Rating Rationale
December 26, 2023 | Mumbai
Suven Pharmaceuticals Limited
Ratings removed from ‘Watch Developing’; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.72.5 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)
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

Detailed Rationale

CRISIL Ratings has removed its ratings on the bank facilities of Suven Pharmaceuticals Limited (SPL; part of Suven group) from ‘Rating Watch with Developing Implications’ and has reaffirmed the ratings at ‘CRISIL A+/CRISIL A1+’ and has assigned a ‘Stable’ outlook to the long-term rating. 

 

The ratings of SPL were earlier placed on ‘Watch with Developing Implications’ following the announcement on acquisition of majority stake in SPL by Advent International (Advent) on 26-Dec-2022.  Also, Advent had announced that it intends to explore the merger of its portfolio company, Cohance Lifesciences (“Cohance”) with SPL, to build a leading end-to-end Contract Development & manufacturing Organization (CDMO) and merchant API player servicing the pharma and specialty chemical markets.

 

The ratings are now being removed from “Watch with Developing Implications” following the completion of the acquisition transaction. Advent has now acquired majority stake (50.1%) in SPL and the board has also been reconstituted w.e.f 29th September 2023. Further, as per regulatory guidelines, Advent had come with an open offer for acquisition of 26% stake held by public shareholders.

 

Further, the management of Suven has indicated that the merger plan of Cohance will be evaluated by the board in due course by considering the rationale and assertiveness to Suven’s public shareholders and shall be subject to regulatory and other approvals. As per the management, this is still under consideration and CRISIL Ratings will factor it as and when a final decision is taken on the same and will take a suitable rating action if required. 

 

The ratings also reflect Suven group’s established market position, and its strong financial profile. These strengths are partially offset by working capital intensive operations and exposure to customer concentration risk.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of SPL with its 100% subsidiary, Suven Pharma Inc & Casper Pharma Pvt Ltd. This is because these companies, collectively referred to as the Suven group, have a common management team, are in similar lines of business, and have operational linkages and fungible cash flow

 

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: The group has established market position in the contract research and manufacturing services (CRAMS) segment and is among the top five players in India who supply high-end intermediaries to innovators. Further, long-term contracts with the principals also aid steady order flow

 

  • Strong financial risk profile: Financial risk profile is characterized by a strong capital structure and robust debt protection metrics. Networth was healthy at Rs 1,733 crore as on March 31, 2023 while low reliance on external debt resulted in healthy gearing and total outside liabilities to tangible networth ratios of 0.04 time and 0.13 time, respectively, as on March 31, 2023.  The debt protection metrics remain robust, with interest coverage ratio of 47 times and net cash accrual to total debt ratio of 3.70 times in fiscal 2023. 

 

Weaknesses:

  • Working capital-intensive operations: Operations remain moderately working capital intensive with gross current assets (GCAs) of 160 days as on March 31, 2023. The higher GCA days are mainly due to the higher inventory levels of 4-5 months due to long time taken for product approvals and higher inventory maintained to cater the bulk orders from the customers.

 

  • Exposure to customer concentration risk: The top five customers contribute a substantial share of the revenue, exposing the company to customer concentration risk.

Liquidity: Strong

Net cash accruals stood strong at Rs 255.62 crs in fiscal 2023 against which the company doesn’t have any term debt obligations. Average bank limit utilization was moderate at 83% on average for the 12 months ended November 2023.

 

Liquidity is further supported by investments of around Rs.653 crore in Debt Mutual funds and Bonds as on September 30, 2023. These are expected to continue to increase over the medium term with significant accretion to reserves.

 

Environment, social, and governance (ESG) profile

CRISIL Ratings believes Suven’s ESG profile supports its already strong credit risk profile.

 

The pharmaceutical sector can have a significant impact on the environment on account of greenhouse gas emissions, water use and waste generation. The sector’s social impact is characterized by impact on the health and wellbeing of consumers on account of its products and on employees and local community on account of its operations.

 

Key ESG highlights

  • Suven has been handling multiple projects to reduce Green House Gas emissions. The implemented or ongoing project includes installation of In-house Solar power generation system, replacing old equipment with energy-efficient equipment, replacing CFL bulbs with LED, implementing latest technologies etc.
  • Suven has successfully implemented a comprehensive Zero Liquid Discharge(ZLD) program, which has the objective of completely eliminating liquid waste from operations. This program encompasses all aspects of business activities and is specifically designed to minimize the discharge of pollutants into the environment. The ZLD system treats wastewaters, recycling them for reuse in utilities, thus helping to decrease fresh water consumption. To achieve this, significant investments have been made in advanced treatment and discharge systems. The water processed through effluent treatment plant(s) is efficiently treated and subsequently utilized for in-house plantation purposes. Furthermore, Suven maintains an ongoing commitment to continuous improvement, constantly exploring innovative approaches to enhance our processes and further reduce environmental footprint.
  • It has implemented gender diversity and inclusion policy, human rights policy, suppliers code of conduct, prevention of sexual harassment policy as well as zero tolerance for child labor.
  • Suven has adequate governance structure, it has established a grievance redressal policy. Anyone associated with the company can contact wbm@suvenpharm.com to report their concerns. The company will review the matter and, based on its nature, forward it to the appropriate department head at the relevant site. The concerned department will then reach out to the stakeholder, discuss the issue, and work on resolving it promptly.
  • Suven has also designated site-level administrators to address and resolve any concerns from local communities. Suven also has board-level ESG committee to provide oversight and direction, and to monitor the ESG strategy and action plans.

