Sakar Healthcare Private Limited

Transcription

1 Ratings Sakar Healthcare Private Limited Facilities Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities (reduced from 20.30) CARE BBB- (Triple B Minus) Reaffirmed Short-term Bank Facilities 3.50 CARE A3 (A Three) Reaffirmed Total [Rupees Twenty One crore and Ninety Eight lakh only] Rating Rationale The ratings assigned to the bank facilities of Sakar Halthcare Pvt. Ltd (SHPL) continue to derive strength from the long experience of the promoters in the pharmaceutical formulations segment, well-established operations with reputed clientele and wide range of product portfolio. The ratings also continue to take into consideration the consistent growth in its turnover and cash accruals during the last 3 years, comfortable capital structure and debt coverage indicators in FY15 (refers to the period April 1 to March 31). The ratings factor in the proposed Small & Medium Enterprise (SME) Initial Public Offering (IPO) on National Stock Exchange of SHPL envisaged to be completed by March, However, the ratings continue to remain constrained on account of its modest networth base, moderate liquidity position in working capital intensive nature of operations, its presence in the highly fragmented and competitive industry, exposure to foreign exchange rate fluctuation and susceptibility of margins to volatile raw material prices. The ability of SHPL to increase its scale of operations, improve profitability and sustain its capital structure along with effective working capital management are the key rating sensitivities. Furthermore, the successful completion of its IPO and the timely implementation of its proceeds remain crucial. Background Gujarat-based ISO 9001:2008 certified SHPL was incorporated as a private limited company in March 2004 by its key promoters Mr Sanjay Surendra Shah and Ms Rita Sanjay Shah. SHPL is engaged in the manufacturing of diverse range of pharmaceutical products such as oral liquids, cephalosporin, liquid injections, dry powder injections and lyophilized injections for all type of disease and therapies at its factory located at Changodar in Ahmedabad (Gujarat) which is spread over 15,000 sq. meters of area. Key Updates IPO planned for March 2016 The company had submitted a draft red herring prospectus to Securities and Exchange Board of India Limited (SEBI) in April 2015 as a part of its proposed Small & Medium Enterprise (SME) Initial Public Offering (IPO) on National Stock Exchange. The company plans to raise Rs.15 crore [3,306,000 Equity Shares of face value of Rs.10 each fully paid up of the company for cash at a price of Rs.45 per Equity Share aggregating Rs crore]. The company has received in-principle approval from NSE and SHPL has envisaged going public with its IPO by March SHPL proposes to utilize Rs crore out of the net proceeds of the issue, for the establishment of a Lyophilisation facility (Injectable) at its existing unit at Changodar, Ahmedabad, Gujarat, having an aggregate capacity of 22,000 vials per day, which will enhance its existing product portfolio. Lyophilisation process ensures longer shelf life and extended stability of the products. The management of SHPL believes that this manufacturing facility will help in increasing the revenue and profit margins of the company significantly, since the products manufactured through this process of freeze drying are used in treating critical care illness. The company has proposed to complete the diversification project by September, 2016 and start commercial production from October The new Lyophilisation facility is envisaged to be operated at 20-25% of its installed capacity in the first year of operations. The successful completion of its IPO and the timely implementation of its proceeds remain crucial. Furthermore, the successful commencement of its operations as envisaged is also critical for the company. 1 Complete definitions of the ratings assigned are available at and other CARE publications 1

