­­Experienced Promoters; long track record with presence in multiple therapeutic segments
LPL is promoted by Mr. A Venkata Reddy who has experience of more than 3 decades in the pharmaceutical industry. LPL’s operations are overseen by Mr. A Venkata Reddy, Mr. Raghu Mitra Alla) and Ms. A. Ratna Kumari (Director), along with a team of qualified professionals, who have extensive experience in the pharmaceutical industry. LPL has over the years expanded its product portfolio with presence across various therapeutic segments; the most demanding ones being anti-diabetic, anti-ulcerative and anti-histamine. LPL derives around 60 percent of revenue from manufacturing of Active Pharmaceutical Ingredients (APIs) and remaining 40 percent from semi-finished and finished formulations. Promoter’s extensive experience has helped LPL in securing repeated orders and establish strong relation with its key customers and suppliers. This has also aided LPL’s total operating income growth trajectory as witnessed through a compounded annual growth rate of ~12 percent over the past 3 years. Acuité believes that the experience of the management in the industry is also likely to favourably impact the business risk profile of the company over the near to medium term.

Integrated presence across the value chain
LPL has a strong and well-diversified business model supported by its generic and speciality businesses (with presence in the regulated markets), its branded formulations business (in India and export markets), and forward integration into formulations. The company has the benefit of being vertically integrated for a reasonable portion of its formulations business (~40 percent).

Moderate financial risk profile:
LPL’s financial risk profile is moderate marked by a healthy networth and moderate gearing levels along with moderate debt protection metrics. The EBITDA margins of the company improved to 14.24 per cent in FY2024 (Prov.) against 13.46 per cent  in FY2023. The improvement is attributable to favourable revenue mix. The PAT margins of the company has improved to 4.72 per cent in FY2024 (Prov.) in comparison to 4.25 per cent in FY2023. The improvement in profitability levels aided the debt protection metrics to remain in the comfortable levels, despite continuous debt funded capex. The interest coverage ratio (ICR) and debt service coverage ratio (DSCR) stood at 3.09 times and 1.47 times respectively as of March 31, 2024(Prov) as against 3.40 times and 1.61 times respectively in the previous year.

The net worth of the company stood at Rs.255.95 Cr. as on 31 March, 2024 (Prov.) as against Rs.187.72 Cr. as on 31 March, 2023. The improvement is due to infusion of equity of Rs.27 Cr. along with accretion of net profit to reserves. The gearing level (debt-equity) stood at 1.66 times as on 31 March, 2024 (Prov.) as against 1.67 times as on 31 March, 2023, despite the increase in long term debt for the capex. The total debt as on 31 March, 2024 (Prov.) stood at Rs.425.22 Cr. against Rs.313.26 Cr. as on 31,March 2023.  TOL/TNW (Total outside liabilities/Total net worth) stands moderate at 2.98 times as on 31, March 2024 (Prov.) against 3.55 times in previous year. NCA/TD (Net cash accruals to total debt) stands stable at 0.15 times in FY2024 (Prov.) as against 0.16 times in FY2023. Acuite believes LPL ability to maintain its moderate financial risk profile over the near to medium term will remain a key rating monitorable.

Working capital intensive nature of operations:
LPL’s working capital operations are intensive, marked by current assets (GCA) of 241 days as on 31, March 2024 (Prov.) against 230 days as on 31, March 2023. 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 beyond 140 days for FY2024 (Prov.). The debtor days stood at 102 days in FY2024 (Prov.) against 69 days of FY2023. The intensive GCA cycle has led to high utilization of ~92 percent per cent of consolidated working capital limits over the past 12 months ending December 2023. Acuité believes that the working capital cycle will continue to remain intensive over the medium term due to nature of pharmaceutical industry.

­Competitive and fragmented industry
The pharmaceutical formulations and chemical compounds industry has a large number of players which makes this industry highly fragmented and intensely competitive. LPL 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 company's presence of over 3 decades 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 company is improving its competitive position.

Foreign exchange risk
LPL imports some of its intermediates/technical from China which constitutes ~20 percent of total purchases. Also it exports ~50-55 percent of its sales to various other countries. The profitability of the company is exposed to fluctuation in the product prices as the same constitutes a significant portion of the total sales. Hence, the margins of the LPL are exposed to volatility in the foreign exchange rate.