| Established track record of operations:
BalPharma Limited (BAL) has an established track record of more than 35 years in the business of manufacturing of bulk drugs and formulations. The company has business segments namely API & formulation with 50 percent & 35 percent contribution to revenue In FY2023. Moreover the group has a diversified product profile that includes 200 generic formulations in 20 different therapeutic segments and 22+ APIs. The group caters to both regulated and semi-regulated markets. Currently, the group has presence in 80 countries which includes India, Japan, Australia, European nations among others. The group has five operational manufacturing units across India in Bangalore, Rudrapur, Sangli and Udaipur. In addition, the company’s facilities have received approvals from various International regulatory authorities such as India, EU GMP Malta, WHO GMP, MCAZ Zimbabwe TFDA Tanzania, PPB Kenya, NAFDAC Nigeria, SBDMA Yemen, NDA Uganda, FDHACA Ethiopia, PMPB Malawi, FDA Philippines and MOH Sudan etc. among others. BAL has qualified under GOI’s production linked incentive scheme (PLI) and is expected to receive incentives of around Rs. 30 Cr. over the next five years. Acuite believes that BAL will continue to benefit from its established track record of operations and diversified business segment over the medium term.
Moderate financial risk profile:
The company’s financial risk profile remained moderate, primarily marked by moderate net worth, marginal deterioration in gearing level and debt protection metrics. The net worth of the company has improved to Rs.49.42 Cr. as of March 31, 2023, from Rs.46.67 Cr. as of March 31, 2022, due to the accretion of profits to reserves for FY2023 and infusion of equity capital worth Rs.0.13 Cr. in FY2023. The gearing levels moderated to 2.65 times as of March 31, 2023 against 2.22 times as of March 31, 2022. Marginal deterioration in gearing is due to increase in total debt to Rs.131.00 Cr. in FY2023 from Rs.103.64 Cr. in FY2022. The total debt of Rs.131.00 Cr, consists of long-term debt of Rs.38.28 Cr. and short-term debt of Rs.92.72 Cr. Total outside Liabilities/Tangible Net Worth (TOL/TNW) stood at 5.00 times as of March 31, 2023 against 4.33 times as of March 31, 2022. Interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood moderate at 2.14 times and 1.32 times respectively, as of March 31, 2023 against 2.67 times and 1.59 times respectively, as of March 31, 2022. Debt to EBITDA stood high at 4.97 times as of March 31, 2023 as it deteriorated from 3.56 times as of March 31, 2022 due to a decline in absolute EBITDA. Acuite believes that financial risk profile of the group will improve over the medium term backed by expected receipt of incentives from GOI under PLI scheme and gradual repayment of term loans.
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| Working capital intensive operations:
Working capital operations of BAL are intensive, as evident from the gross current assets (GCA) of 273 days in FY2023 against 236 days in FY2022. The elongation in GCA days is due to the stretch in inventory days, which mostly consist of raw materials. The company maintains higher inventory due to higher lead-time for the raw materials. Besides, compliance with regulatory requirements for stock maintenance and diversification into multiple products are also leading to stretch in Inventory days. Debtor days stood at 113 in FY2023, against 98 days in FY2022. Intensive working capital cycle has led to higher reliance on the fund-based working capital limits, which were utilized at an average of ~87 percent in past 12 months ending March 31, 2024. The creditor days of the group stood at 166 in FY2023, against 143 days in FY2022. Acuité believes that the working capital cycle will continue to remain intensive over the medium term due to nature of pharmaceutical industry.
Regulatory Risk
Pharma Industry is highly competitive and regulated in nature as government intervention is very high. Moreover, the manufacturing facilities of group have to be regularly monitored and approved by various regulatory authorities across the globe. Hence any prohibitions or restriction imposed by regulatory authorities on the manufacturing facilities in future can significantly affect operation of the group.
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