­Acuité has considered consolidated financials of Topnotch Chemicals Private Limited and Calyx Chemicals and Pharmaceuticals Limited to arrive at the rating. The consolidation is on accounts of wholly owned subsidiary and similar lines of business.

• ­Established track record of operations along with experienced management.

TCPL, established in 1988, is a bulk drugs manufacturing company. It is one of the largest manufacturers and major player in anti-bacterials, anti-malarial, and anti-foaming agents. Thus, the group has an established track record of more than three decades in this line of business. The group is promoted by Mr. Khandu Vishnu Varal and Mr. Vasant Ghisulal Jain, who possess industry experience of twenty-five years. The experience of the promoters has helped the group maintain longstanding relationships with its customers and suppliers. Acuité believes the group will continue to benefit from its established position in the pharmaceutical industry, experienced management, and established relationships with customers and suppliers.

• Improvement in operating performance in FY2025(Estimates) post moderation in FY2024

The operating income moderated in FY2024, mainly due to a decline in sales volume during the year. The operating income declined to Rs. 263.13 Cr. in FY2024 from Rs. 298.96 Cr. in FY2023. However, as per FY2025 (estimates), it is expected to be in the range of around Rs. 307-308 Cr. Furthermore, the operating profit margin stood in the range of 16.06-16.49 percent in the last two years ending FY2024.

• Healthy Financial Risk Profile

The group’s financial risk profile is healthy, marked by healthy net worth, low gearing, and comfortable debt protection metrics. The net worth  stood at Rs.137.06 Cr. and Rs.114.17 Cr. as on March 31st, 2024, and 2023 respectively. The gearing stood at 0.89 times as on March 31st, 2024, against 0.71 times as on March 31st, 2023. Debt protection metrics – Interest coverage ratio and debt service coverage ratio stood at 4.72 times and 2.39 times in FY2024, respectively as against 4.43 times and 3.61 times in FY2023, respectively. TOL/TNW (Total outside liabilities/Total net worth) stood at 1.43 times and 1.12 times as on March 31st, 2024, and 2023 respectively. The debt to EBITDA of the group stood at 2.44 times as on March 31st, 2024, as against 1.43 times as on March31st , 2023. Acuité believes that the financial risk profile of the company will continue to remain healthy over the medium term in the absence of any major debt-funded capital expenditure and steady accruals generation.

• Intensive Working Capital Operations

The group's working capital operations are intensive in nature, marked by GCA of 303 days in FY2024, compared to 199 days in FY2023. The higher GCA days are due to increased inventory  and debtor days. Inventory days stood at 202 days in FY2024, compared to 110 days in FY2023. Due to high raw material prices, the company has procured and stocked inventory to safeguard margins. However, in FY2025, inventory days are expected to normalize. Debtor days stood at 127 days in FY2024, compared to 106 days in FY2023. Subsequently, the payable period stood at 168 days in FY2024, compared to 85 days in FY2023. Acuite believes that working capital operations of the group may continue to remain intensive, considering the nature of the business wherein high inventory requirements are there.

• Highly competitive and fragmented industry

The Pharmaceutical industry is highly competitive and fragmented with several players in the market. The intense competition and lowvalue addition in the pharmaindustry have resulted in lowoperating margins.