2 Increase in turnover During FY15, SHPL earned total operating income (TOI) of Rs crore, an increase of 18% over FY14 on account of volume of products sold. The direct export sales constituted 72% of TOI (Rs crore), while the contract sales constituted 18% of TOI (Rs.9.80 crore) during FY15 as compared to 63% and 27% of TOI, respectively, during FY14. The company is increasingly focusing on direct export sales while reducing the proportion of contract manufacturing. The plant operated at 55% of its installed capacity during FY15. Though the overall scale of operations of SHPL appears moderate as indicated by its TOI of Rs crore during FY15, on considering the total sales value of the products manufactured by SHPL adjusted for contract-based manufacturing, its adjusted TOI stood much higher at Rs.118 crore during FY15. The adjusted TOI is as follows: Particulars FY13 (A) FY14 (A) FY15 (A) 9MFY16 (UA) TOI (Rs. crore) Moderate profit margins The PBILDT margin of SHPL although exhibited a declining trend in the past 3 years ended FY15, stood moderately comfortable at 22.58% during FY15 after declining 389 bps from FY14 level. The primary reason for the declining trend of PBILDT margin is the consistent increase in the cost of raw materials consumed in the past 3 years ended FY15. It increased from 43% of total cost of sales during FY14 to 52% of total cost of sales during FY15. The PAT margin although improved and remained comfortable at 5.33% during FY15 (FY14: 3.92%), included Rs.1.71 crore of excess provision of tax written back. Barring this cash adjustment, the PAT margin stood at modest at 0.44% during FY15. Comfortable capital structure and debt coverage indicators The capital structure of SHPL improved and remained comfortable marked by an overall gearing of 0.78 times as on March 31, 2015, as compared with 1.11 times as on March 31, The improvement was on account of healthy accretion to reserves couple with repayment of debt. The total debt as on March 31, 2015, stood at Rs crore which included term debt of Rs crore and working capital borrowings of Rs.5.97 crore. Interest-free unsecured loans of Rs.7.71 crore have been treated as quasi equity as per sanction letter terms. The debt coverage indicators also improved and remained comfortable marked by total debt to GCA of 3.13 years [FY14: 6 years] and interest coverage of 2.65 times [FY14:2.10 times] in FY15 primarily due to comfortable gearing and moderately comfortable PBILDT margin during FY15. Moderate liquidity position The liquidity position of SHPL remained moderate marked by a current ratio 1.34 times as on March 31, 2015, which although improved from 0.84 times as on March 31, 2014, remained moderate. The gross current asset days also improved but remained moderate at 113 days in FY15 as compared with 173 days in FY14. The improvement was on account of marginal decline in outstanding debtors and inventory as on balance sheet date coupled with increase in turnover during FY15. The company avails a credit period of days from its suppliers and extends a credit period of days to its domestic customers while receives around 30% advance from overseas customers at the time of booking order. SHPL has a policy of having days of inventory of packing material which leads to high outstanding inventory as on balance sheet date. The cash flow from operations although declined but remained moderate at Rs.4.83 crore during FY15 as compared with Rs crore during FY14. The average utilization of working capital limits remained at 89% during last 12-months ended December 2015 as compared with 92% during past 12 months ended January Reputed clientele The customers of SHPL include reputed and well-established players in the pharmaceutical industry. The top five customers of SHPL are Cadila Healthcare Limited, Claris Injectables Limited, Merck Limited, Indoco Remedies Limited and US Vitamins Limited which together constituted 39% of the TOI of SHPL during FY15 as against 43% of TOI during FY14. Risk related to foreign exchange rate fluctuation 2

