10/23/23, 5:57 PM Rating Rationale

Rating Rationale
October 20, 2023 | Mumbai

Care Formulation Labs Private Limited

Rating upgraded to 'CRISIL BB+/Stable'

Rating Action
Total Bank Loan Facilities Rated Rs.6.5 Crore
Long Term Rating CRISIL BB+/Stable (Upgraded from 'CRISIL BB/Stable')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any
ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL Ratings has upgraded its rating on the long-term bank facility of Care Formulation Labs Private Limited (CFLPL) to
‘CRISIL BB+/Stable’ from ‘CRISIL BB/Stable’.

The upgrade reflects sustained improvement in the business risk profile of CFLPL. Operating income increased at CAGR of
18-19% over the last four fiscals through fy23 backed by addition of new products, sustained demand for existing products
and direct sales to retailers. Revenue of Rs 50 crore is already booked till Sept-23 and is projected at Rs. 100 crores in
fiscal 2024 as against Rs 87 crore in fiscal 2022. Operating margins have remained in the range of 4-5% over the past four
fiscals through fy23 and are expected at similar levels over the medium term. Operations are working capital intensive as
reflected in the GCA days expected at 149 days for fy24 driven by high debtors and inventory. Further, ROCE of 22%
expected in fy24 is supporting the operating efficiencies of the company.

The upgrade also factors in the debt free capital structure and healthy debt protection metrics of the company. Further,
liquidity also remains adequate supported by moderately utilised bank lines, healthy NCA/RO position and need based
funds infused by the promoters.

The ratings continue to reflect the extensive experience of the promoter in the pharmaceutical industry and the company’s
improving scale of operations backed by an established product profile. These strengths are partially offset by modest
operating profitability, working capital intensive operations and an average financial risk profile.
Analytical Approach
Unsecured loan of Rs 2.92 crore provided by the promoter as on March 31, 2023, has been treated as debt on account of
partial repayment of the loan in fiscal 2023 and complete repayment in fiscal 2024.
Key Rating Drivers & Detailed Description
Strengths:
Extensive experience of the promoter
The three-decade-long experience of the promoter, his strong understanding of the market dynamics and healthy
relationships with suppliers and customers will continue to support the business risk profile. The same has resulted in
sustained revenue growth to Rs. 100 crores expected in fiscal 2024 on the back of Rs. 50 crores already booked till Sept-23
(Rs. 87 crores in fy23).

Improving scale of operations and established product profile

Revenue registered compound annual growth rate of over 18-19% over the past four fiscals through fy23 to Rs 87 crore
backed by addition of new products, sustained demand for existing products and direct sales to retailers. The company has
booked revenue of Rs. 49.5 crores till September 2023 and is projecting to book around Rs. 100 crores by the end ongoing
fiscal 2024. The company’s diverse product portfolio includes tablets, capsules, injectables, personal protection equipment
kits, syrups and powders; the products are under its own trademark- ‘Care Formulations Labs’. Sustained revenue growth
supported by continuous introduction of products to the portfolio and sustained demand from existing products will remain
monitorable.

Weakness:
Modest operating profitability
Operating margin has been modest at 4-5.5% over the three fiscals through 2023 on account of significant material cost and
costs incurred towards contract manufacturing. The drugs are manufactured by third parties but are sold and distributed
under the company’s own trademark. The margin is expected to remain at a similar level over the medium term.
Improvement in operating profitability will remain a key sensitivity factor.

Working capital intensive operations

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Operations are working capital intensive as reflected in the gross current assets of 153 days in fiscal 2023 and expected at
149 days for fy24 driven by high debtors and inventory. Company supplies on the credit period of 90-120 days in domestic
sales and CAD in case of exports sales. Inventory holding policy is of 2 months and company usually keeps finished goods
inventory of over Rs. 14-15 crores at a given point in time. Further, credit period of 60 days from the creditors is supporting
the working capital cycle for the company.

Average financial risk profile

Networth remains modest Rs 8.9 crore with gearing and total outside liabilities to tangible networth ratio at 1.4 times and 3.3
times, respectively, as on March 31, 2023. The same is expected to improve in fiscal 2024 on the back of healthy accretion
to reserves. Debt protection metrics were average, indicated by interest coverage and net cash accrual to total debt ratios of
over 3.8 times and 0.2 time, respectively, in fiscal 2023. Absence of debt funded capex planned, steady accretion to
reserves and healthy profitability is likely to further improve the financial risk profile of the company over the medium term.
Liquidity: Adequate
Bank limit utilisation averaged 77% over the 12 months through June 2023. Cash accrual, expected at Rs 2.9-3 crore in
fiscal 2024, will support liquidity in the absence of any debt obligation. Current ratio is estimated at 1.3 times as on March
31, 2024.
Outlook: Stable
CFLPL should continue to benefit from the extensive industry experience of its promoter.
Rating Sensitivity Factors
Upward factors
Sustained and significant revenue growth alongside operating margin sustaining at 5-6% leading to net cash accrual of
more than Rs 4-5 crore
Efficient management of working capital leading to moderation in GCA days

Downward factors
Subdued operating performance resulting in operating margin of less than 3-4%, with net cash accrual at less than Rs
2-2.5 crore per fiscal
Large debt-funded capital expenditure weakening the financial risk profile
About the Company
CFLPL, incorporated in 2010, is owned and managed by Mr Navven Kumar Jindal. It sells and distributes medical products,
such as anti-bacterial, analgesics, anti-malarial, anti-psychotics, anti-asthmatic, diuretics and tranquilisers.
Key Financial Indicators
As on / for the period ended March 31 Unit 2023 2022
Operating income Rs crore 87.50 67.60
Reported profit after tax (PAT) Rs crore 2.39 2.57
PAT margin % 2.74 3.81
Adjusted debt/adjusted networth Times 1.37 1.77
Interest coverage Times 3.81 4.83
Any other information: Not applicable

Note on complexity levels of the rated instrument:

CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where
applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on
available information. The complexity level for instruments may be updated, where required, in the rating rationale
published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the
Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

Name of Date of Coupon Maturity Issue size Complexity Rating assigned
ISIN
instrument allotment rate (%) date (Rs.Crore) level with outlook
Overdraft
NA NA NA NA 6.5 NA CRISIL BB+/Stable
Facility

Annexure - Rating History for last 3 Years

Start of
Current 2023 (History) 2022 2021 2020
2020
Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount
CRISIL CRISIL CRISIL
Fund Based CRISIL BB/Stable BB-/Stable BB-/Stable
Facilities LT 6.5 BB+/Stable -- 18-08-22 / CRISIL 15-07-21 / CRISIL 23-07-20 / CRISIL --
A4+ A4+ A4+
All amounts are in Rs.Cr.

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10/23/23, 5:57 PM Rating Rationale
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Overdraft Facility 6.5 Central Bank Of India CRISIL BB+/Stable

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for the Pharmaceutical Industry

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