Vivo Bio Tech Ltd

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 32.21 Crs. of Vivo Bio Tech Ltd

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (06 Aug 2020)	Present
Fund Based	34.27	30.21	Long Term	BWR BB+/Stable Reaffirmation	BWR BB + /Stable Reaffirmation
Non Fund Based	2.00	2.00	Short Term	BWR A4+ Reaffirmation	BWR A4 + Reaffirmation
Grand Total	36.27	32.21	(Rupees Thirty Two Crores and Twenty One lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: Term loan amounts are outstanding as on 30Sep2021.

RATING ACTION / OUTLOOK

The reaffirmation of the Bank loan ratings continue to factor the experienced management, established track record, diversified services along with reputed clientele base and average financial risk profile. BWR also notes the increase in the proportion of revenue from contract research services in FY21. However, the ratings are constrained by the modest scale of operations reflected in the static turnover over the past three fiscals, susceptibility of operations to changes in regulatory environment, exposure to foreign exchange volatility, competitive landscape with large and established players in the Contract Research segment and working capital intensive nature of operations. Brickwork Ratings (BWR) also takes note of corporate guarantee for Rs. 68.50 Crs. of term loan (outstanding as on 31Mar2021 is Rs. 60.93 Crs.) extended to Virinchi Healthcare Pvt Ltd, a group company.

BWR notes that the company availed the Covid-19 related RBI Moratorium Package during March - August 2021 for the facilities being rated. The company has been regular in servicing the debt obligation in the post-moratorium period, as confirmed by its lender. BWR also notes that the company has not opted for one time restructuring (OTR) of any loan under RBI Resolution Framework for Covid-19 related Stress.

The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. BWR expects that Vivo Bio Tech Ltd’s business risk profile will be maintained over the medium term. The outlook may be revised to ‘Positive’ if the entity records significantly better-than-expected revenue and profitability and improved working capital management, resulting in better debt coverage metrics and liquidity profile. The outlook may be revised to ‘Negative’ if the entity reports significantly lower than expected performance, resulting in lower than estimated debt coverage metrics and a weaker liquidity position. Further, any major debt-funded expenditure resulting in deterioration in capital structure and debt coverage metrics and/or a sharp reversal in industry operating conditions may exert a downward pressure on the rating.

KEY RATING DRIVERS

Credit Strengths:

Experienced management and established track record :
The company' senior management comprises qualified and experienced personnel with long business experience. The company was established in 1987 and has a track record of over three decades. Over the years, it has been able to establish stable relationships with reputed customers and suppliers. The company has a large clientele base of around 190 entities spread across the pharma, biotech, vaccines, CRO and research organisations.
Diversified products and services and accredited/certified facilities :
Over the years, the company has been able to transform itself from a predominantly lab animal supplier to a contract research organization (CRO) and drug discovery partner for pharmaceutical companies. The company has been selling Specific Pathogen Free Mice/Rats & Guinea Pigs, Lab Animal Diets, Lab Animal Serum/Plasma and Stem Cells & Media over the years. It also offers services in the areas of in-vivo & in-vitro toxicity studies, pharmacological investigations, pharmacokinetic & toxicokinetic studies, genotoxicity screening, analytical services etc. The facilities of the company are accredited from Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC), Organization for Economic Co-operation & Development (OECD) GLP from National Good Laboratory Practice (GLP), Central Insecticides Board & Registration Committee (CIB&RC), National Accreditation Board for Testing and Calibration Laboratories (NABL) and Control & Supervision of Experiments on Animals (CPCSEA). The company has also received ISO 9001:2015 Certification for Quality Management System.
Average financial risk profile :
The company's financial risk profile continued to remain average characterized by low and static total operating income (TOI) and modest tangible net worth (TNW). TOI declined from Rs. 55.35 Crs. in FY20 to Rs. 51.78 Crs. in FY21. EBITDA and PAT for FY21 were at Rs. 17.79 Crs. and Rs. 5.68 Crs. TNW increased from Rs. 26.66 Crs. as on 31Mar2020 to Rs. 31.21 Crs. as on 31Mar2021. Gearing deteriorated marginally from 0.83 time as on 31 Mar 2020 to 0.92 time as on 31 Mar 2021. Debt coverage metrics given by ISCR and DSCR remained moderate at 4.84 times and 2.63 times, respectively, as on 31Mar2021. Current ratio has declined from 1.36 times as on 31Mar2020 to 1.29 times as on 31Mar2021. As per the Q1FY22 unaudited financial results, the company achieved TOI, EBITDA and PAT of Rs. 12.99 Crs., Rs. 4.61 Crs. and Rs. 1.23 Crs., respectively.

