles of Solara and its subsidiaries Chemsynth Labarotories Private Limited, Sequent Penems Private Limited and Shasun USA INC.

 

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 market position in key APIs, along with strong customer and supplier relationships: Solara has a strong portfolio of APIs in key therapeutic segments, with expertise in anthelmintic, anti-malaria, anti-infective and non-steroidal anti-inflammatory segments. Furthermore, it has been increasing its focus on the non-steroidal anti-inflammatory segment by adding capacity and working on other therapeutic segments. Solara has a diversified customer basis, with more exposure to regulated markets. Its longstanding presence in the industry has helped Solara build strong relationships with customers and suppliers.

 

  • Above average financial risk profile: Solara’s financial risk profile is above average marked by a comfortable capital structure, albeit constrained by expected weakening of its debt protection metrics. The gearing continues to remain moderate at less than 1 time as on 31st March 2023, as the net worth remains healthy at Rs.1079 crore as on the same date. Debt protection metrics have moderately improved in fiscal 2023 supported by an improved profitability.  Improvement in financial risk profile would remain a key rating monitorable.

 

Weaknesses:

  • Exposure to risks related to stabilisation and ramp up of production at Visakhapatnam: Solara has undertaken a greenfield project at Visakhapatnam at a cost of around Rs 250 crore, funded through debt and equity infusion. The first phase of the project has commenced operations from the third quarter of fiscal 2021 and the second phase has commenced operations from second quarter fiscal 2023. However time or cost overrun in stabilization and ramp up of production will remain key monitorables.

 

  • Exposure to risks relating to strict regulations: Most of the products manufactured by Solara face challenges of increased inspections and regulatory actions by authorities, such as the US Food and Drug Administration (US FDA). Additionally, production of a few products involves waste discharge, which needs to be treated in effluent treatment plants (ETPs). Thus, Solara needs to invest continuously to upgrade ETPs and bring efficiency in the process to reduce waste discharge.

 

  • Large working capital requirements: Working capital requirements are high as reflected in high receivables and inventory of around 139 days and 136 days respectively as on 31st March, 2023. CRISIL Ratings expects the working capital requirements to gradually improve over the medium term with improvement in revenue contribution from the new plant. Correction in working capital requirements that shall aid in liquidity shall be a key monitorable.

Liquidity: Adequate

Solara’s liquidity is expected to remain strong over the medium term. Though annual cash accrual over the medium term would be inadequate to meet repayment obligations and would remain contingent upon the scaling up revenues, particularly from the new plant, resulting in higher accruals. the bank limits were utilized at an average of 89 percent over the 12-month ended April 2023. Improvement in cash accrual aided by improvement in operating profitability shall remain a key monitorable.

Outlook: Negative

CRISIL Ratings believes Solara will continue to benefit over the medium term from management's extensive experience. However, the business risk of the company will continue to remain a key monitorable.

Rating Sensitivity factors

Upward factors:

  • Healthy cash accrual driven by sustenance of revenue and improvement in operating margin above 13% or improvement in liquidity by way of lower debt obligations or fund infusion.
  • Efficient working capital management and ramp up of operations in new plant.

 

Downward factors:

  • Revenue degrowth by 15% or decline in profitability resulting in lower cash accrual.
  • Deterioration in working capital cycle or large debt funded capex than expected.

About the Company

Established in October 2017, Solara was formed through the demerger of the API business of Strides Shasun Ltd (currently named Strides Pharma Sciences Ltd). Solara acquired the human API business from Sequent Scientific Ltd during the same time, and hence, is a pure play API company. The company is listed on the Bombay Stock Exchange and the National Stock Exchange.

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

1443.81

1,267.20

Reported profit after tax

Rs crore

-22.25

-58.29

PAT margins

%

-1.54

-4.60

Adjusted Debt/Adjusted Net worth

Times

0.93

0.94

Interest coverage

Times

1.73

1.04

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank Guarantee NA NA NA 60 NA CRISIL BBB+/Negative
NA Cash Credit NA NA NA 619 NA CRISIL BBB+/Negative
NA Letter of Credit NA NA NA 248 NA CRISIL A2
NA Proposed Working Capital Facility NA NA NA 196 NA CRISIL BBB+/Negative
NA Term Loan NA NA Mar-28 361 NA CRISIL BBB+/Negative

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Chemsynth Labarotories Private Limited

100%

Subsidiary

Sequent Prenems Private Limited

100%

Subsidiary

Shasun USA INC

100%

Subsidiary

Solara Active Pharma Sciences Limited

100%

Parent
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 1176.0 CRISIL BBB+/Negative 28-07-23 CRISIL BBB+/Negative 11-05-22 CRISIL BBB+/Negative 07-10-21 CRISIL A-/Positive 24-09-20 CRISIL A2+ / CRISIL A-/Stable CRISIL BBB+/Positive / CRISIL A2
      -- 29-03-23 CRISIL BBB+/Negative 17-02-22 CRISIL A-/Watch Developing   --   -- CRISIL BBB+/Stable
      -- 28-03-23 CRISIL BBB+/Negative   --   --   -- --
Non-Fund Based Facilities ST 308.0 CRISIL A2 28-07-23 CRISIL A2 11-05-22 CRISIL A2 07-10-21 CRISIL A2+ 24-09-20 CRISIL A2+ CRISIL A2
      -- 29-03-23 CRISIL A2 17-02-22 CRISIL A-/Watch Developing / CRISIL A2+/Watch Developing   --   -- CRISIL A2
      -- 28-03-23 CRISIL A2   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 60 HDFC Bank Limited CRISIL A2
Cash Credit 50 ICICI Bank Limited CRISIL BBB+/Negative
Cash Credit 63 IndusInd Bank Limited CRISIL BBB+/Negative
Cash Credit 210 HDFC Bank Limited CRISIL BBB+/Negative
Cash Credit 134 IDFC FIRST Bank Limited CRISIL BBB+/Negative
Cash Credit 120 RBL Bank Limited CRISIL BBB+/Negative
Cash Credit 42 YES Bank Limited CRISIL BBB+/Negative
Letter of Credit 20 IDFC FIRST Bank Limited CRISIL A2
Letter of Credit 80 RBL Bank Limited CRISIL A2
Letter of Credit 23 YES Bank Limited CRISIL A2
Letter of Credit 50 ICICI Bank Limited CRISIL A2
Letter of Credit 50 IndusInd Bank Limited CRISIL A2
Letter of Credit 25 HDFC Bank Limited CRISIL A2
Proposed Working Capital Facility 196 Not Applicable CRISIL BBB+/Negative
Term Loan 119 ICICI Bank Limited CRISIL BBB+/Negative
Term Loan 32 IndusInd Bank Limited CRISIL BBB+/Negative
Term Loan 30 HDFC Bank Limited CRISIL BBB+/Negative
Term Loan 75 YES Bank Limited CRISIL BBB+/Negative
Term Loan 64 HDFC Bank Limited CRISIL BBB+/Negative
Term Loan 3 IDFC Limited CRISIL BBB+/Negative
Term Loan 38 Aditya Birla Finance Limited CRISIL BBB+/Negative
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
The Rating Process
CRISILs Bank Loan Ratings
Rating criteria for manufaturing and service sector companies
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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