By Kaushik Laha

India Ratings and Research (Ind-Ra) has affirmed Aizant Drug Research Solutions Private Limited’s (ADRSPL) Long-Term Issuer Rating at ‘IND BB+’. The Outlook is Stable. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Long-term loans

-

-

July 2023

INR177.36 million (reduced from INR178.84)

IND BB+/Stable

Affirmed

Fund-based limits

-

-

-

INR115.00

IND BB+/Stable/IND A4+

Affirmed

Proposed fund-based limit*

-

-

-

INR100.00

IND BB+/Stable

Assigned

 *Unallocated


KEY RATING DRIVERS

The affirmation reflects ADRSPL’s continued modest EBITDA margin of 7.25% in FY20 (FY19: 13.3%) due to a decline in the top-line, followed by an increase in the cost of goods sold and personnel expenses. The return on capital employed was 0.10% in FY20 (FY19: 6.8%). The company’s absolute EBITDA too declined to INR104.28 million in FY20 (FY19: INR199.99 million). During 9MFY21, ADRSPL’s EBITDA as well as margin turned negative at INR66.06 million and 8.21%, respectively, owing to the lower capacity utilised in the manufacturing segment. Ind-Ra expects the margin to deteriorate further over the medium term, due to an increase the fixed expenses.

 

During FY20, ADRSPL’s credit metrics deteriorated with the gross interest coverage (operating EBITDA/gross interest expense) of 5.24x (FY19: 9.02x) and the net leverage (adjusted net debt/operating EBITDA) of 2.31x (0.52x), due to significant decline in the absolute EBITDA, coupled with increased borrowings. Ind-Ra expects the credit metrics to have deteriorated further in FY21, due to a further decline in the absolute EBDITA and increased bank limit utilisation.

 

Liquidity Indicator - Stretched: ADRSPL’s average maximum utilisation of its fund-based limits was 34.3% and that of its non-fund based limits was 16% during the 12 months ended February 2021. However, the utilisation increased to 77% at end-February 2021 due to increased capacity utilisation post January 2021. The company availed the Reserve Bank of India-prescribed moratorium over April-August 2020 and converted the interest amount payable as funded interest term loan and availed a guaranteed emergency credit line of INR38.10 million. The cash flow from operations turned negative to INR11.35 million in FY20 (FY19: positive INR310.31 million), due to a reduction in the EBITDA and negative changes in the working capital. This led to negative free cash flow from operations of INR98.96 million in FY20 (FY19: INR185.43 million). The cash and cash equivalents dropped to INR4.80 million in FY20 (FY19: INR85.97 million). ADRSPL’s net working capital cycle elongated to 92 days in FY20 (FY19: 56 days), primarily due to increased debtor days of 116 (88).

 

ADRSPL’s revenue declined but remained moderate at INR1,438.57 million in FY20 (FY19: INR1,503.27 million), majorly due to growth in the clinical research segment and formulation segment to 30.5% (26%) and 37.3% (35.1%) respectively. However, the revenue from the internal product segment declined to 19.1% in FY20 (FY19: 28.1%). ADRSPL had an order book of INR843.94 million at end-February 2021, to be executed over the short term. During 9MFY21, the company booked a revenue of INR804.82 million and during 11MFY21 (year-to-date February 2021), the revenue recorded was INR1,050 million. Ind-Ra expects the revenue to have declined yoy in FY21, due to the lackluster 1QFY21 performance. The revenue from the clinical research segment would have been steady in FY21 and is likely to be so in FY22 too, owing to ADRSPL’s long-term contracts with Mylan and Dr. Reddy's Laboratories (IND AA+/Stable). The revenue from the formulation and contract manufacturing segments is likely to have reduced in FY21 due to COVID-led disruption.

 

The pharmaceutical industry continues to be highly regulated by the U.S. Food and Drug Administration and thus, any adverse policy changes could affect the credit profiles of sector companies.

 

ADRSPL’s ratings continue to benefit from the promoter’s experience of over a decade in the pharmaceutical industry, which helps it maintain strong relations with its suppliers and customers and develop high-quality products for domestic and international markets.


RATING SENSITIVITIES

Positive: A significant increase in the revenue and EBITDA margin, leading to an improvement in the credit metrics as well as in the liquidity position, all on a sustained basis, will lead to positive rating action.

Negative: A decline in the revenue and/or EBITDA margin, leading to deterioration in the net leverage above 3.5x on a sustained basis and/or a stressed liquidity position, will lead to a rating downgrade.


COMPANY PROFILE

ADRSPL was incorporated on 22 November 2005 as Innodev Pharmaceuticals Private Limited. On 6 July 2006, it was renamed ADRSPL. It commenced commercial operations on 2008. ADRSPL provides contract research services, with a focus on new drug delivery systems, and conducts clinical trials on behalf of clients. The company provides solutions for pre-formulation, formulation development of conventional and novel drug delivery products, analytical development, current good manufacturing practice scale-up, niche commercial manufacturing, stability, bioavailability, bioequivalence, bioanalysis, pharmacokinetics, biostatistics, and clinical diagnostics. Its research laboratory and clinical trial facility are in Hyderabad, Telangana.

FINANCIAL SUMMARY

Particulars

FY20

FY19

Revenue (INR million)

1,438.57

1,503.27

Operating EBITDA (before income from associates) (INR million)

104.28

199.99

Operating EBITDA margin (%)

7.25

13.3

Net income (INR million)

-10.87

143.36

Interest coverage (x)

5.24

9.02

Net leverage (x)

2.31

0.52

Source: Source: ADRSPL, Ind-Ra

 


 


RATING HISTORY

Instrument Type

Current Rating

 

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating/Outlook

6

March 2020

7 February 2019

15 December 2017

Issuer rating

Long-term

-

IND BB+/Stable

IND BB+/Stable

IND BBB-/Stable

IND BBB-/Stable

Long-term loans

Long-term

INR177.36

IND BB+/Stable

IND BB+/Stable

IND BBB-/Stable

IND BBB-/Stable

Fund-based facilities

Long-term/Short-term

INR115.00

IND BB+/Stable/IND A4+

IND BB+/Stable/IND A4+

IND BBB-/Stable/IND A3

IND BBB-/Stable/IND A3

Proposed fund-based limit

Long-term

INR100.00

IND BB+/Stable

-

-

-



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Fund-based facilities

Low

Long-term loans

Low

Proposed fund-based limit

Low

 

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Applicable Criteria

Analyst Names

  • Primary Analyst

    Kaushik Laha

    Analyst
    India Ratings and Research Pvt Ltd Room No. 1201, 12th Floor Om Towers 32, Chowringhee Road Kolkata 700 071
    +91 33 40302526

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121