Credit Risks:

Susceptibility to regulatory changes and increasing competition :
Clinical research industry is fragmented and highly competitive. Many contract research organizations (CROs) have entered into the Indian market to grab the opportunity created due to outsourcing of contract research activities to India by the large global pharmaceutical companies. The industry is highly regulated one needing pre-approvals, site inspections, certifications and accreditations from various government authorities and industry self-regulatory organizations. The company is exposed to inherent risks associated with Clinical Research industry and increasing regulatory requirements for preclinical data in support of clinical trials.
Impact of Covid-19 pandemic :
The company's operations were hit during the peak of the first wave of the pandemic in Q1FY21. The import of live stock for breeding purpose was affected due to international trade and shipment restrictions imposed by various countries including India. The overall subdued economic sentiments in FY21 impacted the demand for the company's products and services in FY21 despite the recovery in turnover after gradual lifting of lockdown restrictions. The impact of the second wave of the pandemic was not as severe as the first wave. However, state-level lockdowns during April and May 2021 and restrictions on inter-state transportations led to decline in business demand for the company. Recurrence of another wave of the infections may potentially disrupt the supply chain and normal business conditions for the company.
Foreign exchange risk :
The company imports lab animals and formula feed for lab animals. It also provides services to a US based firm, the revenue from which is classified as export revenue. The company's revenue and expenses are vulnerable to the foreign exchange fluctuation risk. However, the company does not hedge its forex exposure given the small proportion of export sales to the annual turnover.
Working Capital Intensive Operations :
The company’s high inventory levels and moderately elongated receivables holding period results in working capital intensive operations. However, the elongated operating cycle is partially offset by increased creditor days. Hence, the conversion cycle is maintained at an adequate level. However, BWR notes in the increase cash conversion cycle from a moderate level of 80 days as on 31 Mar 2020 to 167 days as on 31 Mar 2021. The working capital needs are met by ~100% utilisation of bank borrowings and internal accruals.

ANALYTICAL APPROACH - Standalone

Vivo Bio Tech Ltd has four wholly owned subsidiaries as on 31 Mar 2021: Vivobio Labs Private Ltd, Vivobio Discovery services Private Ltd, Surlogic Life Consultancy Private Ltd and Vivobio Consulting Services. Their cumulative turnover and net profit was nil as on 31Mar2021. Virinchi Limited and Virinchi Healthcare Pvt Ltd are the other sister companies sharing common management. However, there are no operational and financial linkages between Vivo Bio Tech Ltd and these two companies. So, BWR has taken a standalone approach for bank loan rating of the company. BWR has applied its rating methodology as detailed in the Rating Criteria detailed below.

RATING SENSITIVITIES

The ability of the entity to increase revenues, improve its profitability margins, strengthen its credit risk profile and manage its working capital efficiently would remain the key rating sensitivities.

Upward:

Sustained improvement in scale of operations with improved profitability margins, capital structure and improvement in the liquidity position

Downward:

Specific credit metrics that could lead to a rating downgrade include: (1) decline in profitability margins, (2) total debt/tangible net worth exceeding 1.50 times, (3) weakening in debt coverage metrics with ISCR declining below 2.00 times and DSCR below 1.50 times, all on a sustained basis
Further, elongation of the cash conversion cycle on a sustained basis

LIQUIDITY INDICATORS - Stretched

The company's liquidity position is stretched as marked by ~100% working capital limit utilization in past 6 months and stretched cash conversion cycle. The company's EBITDA and net cash accruals covered the finance cost and repayments. The trend is expected to continue in FY22. The surplus after servicing of debt repayments is expected to be available for working capital and capex purposes. Cash conversion cycle got elongated as on 31Mar2021 as the company stocked up its inventory as on 31Mar2021 anticipating good business in FY22 leading to stretched Days Inventory. Current ratio is at an adequate level as on 31Mar2021 with marginal decline attributed to the increase in debt repayments for FY22.

ABOUT THE ENTITY

Vivo Bio Tech Limited [‘VBTL’ or ‘the company’] was incorporated on 12th February 1987. It is a BSE listed company having registered office at Banjara Hills, Hyderabad, Telangana. The company is engaged in sale of products, namely, Specific Pathogen Free Mice/Rats & Guinea Pigs, Lab Animal Diets, Lab Animal Serum/Plasma and Stem Cells & Media. The company also offers services in the areas of in-vivo & in-vitro toxicity studies, pharmacological investigations, pharmacokinetic & toxicokinetic studies, genotoxicity screening, analytical services etc. The company's 1,50,000 square feet research facility is located at Pregnapur village, Gajwel mandal, Siddipet district, Telangana.

