Rating Rationale
September 27, 2023 | Mumbai
Suven Pharmaceuticals Limited
Ratings continues on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities RatedRs.72.5 Crore
Long Term RatingCRISIL A+/Watch Developing (Continues on 'Rating Watch with Developing Implications')
Short Term RatingCRISIL A1+/Watch Developing (Continues on 'Rating Watch with Developing Implications')
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 continues its ratings on the bank facilities of Suven Pharmaceuticals Limited (SPL; part of the Suven group) on ‘Rating Watch with Developing Implications’.

 

The ratings of SPL were placed on ‘Watch with Developing Implications’ after the announcement on acquisition of 50.1% stake in SPL by Advent International (Advent) on 26-Dec-2022. Advent will also launch an open offer for an additional 26% of the company from shareholders of SPL. Also, Advent 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.

 

Further, on 13th September 2023, the Cabinet Committee on Economic Affairs (CCEA) approved a Foreign Direct Investment (FDI) of Rs 9589 crore by Advent for acquisition of 76.1% shares of Suven by transfer of shares from existing promoter shareholders and public shareholders through public offer.

CRISIL Ratings awaits full clarity on the expected impact of this event on the business and financial risk profiles of SPL and Suven group.

 

CRISIL Ratings will continue to take updates from the management and will also monitor the developments on the acquisition of controlling stake by Advent and about the potential merger with Cohance. The ratings shall be removed from ‘Watch’ and a final rating action will be taken once there is more clarity on these aspects.

 

The ratings continue to reflect experienced management, established market position and healthy 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:

Experienced management and established market position

Mr Venkateshwarlu Jasti is the Managing Director of the company. He holds a dual postgraduate degree in pharmacy with specialisation in industrial pharmacy. He has experience of over three decades in the contract research industry, which has helped the company to associate with 70 global companies. The Suven 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.

 

Healthy financial risk profile

The financial risk profile is characterised by strong networth, healthy capital structure and robust debt protection metrics. Networth remains strong at Rs 1,524.94 crore as on March 31, 2022. Due to strong networth and low reliance on external debt, the capital structure remains healthy with gearing and total outside liabilities to tangible networth ratio of 0.06 time and 0.20 time, respectively, as on March 31, 2022. The debt protection metrics remain robust, with interest coverage ratio of 70.34 times and net cash accrual to total debt ratio of 4.10 times in fiscal 2022. The interest coverage ratio was 144 times in the first half of fiscal 2023.

 

Weakness:

Working capital-intensive operations

Operations remain moderately working capital intensive with gross current assets (GCAs) of 178 days as on March 31, 2022.

 

Exposure to customer concentration risk

The top ten customers contribute to a substantial share of the revenue, exposing the company to customer concentration risk.

Liquidity: Strong

Blank limit utilisation was moderate at 74% on average for the 12 ended August 2023. Cash accrual is expected to be over Rs 400 crore, which is sufficient against term debt obligation of Rs 20-22 crore over the medium term. 

 

Liquid investments of around Rs.593.88 crore in Debt Mutual funds and Bonds as on August 31, 2023. These are expected to continue to increase over the medium term with significant accretion to reserves. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Rating Sensitivity Factors

Upward factors

  • Strong revenue growth while sustaining healthy operating profitability, leading to net cash accrual of more than Rs 550 crore
  • Efficient working capital management and maintenance of moderate capital structure

 

Downward factors

  • Major decline in revenue or operating margin falling below 35%
  • Stretch in the working capital cycle or significant debt-funded capital expenditure, leading to reduction in free cash or investments in mutual funds to less than Rs 150 crore

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.

 

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.

Key Financial Indicators

As on/for the period ended March 31

Unit

2023

2022

Operating income

Rs crore

1340.33

1,321.32

Reported profit after tax

Rs crore

411.29

453.80

PAT margins

%

30.68

34.34

Adjusted Debt/Adjusted Networth

Times

0.04

0.06

Interest coverage

Times

104.21

70.34

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 Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs.Cr)

Complexity Level

Rating Assigned with Outlook

NA

Bank Guarantee

NA

NA

NA

2.5

NA

CRISIL A1+/Watch Developing

NA

Packing Credit in Foreign Currency

NA

NA

NA

45

NA

CRISIL A+/Watch Developing

NA

Letter of Credit

NA

NA

NA

20

NA

CRISIL A1+/Watch Developing

NA

Standby Fund-Based Limits

NA

NA

NA

5

NA

CRISIL A+/Watch Developing

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+/Watch Developing 30-06-23 CRISIL A+/Watch Developing 07-04-22 CRISIL A+/Stable 28-01-21 CRISIL A/Stable 23-04-20 CRISIL A/Stable --
      -- 04-04-23 CRISIL A+/Watch Developing   --   --   -- --
      -- 04-01-23 CRISIL A+/Watch Developing   --   --   -- --
Non-Fund Based Facilities ST 22.5 CRISIL A1+/Watch Developing 30-06-23 CRISIL A1+/Watch Developing 07-04-22 CRISIL A1+ 28-01-21 CRISIL A1 23-04-20 CRISIL A1 --
      -- 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+/Watch Developing
Letter of Credit 20 State Bank of India CRISIL A1+/Watch Developing
Packing Credit in Foreign Currency 10 Bank of Bahrain and Kuwait B.S.C. CRISIL A+/Watch Developing
Packing Credit in Foreign Currency 35 State Bank of India CRISIL A+/Watch Developing
Standby Fund-Based Limits 5 State Bank of India CRISIL A+/Watch Developing
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 Approach to Recognising Default
CRISILs Criteria for Consolidation

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