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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 109.50 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 16.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 125.50 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) and short term rating of ‘ACUITE A3+ (read as Acuite A three plus)’ on the Rs.125.50 crore bank facilities of Zim Laboratories Limited. The outlook is 'Stable'.
Rationale for rating reaffirmation The rating reaffirmation takes cognizance of Q1FY24 performance of ZLL and continues to derive support from the overall stable operating and financial performance of the company. The revenue of the company grew by around 20.34% YOY to Rs.396.62 Cr in FY2023 from Rs. 329.58 Cr in FY2022. Operating profitability improved to 14.33% in FY2023 from 12.74% in FY2022. However, in Q1FY2024, the revenue registered a de-growth and stood at Rs.67.01 Cr against Rs.92.50 Cr in Q1FY2023. The revenue de-growth is attributed to a decline in export revenue from the nutraceutical segment, which was impacted due to the USD currency shortage faced by its customers in the ROW markets, causing delays in receiving advance payments and letters of credit for order execution. ZLL continues to maintain healthy financial risk profile marked by low gearing, healthy net worth, and comfortable debt protection metrics. Going forward, ZLL’s ability to improve its revenue and profitability while maintaining its capital structure and working capital cycle will remain a key monitorable. |
| About the Company |
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A Nagpur based pharmaceutical company, ZIM Laboratories Limited was incorporated in 1984 and promoted by Dr. Anwar Siraj Daud. It is engaged in manufacturing of small formulation dosages encompassing tablets, powders, capsules, and pellets in sustained and controlled release forms with exports in more than 45 plus countries. It is a listed entity, with the promoter group holding 33.26% as on June 30, 2021. The domestic business is mainly comprised of supply of medicine to Government Corporation on tender basis. The Company is 3 Star Export House Status Holder from DGFT, Ministry of Commerce & Industry, and GOI.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of Zim Laboratories Limited to arrive at this rating.
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Key Rating Drivers
| Strengths |
| Experienced management and established track record of operation:
ZIM, established in 1984, is engaged in the manufacturing and distribution of small formulation dosages comprising of tablets, powders, capsules & pellets. The company is promoted by Dr. Anwar Siraj Daud (Ph.D. in Pharmaceuticals and M. Pharm in Medicinal Chemistry), Mr. Riaz Ahmed Kamal, Mr. Zullfiquar Kamal among others who collectively possess industry experience of more three decades. Acuité believes that ZIM will benefit from its established position in the pharmaceutical industry, experienced management and established relationships with customers and suppliers. Acuité believes that ZLL will sustain its existing business profile backed by established track record of operations and experienced management. Stable Operating Performance The operating performance of the company is stable marked by steady growth in revenues and improved operating margins. The company recorded a growth of around 20.34% in revenue to Rs. 396.62 crore in FY 2023 from Rs. 329.58 crore in FY 2022. The company has four streams of revenue: sale to the government, PFI, formulation, and co-development. The revenue contribution from exports was at around 84.70% and the rest from domestic sales in FY2023. The sale to the government (Jan Aushadhi, CGHS, ESIC, and Railways) and deemed exports (products billed in India for export by 3rd parties) form part of domestic sales. The revenue contribution of the pharmaceutical division stood at 77% and that of nutraceuticals at 23%. The operating margins and net profit margins improved to 14.33% and 6.31% in FY2023 against 12.74% and 3.95% in FY2022 respectively. ZLL has spent 6.6% of its revenue on R&D in FY2023, compared to 7.1% in FY2022 and 5.3% in FY2021. Management aims to maintain similar levels of investment in R&D over the medium term. Presently, the company is catering to the rest of the world (RoW) markets in the PFI (pre-formulation intermediaries) and FF (finished formulations) of generic products. It is concentrating its efforts to enter the NIP (New Innovative Products) market in the pharmaceutical division and the FF market in the nutraceutical division in the key developed pharmaceuticals markets. In Q1FY2024, operating revenue stood at Rs. 67.01 Cr against Rs.92.50 Cr in Q1FY2023. The EBITDA margin declined to 6.77% in Q1FY2024 from 12.3% in corresponding quarter. Healthy Financial Risk Profile ZLL’s financial risk profile is healthy, marked by healthy net worth, gearing levels, and comfortable debt-protection matrices. The net worth of the company improved to Rs. 182.30 crore as of March 31, 2023, against Rs. 162.20 crore as of March 31, 2022. The increase in net worth is on account of the accretion of profits to the reserves. The total debt of Rs. 59.41 crore as of March 31, 2023, includes long-term borrowings of Rs. 36.53 crore and short-term debt of Rs. 22.88 crore. The company’s gearing