| Experienced management and established track record of operations
The Inchem group is engaged in manufacturing of APIs, Intermediaries and wide range of products in Pharmaceuticals, Nutraceuticals and Veterinary segments, with an operational track record of around one and half decades. The group is promoted by Mr. K Srinivas Reddy, who has over two decades of experience in the chemical and pharmaceutical industry. He is supported by a team of qualified professionals managing the operations of the group. The extensive experience of the promoters has enabled Inchem group to establish healthy relationships with its customers and suppliers. Acuite believes that, the experience of the management and established operational track record will benefit the business risk profile of Inchem group.
Improvement in profitability and revenue in the current fiscal, albeit significant revenue decline in FY2024:
The group registered revenue of Rs.84.05 Cr. during FY2024, a decline of nearly 31 percent compared to previous year revenue of Rs.126.12 Cr. This decline in revenue was due to halt in production caused by ongoing refurbishment of existing machinery. Despite this, the operating profit margin improved to 20.03 percent during the year from 12.41 percent in FY2023 due to improved price realizations and profitable product mix. However, during the 9MFY2025 the group registered revenue of Rs.99.6 Cr. which is 18.5 percent higher than total revenue of FY2024 and expected to close the year with the revenue of Rs.115-120 Cr. Additionally, the operating profit margin is expected to remain in the range of 20-22 percent due to better realizations for its products and profitable product mix.
Acuite believes that, the group’s revenue will improve further over the medium on account of steady orders and operationalization of the ongoing capex which is expected to provide 30-40 percent incremental revenue, while profitability is expected to remain stable.
Moderate financial risk profile
Inchem group’s financial risk profile is moderate, marked by moderate capital structure and healthy coverage indicators. The group’s net worth stood at Rs.35.65 Cr. as on March 31, 2024 as against Rs.32.10 Cr. as on March 31, 2023, backed by accretion to reserves. Further, there were drawings from the capital of Rs.~7.00 Cr. by the partners. The total debt level of the group increased to Rs.30.93 Cr. from Rs.21.22 Cr., however the capital structure remained comfortable with gearing of 0.87 times and Total outside Liabilities to Tangible Net Worth (TOL/ TNW) at 1.63 times as on March 31, 2024 compared to gearing of 0.66 times and Total outside Liabilities to Tangible Net Worth (TOL/ TNW) of 1.59 times as on March 31, 2023. The group's coverage indicators are comfortable indicated by interest coverage ratio (ICR) of 5.64 times and debt service coverage ratio (DSCR) of 3.60 times for FY2024 vis-à-vis 7.82 times and 4.09 times in FY2023. Debt to EBITDA stood at 1.81 times as on March 31, 2024 against 1.27 times of previous year.
Acuité believes that financial risk profile will remain moderate over the medium term supported by healthy EBITDA levels.
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| Moderately intensive nature of working capital operations
The group's working capital operations are moderately intensive in nature as reflected by its Gross Current Asset (GCA) days of 234 days in FY2024 against 139 days in FY2023. The elongation in GCA days is due to high inventory days at 162 days in FY2024 compared to 79 days in FY2023. The group 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 also lead to higher inventory days. All its purchases are made against upfront payment leading to moderate utilisation of its working capital limits at around 81 per cent for last 6 months ending January 2025. Acuité believes that working capital operations of the group will remain at similar levels over the medium term on account of high inventory days.
Competitive and fragmented industry
The pharmaceutical formulations industry has a large number of players which makes this industry highly fragmented and intensely competitive. Inchem Group is also a moderate sized player, thereby limiting its bargaining power and susceptibility to pricing pressure is also higher compared to well-established and larger players. However, the group's presence of over one and half decade in the industry has enabled it to partially offset competitive pressures. Further, it undertakes regular research and development to improve its product offerings. This will help the group is improving its competitive position.
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