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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 109.30 | ACUITE BBB- | Positive | Reaffirmed | Stable to Positive | - |
| Bank Loan Ratings | 16.20 | - | ACUITE A3 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 125.50 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) and short term rating of ‘ACUITE A3 (read as Acuite A three)’ on the Rs.125.50 crore bank facilities of Zim Laboratories Limited. The outlook has been changed to ‘Positive’ from 'Stable'.
Reason for rating reaffirmation and change in outlook: The outlook is revised to positive conisdering the significant improvement in PAT margin in Q1 of FY 2023 and the improvement in business risk profile in FY 2022, which is expected to be sustained over near to medium term. Additionally, the Company has maintained stable operating performance which resulted in an approx. 10% increment in revenue, amounting to Rs. 329.49 crore in FY 2022, as against, Rs. 303.71 crore from previous year (FY 2021). Further, the company has witnessed a sharp improvement in its capital structure and debt protection ratios due to sustenance of steady profitability margin. Also, the Company has recorded revenue of approx. Rs. 93 crore in Q1 of FY 2023, which is considered to be pivotal in aiding the revenue to grow by about 20% on a yearly basis. Acuite believes that efficient working capital management will remain critical to sustained growth in the scale of operations. |
| 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 |
| Acuité has considered the standalone business and financial risk profiles of Zim Laboratories Limited to arrive at this rating. |
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. Improved operating performance: The revenues stood at Rs. 329.49 Cr in FY 2022. It recorded revenues of Rs. 303.71 Cr in FY 2021 and Rs. 274.71 Cr in FY 2020. The EBITDA Margins improved marginally from 12.64 per cent in FY 2021 to 12.72 per cent in FY 2022. This marginal improvement in the operating margins is on account of better staff cost management, amongst other factors. This primarily is on account of registration of new products in newer geographies. The company has also signed co-development agreements against which they have already received some contract fees. Once the development is complete then the company will get rights to market products in geographies other than the home country of the co-development partner, which is expected in FY 2023 - FY 2024. The PAT Margin improved from 1.85 per cent in FY 2021 to 3.95 per cent in FY 2022 indicating significant profitability in the business. Moderate financial risk profile: ZIM’s financial risk profile is moderate marked by net worth of Rs. 168.52 crore as on 31 March, 2022 as against Rs.154.57 Crore as on 31 March, 2021. This improvement is on the account of healthy accretion to reserves in FY 2022. The gearing (debt-equity) is at conservative levels and stood at 0.30 times as on 31 March, 2022 as against 0.52 times as on 31 March, 2021. The total debt of Rs. 51.18 crore consists of Term Loan of Rs. 18.92 crore, Current Portion of Long Term Debt Rs. 14.92 crore and Short Term Working Capital Limit of Rs. 17.34 crore. The interest coverage ratio improved and stood at 5.11 times for FY 2022 as against 3.13 times for FY 2021 on account of improvement in profitability. The DSCR stood at 1.58 time for FY 2022 as compared to 1.32 times for FY 2021. The Net Cash Accruals to Total debt stood at 0.54 times for FY 2022 and 0.25 times as on FY 2021. The Total outside liabilities to Tangible net worth has improved and stood at 0.98 times for FY 2022 as against 1.04 times in FY 2021. Improvement in TOL/TNW is on account of growth in net profit in FY 2022, ensuring healthy net worth of the company. Acuité believes that the financial risk profile of the company is likely to remain moderate over the medium term, on account of low gearing and moderate debt protection metrics. |
| Weaknesses |
| Working capital intensive operation:
The company’s operations are working capital intensive marked by Gross Current Assets (GCA) of 221 days for FY 2022 as compared to 210 days for FY 2021. This primarily on account high inventory, receivables and other current assets like advances paid to suppliers and balances with government authorities. The inventory and debtor days stood at 96 days and 91 days respectively in FY 2022 and 75 days and 81 days respectively in FY 2021. Acuité expects the working capital operations of the company to remain intensive over the medium term on account of its high inventory period. Regulatory risks in the domestic and export market: ZIM is exposed to regulatory risk in the domestic market as also in countries to which it exports i.e. Algeria, Iran, Bangladesh, and Sri Lanka which constitute ~ 75 per cent to total revenues in FY 2022. However, the same is mitigated to an extent since it has been engaging with these customers and countries for the last 30 years. Highly fragmented and competitive industry: The pharmaceutical formulations industry has a large number of players which makes this industry highly fragmented and intensely competitive. ZIM is also a moderate sized player, thereby limiting its bargaining power and pricing pressure compared to well-established and larger players. However, the company's presence in the new drug delivery systems (NDDS) segment has enabled it to partially offset competitive pressures. Further, it undertakes regular research and development to improve its product offerings and thereby its bargaining power. |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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The liquidity position of company is adequate as evident from NCA of Rs. 27.85 Cr. in FY 2022 against debt obligation of Rs.14.64 Cr. The company is expected to generate cash accruals in the range of Rs. 30.00- Rs. 40.00 crore for the period FY 2023 - FY 2024 while its maturing debt obligations are expected to be Rs.15.66 – Rs. 16.44 crore for the same period. The company’s operations are working capital intensive marked by gross current asset (GCA) days of 221 days for FY 2022. This makes the company dependent on bank borrowing for working capital requirement. BLU stood comfortable at approx. 60 per cent to 70 per cent for 6 month period ended June 2022. Zim had modest unencumbered cash and bank balance of Rs. 0.80 Cr. in its current accounts with the bank and current ratio of 1.40 times as on March 31, 2022. The liquidity position remains adequate for Zim Laboratories Limitec on account of its comfortable cash accruals to maturing debt obligation slightly restrained by working capital intensive nature of operations.
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| Outlook: Positive |
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Acuité believes that Zim Laboratories Limited outlook will remain 'Positive' over the medium term backed by its experienced management and healthy financial risk profile. The rating may be upgraded in case the company registers higher than expected growth in its revenue and profitability while improving its liquidity position and restricting the elongation in its working capital cycle. Conversely, the outlook may be revised to 'Stable' in case the company registers lower-than expected growth in revenues and profitability, or, in case of deterioration in the company's financial risk profile or significant elongation in working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 329.49 | 303.71 |
| PAT | Rs. Cr. | 13.01 | 5.61 |
| PAT Margin | (%) | 3.95 | 1.85 |
| Total Debt/Tangible Net Worth | Times | 0.30 | 0.52 |
| PBDIT/Interest | Times | 5.11 | 3.13 |
| 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 • Manufacturing Entities: 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 |
| https://www.acuite.in/view-rating-criteria-55.htm |
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