remained healthy at 0.33 times in FY2023 against 0.32 times in FY2022. The TOL/TNW improved to 0.77 times as of March 31, 2023, as against 1.02 times as of March 31, 2022. The debt protection metrics of the company are comfortable, marked by an interest coverage ratio of 10.34 times in FY2023 as against 5.11 times in FY2022. The DSCR improved to 2.28 times in FY2023 against 1.58 times in FY2022. The marked improvement in the ICR and DSCR is mainly due to lower interest liabilities during the year. ZLL has been undertaking an ongoing capex towards facility improvement, NIP manufacturing unit, machineries, and BE studies. As of March 31, 2023, ZLL has incurred Rs. 35.65 crore towards the same. It has been funded approximately 35 percent through bank borrowings and the rest through internal accruals. Going forward, around Rs. 74.82 crore is expected to be incurred towards capex by FY 2025. ZLL has additional sanctioned term loans of Rs. 27.96 crore, for the capex, and the balance is expected to be incurred through internal sources. During Q1FY2024, ZLL received around Rs.30.44 Cr on account of liquidation of Escrow Shares. The funds have been added to the net-worth of the company and would be utilised towards funding the ongoing capex, leading to lower drawing of sanctioned term loans. Acuite believes, that the financial risk profile will remain healthy over the medium term on account of continued accretion to reserves and surplus and the sustenance of margins, ensuring healthy debt protection metrics. |
| Weaknesses |
| Working Capital Intensive Operations
The working capital operations of the company eased in FY2023, however remained intensive in nature, GCA days of 164 days in FY2023 against 221 days in FY2022. The inventory days stood at 58 days in FY2023 against 96 days in FY2022. The debtor days stood at 83 days in FY2023, compared to 91 days in FY2022. The average credit period allowed is between 60 - 120 days, with some customers making advance payments. The company also derives support from its creditors. The creditor days stood at 108 days in FY2023, against 185 days in FY2022. The usual credit allowed by the suppliers is up to 90 days. Acuite believes that the ability of the company to improve its scale of operations without any significant elongations in the working capital cycle will be a key monitorable. Regulatory risks in the domestic and export market: ZLL is exposed to regulatory risk in the domestic market as also in countries to which it exports. Presently, it is exporting to developing economies in the Middle east, North Africa, South-East Asia and Africa. Also, it is working towards entering the developed markets having stricter regulations. However, the risk is mitigated to an extent since it has been engaging with these customers and countries for more than 3 decades. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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The liquidity position of the company is adequate, marked by healthy net cash accruals against maturing debt obligations. It generated cash accruals of Rs. 41.14 crore in FY 2023 and Rs. 27.85 crore in FY 2022 against maturing debt obligations of Rs. 14.92 crore and Rs. 16.64 crore, respectively. Fund-based limit utilisation ranged between 33 - 47 percent for the last nine months ending December 2022, with non-fund-based utilisation at 29.92 percent during the same period. Going ahead, it is expected to generate cash accruals in the range of Rs. 46.63 crore to Rs. 55.84 crore in FY2024 and FY2025 against maturing debt obligations of Rs. 11.91 crore and Rs. 17.10 crore, respectively. Cash and bank balances stood at Rs. 1.11 crore as of March 31, 2023. The current ratio of the company stood at 1.63 times in FY2023 against 1.40 times in FY2022. Acuite believes, that ZLL’s liquidity position would remain adequate over the medium term on account of expected generation of comfortable cash accruals to its maturing debt obligations
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| Outlook: Stable |
| Acuité believes that Zim Laboratories Limited’s outlook will remain 'Stable' over the medium term backed by its healthy financial risk profile, continued investment in the R&D and its experienced management. The outlook may change to 'Positive' in case the company registers higher than-expected growth in its revenue and profitability while restricting significant elongations in working capital cycle and improvement in the financial risk profile and liquidity position. Conversely, the outlook may be revised to 'Negative' in case the company registers lower-than expected growth in revenues and profitability, or, in case of deterioration in the company's business or financial risk profile or significant elongation in working capital cycle |
| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 396.62 | 329.58 |
| PAT | Rs. Cr. | 25.01 | 13.01 |
| PAT Margin | (%) | 6.31 | 3.95 |
| Total Debt/Tangible Net Worth | Times | 0.33 | 0.32 |
| PBDIT/Interest | Times | 10.34 | 5.11 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisa"on of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow pa&erns, number of counterpar"es and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Ra"ng Criteria “Complexity Level Of Financial Instruments” on www.acuite.in |
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