The credit ratings agency also reaffirmed the rating of the company's term loan worth $15 million at [ICRA] AA- (stable).
ICRA said that the reaffirmed rating favourably factors in Aarti Drugs's (ADL's or the entity's) experienced management and established operations spanning over 30 years in active pharmaceutical ingredients (APIs), intermediates, speciality chemicals and formulations.
The ratings consider ADL's sizable market share as the largest domestic and global manufacturer for most of its key products. It has an established track record of supplying these molecules and derives significant operational efficiencies from large installed capacities and backward integration of intermediates and related chemicals that protect the company's profitability to an extent.
The ratings also take comfort from ADL's diversified and reputed client base, including major pharmaceuticals players with its top five customers driving approximately 7-10% of its revenues in FY2020 and H1 FY2021.
The company is undertaking a sizable capex plan of Rs 520 crore in FY2022 and FY2023 to enhance its API capacities including maintenance capex. The capex is towards scaling its capacities for APIs, related intermediates and formulations; although with an average gestation period of 18-24 months for the greenfield capex, achieving desired levels of profitability and accruals remains a key sensitivity.
The rating is also constrained by ADL's moderately high working capital intensity because of its large receivables and inventory holding period, as it is bound to maintain a minimum inventory for various raw materials and finished goods to maintain uninterrupted flow of supplies.
ADL's profitability is also exposed to regulatory risks, fluctuations in raw material prices, competition from other players and limited upside in pricing flexibility because of large share of mature product portfolio.
The 'stable' outlook reflects ICRA's opinion that ADL will continue to benefit from its established position in the domestic market, growing presence in exports markets, healthy pipeline of recently off-patent products, favourable near to medium revenue growth, and a healthy financial profile with consistent profitability.
Aarti Drugs is a pharmaceutical company and has a strong presence in the anti-diarrhea, anti-inflammatory therapeutic groups.
The drug maker's consolidated net profit soared 144.9% to Rs 68.03 crore on 12% rise in net sales to Rs 530.25 crore in Q3 December 2020 over Q3 December 2019.
The scrip rose 0.37% to Rs 706.50 on the BSE. It traded in the range of 690 and 713.15 so far during the day.
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