Mr. Sunder K, Mr. Kalyan Ram M, Dr. A Sankaranarayanan, Mrs. Kunda Kalpana, Mr. Hariharan R, Mr. K T V Kalandar and Mr. K S Nayak are the directors of the company.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	51.78	55.35
EBITDA	Rs.Crs.	17.79	12.52
PAT	Rs.Crs.	5.68	4.44
Tangible Net Worth	Rs.Crs.	31.21	26.66
Total Debt/Tangible Net Worth	Times	0.92	0.83
Current Ratio	Times	1.29	1.36

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

Not applicable

ANY OTHER INFORMATION

Not applicable

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	30.21	BWR BB+/Stable (Reaffirmation)	06Aug2020	BWR BB+Stable (Reaffirmation)	NA	NA	19Sep2018	BWR BB+Stable (Assignment)
Non Fund Based	ST	2.00	BWR A4+ (Reaffirmation)	06Aug2020	BWR A4+ (Reaffirmation)	NA	NA	19Sep2018	BWR A4+ (Assignment)
Grand Total		32.21	(Rupees Thirty Two Crores and Twenty One lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Vivo Bio Tech Ltd

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Canara Bank	Term Loan - Out-standing	1.18	_	1.18
2	Canara Bank	Term Loan - Out-standing	17.15	_	17.15
3	Canara Bank	Working Capital Term Loan - Out-standing	1.88	_	1.88
4	Canara Bank	Open Cash Credit / Cash Credit (Hypothecation/Pledge) - Sanctioned	10.00	_	10.00
5	Canara Bank	ILC/FLC/BG - Sanctioned	_	2.00	2.00
Total			30.21	2.00	32.21
TOTAL (Rupees Thirty Two Crores and Twenty One lakhs Only)

Print and Digital Media

The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media.

About Brickwork Ratings

Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

Disclaimer

Brickwork Ratings India Pvt. Ltd. (BWR), a Securities and Exchange Board of India [SEBI] registered Credit Rating Agency and accredited by the Reserve Bank of India [RBI], offers credit ratings of Bank Loan facilities, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitization Products, Municipal Bonds, etc. [ hereafter referred to as "Instruments"]. BWR also rates NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations.

BWR wishes to inform all persons who may come across Rating Rationales and Rating Reports provided by BWR that the ratings assigned by BWR are based on information obtained from the issuer of the instrument and other reliable sources, which in BWR's best judgment are considered reliable. The Rating Rationale / Rating Report & other rating communications are intended for the jurisdiction of India only. The reports should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in Europe and also the USA).

BWR also wishes to inform that access or use of the said documents does not create a client relationship between the user and BWR.

The ratings assigned by BWR are only an expression of BWR's opinion on the entity / instrument and should not in any manner be construed as being a recommendation to either, purchase, hold or sell the instrument.

BWR also wishes to abundantly clarify that these ratings are not to be considered as an investment advice in any jurisdiction nor are they to be used as a basis for or as an alternative to independent financial advice and judgment obtained from the user's financial advisors. BWR shall not be liable to any losses incurred by the users of these Rating Rationales, Rating Reports or its contents. BWR reserves the right to vary, modify, suspend or withdraw the ratings at any time without assigning reasons for the same.

BWR's ratings reflect BWR's opinion on the day the ratings are published and are not reflective of factual circumstances that may have arisen on a later date. BWR is not obliged to update its opinion based on any public notification, in any form or format although BWR may disseminate its opinion and analysis when deemed fit.

Neither BWR nor its affiliates, third party providers, as well as the directors, officers, shareholders, employees or agents (collectively, "BWR Party") guarantee the accuracy, completeness or adequacy of the Ratings, and no BWR Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Rating Rationales or Rating Reports. Each BWR Party disclaims all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. In no event shall any BWR Party be liable to any one for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Rating Rationales and/or Rating Reports even if advised of the possibility of such damages. However, BWR or its associates may have other commercial transactions with the company/entity. BWR and its affiliates do not act as a fiduciary.

BWR keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of BWR may have information that is not available to other BWR business units. BWR has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

BWR clarifies that it may have been paid a fee by the issuers or underwriters of the instruments, facilities, securities etc., or from obligors. BWR's public ratings and analysis are made available on its web site, www.brickworkratings.com. More detailed information may be provided for a fee. BWR's rating criteria are also generally made available without charge on BWR's website.

This disclaimer forms an integral part of the Ratings Rationales / Rating Reports or other press releases, advisories, communications issued by BWR and circulation of the ratings without this disclaimer is prohibited.

BWR is bound by the Code of Conduct for Credit Rating Agencies issued by the Securities and Exchange Board of India and is governed by the applicable regulations issued by the Securities and Exchange Board of India as amended from time to time.