3 SHPL uses only indigenous raw material for manufacturing products. However, its direct export sales is consistently on a rise with company s increasing focus towards own manufacturing. In absence of any active hedging policy, the company is exposed to foreign exchange rate fluctuation. However, this risk gets mitigated as the company only uses LC at sight which leads to immediate receipt of payment from the export customer. Furthermore, the company also receives advance from few of its customers while placing order. Susceptibility of margins to volatile raw material prices The raw material remained the major cost driver which had shown increasing trend with the increase in scale of operations. SHPL procures raw material from domestic market only. Suren Healthcare, Nectar Lifesciences Limited, Hary Pack Pharma Pvt. Ltd, Aquatic Remedies Pvt. Ltd and Vijay Pet remained the top five suppliers of SHPL during FY15 with contribution of 23% (25% during FY14) to the total purchases during FY15. The prices of the same are volatile in nature and prices have been fluctuating in the past & therefore cost base remains exposed to any adverse price fluctuations in the prices of the raw materials. Accordingly, the profitability margin of the company is susceptible to fluctuation in raw material prices. Furthermore, while executing job-work orders, SHPL is required to follow condition regarding the procurement of raw material. Hence, any substantial increase in raw material costs would affect the company s profitability in the near term. However, well-established relationship with suppliers mitigates risk to certain extent. Current year performance As per the provisional results for 9MFY16, SHPL registered TOI of Rs crore with PAT of Rs.2.39 crore as compared with TOI of Rs crore with PAT of Rs.1.87 crore during FY15. The total debt as on December 31, 2015, stood Rs crore which included rupee term loans of Rs crore and working capital borrowings of Rs.5.30 crore. Interest-free unsecured loans of Rs.7.71 crore were subordinated to bank debt and treated as quasi equity. The outstanding inventory, debtors and creditors as on December 31, 2015, stood at Rs.7.75 crore, Rs.3.26 crore and Rs.0.21 crore as against Rs.6.74 crore, Rs.2.01 crore and Rs.0.96 crore respectively as on March 31, Prospects The prospects of SHPL are dependant upon the capability of SHPL to increase its own manufacturing sales with an increase in the export penetration without impacting its domestic sales. The successful completion of its IPO and the timely implementation of its proceeds remain crucial. Furthermore, the successful commencement of its operations as envisaged is also critical for the company. Financial Performance For the period ended / as at March 31, (12m, A) (12m, A) (12m, A) Working Results Net Sales Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) # Gross Cash Accruals Financial Position Equity Capital Tangible Net worth*

4 Total capital employed Key Ratios Growth Growth in Total income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Solvency Long-term Debt Equity ratio (times) Overall gearing ratio (times) PBILDT Interest coverage (times) Term debt/gross cash accruals (years) Total debt/gross cash accruals (years) Liquidity Current ratio (times) Quick ratio (times) Turnover Average collection period (days) Average inventory (days) Average creditors (days) Operating cycle (days) A: Audited; *includes unsecured loans of Rs.7.71 crore as quasi equity as per sanction letter terms Details of Rated Facilities 1.Long-term facilities 1.A. Secured rupee term loans Sr. No. Lender Rated Amount* Santioned Amount State Bank of India Total rupee term loans *Outstanding as on December 31, B. Fund-based limits Sr. No. Name of Bank Fund-based Limits Cash Credit Others Total fund-based limits 1. State Bank of India 7-7 Total Long-term facilities (1.A.+1.B) - Rs crore 2. Short term Facilities 2.A. Non-fund-based limits Sr. No. Name of Bank Nature of Facility Amount Remarks 1 State Bank of India Letter of credit 2.50 Includes credit exposure limits of Rs.0.35 crore within non-fund-based limits 2 Bank Guarantee

5 Total 3.50 Total Short-term facilities (2.A.) - Rs.3.50 crore Total facilities (1+2) Rs crore Analyst Contact Name: Mr Vishal Joshi Tel: (079) Cell: vishal.joshi@careratings.com (This follows our brief rationale for entity published on 04 February, 2016) Disclaimer: CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 5

6 CONTACT Head Office Mumbai Mr. Sanjay Kumar Agarwal Mr. Amod Khanorkar Mobile: Mobile: sanjay.agarwal@careratings.com amod.khanorkar@careratings.com CREDIT ANALYSIS & RESEARCH LIMITED Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com Website: REGIONAL OFFICE AHMEDABAD Mr. Mehul Pandya 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: mehul.pandya@careratings.com BENGALURU Mr. Dinesh Sharma Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , dinesh.sharma@careratings.com CHANDIGARH Mr. Sajan Goyal 2nd Floor, S.C.O , Sector 34-A, Chandigarh Cell: Tel: / 09 sajan.goyal@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Cell: Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Saikat Roy 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: saikat.roy@careratings.com JAIPUR Mr. Rakesh Jayaraman 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 rakesh.jayaraman@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: ; Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: ; Tel: swati.agrawal@careratings.com PUNE Mr. Rahul Patni 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: ; Tel: rahul.patni@careratings.com CIN - L67190MH1993PLC