| Warkem Biotech Private Limited | ||||
| Rating upgraded to 'CRISIL A/Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Detailed Rationale |
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CRISIL has upgraded its rating on the long-term bank facilities of Warkem Biotech Private Limited (Warkem; part of the HiMedia group) to 'CRISIL A/Stable' from 'CRISIL A-/Positive'. |
| Analytical Approach |
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* For arriving at the ratings, CRISIL has applied its criteria for 'Rating entities belonging to homogenous corporate groups'. The business and financial risk profiles of HiMedia and Warkem have been combined. That's because these two companies, collectively referred to as the HiMedia group, have common promoters, and are in the same line of business with significant operational and business linkages. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong operational synergies with affiliate, HiMedia: Warkem was established as a backward integration initiative for manufacturing peptone'an essential raw material in HiMedia's culture media. Warkem, being part of the HiMedia group, also receives strong financial support from the promoters in the form of unsecured loans. * Large and regulatory-approved manufacturing facility: The company is one of the few players offering plant-based substitutes to animal peptones. Its large 1,200-tonne-per-annum manufacturing capacity for animal-based peptones follows current good manufacturing practices. Furthermore, the requisite regulatory approvals are in place; these will provide revenue opportunities by catering to requirements of pharmaceutical, biotechnology, food, and cosmetics industries. * Qualified and experienced management and strong R&D team: The manufacturing, R&D, and marketing activities are headed by directors Dr Vishal G Warke and Dr K B Chaudhari; and Dr Rahul G Warke. The entire senior management team has extensive experience and strong business acumen. Weaknesses: * Average standalone financial risk profile: Despite a steady increase over the past five fiscals, networth remained modest at Rs 46 crore as on March 31, 2020, thereby restricting financial flexibility. However, there is no long-term debt exposure and debt protection metrics are likely to remain healthy'interest coverage and net cash accrual to adjusted debt ratios were at around 7 times and 1 time, respectively, for fiscal 2020. * Product concentration in revenue: Revenue majorly comes from protein hydrolysates and peptones. The top five products contributed over 40% of revenue in fiscal 2020. The addition of agriculture business is expected to diversify the product base; ramp-up in sales in this segment remains a monitorable. * Large working capital requirement: Receivables and inventory were high at 138 and 68 days, respectively, as on March 31, 2020. The company caters to large pharmaceutical and fast-moving consumer goods players, which limits its bargaining power leading to high receivable days. |
| Liquidity Strong |
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In the absence of long-term debt obligations, cash accrual, expected at Rs 9-10 crore per fiscal over the medium term supports liquidity. Financial support from the promoters on account of being part of the HiMedia group provides additional cushion. Average utilisation of the bank lines of Rs 10 crore was 77% during the 12 months through June 2020. The cash and bank balance was around Rs 9 crore as on March 31, 2020. Dividend pay-out is expected to remain modest at 15-20% of net profit. Large working capital requirement constrains liquidity. |
| Outlook: Stable |
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CRISIL believes Warkem will continue to receive strong financial support from HiMedia and its promoters, and will maintain its financial risk profile in the absence of any large debt-funded capital expenditure (capex) plans over the medium term. |
| Rating Sensitivity factors |
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Upward factors: * Upward change in the credit risk profile of HiMedia by 1 notch or more could result in a similar rating action on Warkem * Growth in revenue by over 15% driven by ramp-up in agriculture business and addition of customers, while maintaining operating margin at over 20% * Prudent working capital management and capex plans in turn leading to low leverage. Gearing sustaining below 0.5 time Downward factors: * Downward change in the credit risk profile of HiMedia by 1 notch or more could result in a similar rating action on Warkem * Significant decline in revenue by over 15% and operating margin to less than 12% * Any large, debt-funded capex or stretch in working capital cycle in turn affecting credit metrics; for instance, gearing deteriorating to over 1 time * Change in promoters' stance of support |
| About the Company |
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Warkem, set up by Ms S G Warke in 1977 as a partnership firm, was reconstituted as a private limited company in April 2005. It manufactures protein hydrolysate bases used in the pharmaceutical and food industries. It is the largest manufacturer and supplier of animal-based peptones in the domestic market with manufacturing capacity of 1,200 tonne per annum, and follows current good manufacturing practices. The company also manufactures vegetable peptones and yeast extracts. The facilities are located in Dombivali and Ambernath in Maharashtra. The company derives about 70% of its revenue from HiMedia. |
| Key Financial Indicators (Standalone) | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||
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| Annexure - List of entities consolidated | ||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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