 

There is growing importance of ESG among investors and lenders. Suven’s continued commitment to ESG principles will play a key role in enhancing stakeholder confidence and ensure ease of raising capital from markets where ESG compliance is a key factor.

Outlook: Stable

CRISIL Ratings believes that the Group will maintain its established market position in the CRAMS business over the medium term, backed by longstanding client relationship and promoters’ extensive experience.

Rating Sensitivity Factors

Upward factors:

  • Strong revenue growth while sustaining healthy operating profitability, leading to net cash accruals above Rs 280 crs
  • Further strengthening of financial risk profile and liquidity

 

Downward factors:

  • Steep fall in revenue along with dip in operating margin resulting in lower net cash accrual of under Rs 150-200 crore.
  • Higher than expected debt-funded capital expenditure along with stretch in the working capital cycle, leading to weakening of financial risk profile and liquidity.

About the Group

Incorporated in November 2018, SPL is a biopharmaceutical company specialising in New Chemical Entity (NCE)-based CRAMS for global life science companies. It is promoted by Mr Venkateshwarlu Jasti and is based out of Hyderabad, Telangana. SPL is among the top five players in India who supply high-end intermediaries to innovators. The company got listed on the Bombay Stock Exchange and National Stock Exchange on March 09, 2020.  The management of the group have recently been changed with acquisition of significant stake of 50.10% of SPL by Berhyanda Limited (fully owned subsidiary of Advent International) as part of its strategy to build a leading end-to-end Contract Development & manufacturing Organization (CDMO) and merchant API player servicing the pharma and specialty chemical markets.

 

Suven Pharma Inc. is a wholly owned subsidiary of SPL. It is an SPV for undertaking various business opportunities in the Pharma Industry. Suven Pharma Inc. has 7% stake in Raisin Aggregator LP, which is a New Jersey, USA based pharmaceutical company.

 

Casper Pharma Pvt Ltd is also a wholly owned subsidiary of SPL which was acquired by SPL on April 22nd 2022. Casper Pharma has a large manufacturing unit in Hyderabad dedicated to the manufacture of solid and liquid oral pharmaceuticals for USA and regulated markets.

 

The group reported operating revenue and operating margin of Rs 578.6 crs and 45.8% respectively in H1 of FY 2024 as against operating income and operating margin of Rs 617.2 and 40.6% in the corresponding period of previous fiscal.

Key Financial Indicators

As on/for the period ended March 31

Unit 

2023

2022

Operating income

Rs.Crore

1,341.29

1,321.32

Reported profit after tax

Rs.Crore

411.29

453.80

PAT margins

%

30.66

34.34

Adjusted Debt/Adjusted Networth

Times

0.04

0.06

Interest coverage

Times

30.66

34.34

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 2.5 NA CRISIL A1+
NA Packing Credit in Foreign Currency NA NA NA 45 NA CRISIL A+/Stable
NA Letter of Credit NA NA NA 20 NA CRISIL A1+
NA Standby Fund-Based Limits NA NA NA 5 NA CRISIL A+/Stable

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Suven Pharmaceuticals Limited

Full

Same line of business and is a parent company

Casper Pharma Pvt Ltd

Full

Same line of business and fully owned subsidiary of SPL

Suven Pharma Inc

Full

Same line of business and fully owned subsidiary of SPL
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 50.0 CRISIL A+/Stable 27-09-23 CRISIL A+/Watch Developing 07-04-22 CRISIL A+/Stable 28-01-21 CRISIL A/Stable 23-04-20 CRISIL A/Stable --
      -- 30-06-23 CRISIL A+/Watch Developing   --   --   -- --
      -- 04-04-23 CRISIL A+/Watch Developing   --   --   -- --
      -- 04-01-23 CRISIL A+/Watch Developing   --   --   -- --
Non-Fund Based Facilities ST 22.5 CRISIL A1+ 27-09-23 CRISIL A1+/Watch Developing 07-04-22 CRISIL A1+ 28-01-21 CRISIL A1 23-04-20 CRISIL A1 --
      -- 30-06-23 CRISIL A1+/Watch Developing   --   --   -- --
      -- 04-04-23 CRISIL A1+/Watch Developing   --   --   -- --
      -- 04-01-23 CRISIL A1+/Watch Developing   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 2.5 State Bank of India CRISIL A1+
Letter of Credit 20 State Bank of India CRISIL A1+
Packing Credit in Foreign Currency 10 Bank of Bahrain and Kuwait B.S.C. CRISIL A+/Stable
Packing Credit in Foreign Currency 35 State Bank of India CRISIL A+/Stable
Standby Fund-Based Limits 5 State Bank of India CRISIL A+/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales
CRISILs Bank Loan Ratings
Rating Criteria for the Pharmaceutical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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