Detailed Rationale

CRISIL has reaffirmed its rating on the bank facilities of Synthokem Labs Private Limited (SLPL) at CRISIL BBB-/Stable.

The ratings continue to reflect the extensive experience of SLPL’s promoters and their established customer relationships. The ratings also factored in healthy financial risk profile. These strengths are partially offset by working capital intensive operations and modest scale of operations.

CRISIL has reaffirmed its rating on the bank facilities of SLPL at ‘CRISIL BBB-/Stable/CRISIL A3’ vide its rating release dated November 24, 2020.             

Key Rating Drivers & Detailed Description

Strengths:

Established position in pharmaceuticals sector supported by its promoters’ extensive industry experience and established relationship with customers.

The long-standing presence in the industry has enabled the company to build strong relationships with customers (in India and abroad) such as Glenmark Pharmaceuticals Ltd, Lupin Ltd, AstraZeneca Plc, Pfizer Inc, and Reckitt Benckiser Plc, and has tie-ups with some of them.

CRISIL Believes, promoters experience coupled with established relationship with customers is expected to support the business over the medium term.

Healthy financial risk profile

SLPL’s financial risk profile remains healthy and is marked by moderate networth, comfortable capital structure and adequate debt protection metrics.

Networth remains moderate at Rs. 51.64 Cr as on March 31, 2020. With healthy accretion to reserves, networth is expected to be around Rs. 60 Cr over the medium term. Capital structure remains comfortable with gearing of 1.22 times as on March 31, 2020. Debt protection metrics continue to remain adequate with interest coverage and net cash accruals to total debt of 5.15 times and 20 % respectively for FY20.

Weaknesses:

Working capital intensive operations:

SLPL’s operations remain working capital intensive as indicated by high GCA days of 160 as on March 31, 2020. High GCA days is on account of receivable days of 105 days and inventory of 53 days. However, working capital cycle is supported by credit from suppliers.

Modest scale of operations:

With revenue of Rs. 95 Cr for FY20, scale of operations remain modest in a highly competitive API industry. Improvement in scale of operations remains a key rating sensitivity factor over the medium term.

Liquidity: Adequate

Liquidity profile of SLPL is marked by healthy cushion between cash accruals and repayment obligations, moderate bank limit utilization and moderate a current ratio.

SLPL has generated net cash accruals of Rs. 12.5 Cr against repayment obligations of around Rs. 2.50 Cr for FY20. It is expected to maintain healthy cushion between accruals and repayments over the medium term. Bank limit utilization remains moderate with average utilization of around 65 % for the past 13 months ending August 2020. Current ratio remains moderate at 1.13 times as on March 31, 2020. Additionally, liquidity is aided by funding support from promoters. Unsecured loans from promoters stood at Rs. 11.94 Cr as on March 31, 2020.

Outlook: Stable

CRISIL believes SLPL will continue to benefit over the medium term from its promoters’ extensive experience and established relations with customers.

Rating Sensitivity factors

Upward factor

• Revenue above Rs. 130 Cr while operating profitability is maintained above 17 %
• Improvement in working capital cycle

Downward factor

• Cash accruals below Rs. 8 Crore
• Large debt funded capital expenditure that weakens the financial risk profile

About the company

SLPL was set up in 1978 as a partnership firm by the late Mr. M Rabindranath Tagore and his family, and was reconstituted as a private limited company in 1994. The company manufactures bulk drugs and drug intermediates, and its manufacturing unit is located in Hyderabad. SIPL’s current operations are managed by Mr. M Jayant Tagore.

Key Financial Indicators

*Numbers reported are provisional

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