Allchem Lifescience Pvt. Ltd.

Brickwork Ratings revises the ratings for the Bank Loan Facilities of Rs. 95.00 Crs. of Allchem Lifescience Pvt. Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (01 Feb 2021)	Present
Fund Based	101.58	95.00	Long Term	BWR BB /Stable Assignment	BWR BB + /Stable Upgrade
	(0.00)	(6.00)	Short Term		BWR A4 + Assignment
	(0.00)	(6.00)	Short Term		BWR A4 + Assignment
Non Fund Based	(0.00)	(1.80)	Short Term		BWR A4 + Assignment
Non Fund Based	(0.00)	(0.50)	Short Term		BWR A4 + Assignment
Grand Total	101.58	95.00	(Rupees Ninety Five Crores 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

RATING ACTION / OUTLOOK

Ratings: BWR BB+/Stable/A4+ (Long term rating upgraded from BWR BB/Stable and assigned short term rating of BWR A4+)

The upgrade in ratings follows the sustained improvement in the business risk profile of the company marked by significant revenue growth along with improved profitability and healthy accretions. The improved financial performance in FY21 was marked by significant revenue growth along with improved profitability, gearing, liquidity, and debt coverage indicators. With improving capacity utilisations, and new capacities getting on stream, the company is expected to continue to register 15-20 percent annual growth in topline over the medium term.

The ratings continue to factor in the business experience of the promoters, its diversified Product range and reputed client base. The ratings, however, are constrained on account of its moderate financial risk profile, susceptibility to fluctuations in raw material prices, intense competition, and regulatory risk and foreign exchange fluctuation risk. The ratings are further constrained by project implementation and execution risks associated with ongoing significant debt-funded capital expenditure project which is at nascent stage.

BWR believes that Allchem Lifescience Pvt. Ltd. (ALPL) will maintain a 'Stable' outlook over the medium term backed by its experienced management and adequate revenue visibility. The outlook may be revised to 'Positive' in case of significant improvement in its revenues, while sustaining the profitability margins. Conversely, the outlook may be revised to 'Negative' in case of any stretch in its working capital management, deterioration in financial risk profile and liquidity position.

KEY RATING DRIVERS

Credit Strengths:

Management Experience :
The directors are well experienced. The key promoter has more than two decades of experience in the industry.
Diversified Product range :
The company has a diversified product portfolio. It manufactures a variety of chemicals, drug intermediates, and specialty chemicals. The product basket include 300-400 products. The company's diversified product profile and its established relations with customers have helped it register YOY growth in revenue.
Increasing trend in the revenue of the company for the last 3 years along with improved profitability :
The company`s revenue from operations has grown substantially by 41.45% in FY19, 22.72% in FY20, and further by 88.34% in FY21 . The Company has achieved a revenue of around Rs 51.51 Crs till 30Sep2021 (6MFY22) and is expected to achieve revenue of Rs. 110.28 Crs for the whole year registering 19% YoY revenue growth. The operating profit of the company stood at Rs. 8.53 Crs in FY20 which increased to Rs. 20.48 Crs in FY21. Similarly, net profit of the company increased to Rs. 11.20 Crs in FY21 against net profit of Rs. 2.18 Crs in FY20. Overall, financial risk profile of the company has improved significantly in FY21 compared to FY20. The company has registered significant revenue growth along with improved profitability, gearing, liquidity, and debt coverage indicators.
Established relationship with customers and suppliers :
The Company has established relations with customers. It has existing 150+ clientele including renowned clients like Lupin Limited, Cadila Healthcare Limited, Sun Pharmaceutical ,Hetero Labs Limited, Torrent Pharmaceuticals Limited, Piramal Pharma Ltd, Alembic Pharmaceuticals Ltd. etc.

Credit Risks:

Challenges associated with Ongoing large size Capex :
The company is undertaking a significant capex for almost a fourfold enhancement of its capacity, from the current 671.44 MTPA to 2351.40 MTPA. ALPL is exposed to the risks associated with stabilisation and timely completion of its planned expansion project, without any significant cost and time overruns. Going forward, the ability of the company to complete the expansion project on time without any cost overruns, stabilize and scale up operations to the expected levels would remain the key rating sensitivity. Also, the progress in terms of financial closure and project implementation would be key monitorable.
Susceptibility to fluctuations in raw material prices, foreign exchange fluctuation risk, intense competition, and regulatory risks :
The industry is highly competitive due to presence of numerous domestic as well as global players, which exerts pricing pressure on individual entities. Indian players, including ALPL, also face challenges from increase in inspections and regulatory actions by authorities. Demand in the pharmaceutical industry is likely to remain healthy led by an increasing spend on healthcare and various government launched healthcare policies, However, increased regulatory interventions remain a concern. Further, majority of raw materials are imported which clould lead to fluctuation of raw material prices on account of forex rates.
Moderate Financial risk profile :
Financial profile characterized by small net worth base, high gearing and moderate coverage indicators. ALPL has plans to incur capex of around Rs.104 crore over the next two-years period ending FY23 which is expected to be funded by term loan of Rs.74.60 crore and the balance through promoters' fund infusion of Rs. 3.50 Crs as unsecured loan and balance through internal accruals / available liquidity. The company has Tangible Networth of Rs. 19.43 Crs against Total debt of Rs. 26.02 Crs (including 8.98 Crs of unsecured loan from promoters) resulting in D/E of 1.34 times for FY21. The leverage is expected to moderate going forward on account of further drawal of debt. Additional income from FY23 onwards through the expansion projects is expected to improve the financial risk profile of ALPL.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive: . BWR could upgrade entity's ratings if there is an improvement in its revenue performance along with a significant improvement in its profitability margins, leading to an improvement in the credit profile on a consistent basis.
Negative: Pressure on the ratings could arise in case there is significant decline in its turnover and/or profitability levels, leading to lower cash accruals, which will result in deterioration in its credit profile.

Going forward, the ability of the company to complete the expansion project on time without any cost overruns, stabilize and scale up operations to the expected levels, diversify its customer as well as product
profile, improvement in financial and business risk profile and manage working capital cycle efficiently would remain the key rating sensitivity.

LIQUIDITY INDICATORS - Adequate

ALPL’s liquidity position remains adequate, marked by current ratio of 1.23 times in FY21 (P.Y. 1.01times). Net Cash accrual of Rs. 13.76 Crs in FY21 and expected NCA of Rs. 16.44 Crs in FY22 against yearly debt repayment of around Rs. 3.50 Crs. The Company’s utilisation of working capital limits are moderate at around 55% for past 12 months.

ABOUT THE ENTITY

Established in 2003 as proprietorship firm namely Allchem Laboratories, subsequently got reconstituted into private limited company in January 2017 as Allchem Lifescience Private Limited. The Company is promoted by Mr. Bipin patel, Mr. Kantilal Patel and Ms. Manisha Patel. It is engaged in manufacturing of drug Intermediates. At present the Company has 4 manufacturing plants with the total production capacity of 55.95 MT/Month (671.4MTPA). The Company is proposing an expansion to increase the production capacity to 180 MT/Month (2351.4MTPA). Expected COD is in 2022-23.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	92.73	49.24
EBITDA	Rs.Crs.	20.48	8.53
PAT	Rs.Crs.	11.20	2.18
Tangible Net Worth	Rs.Crs.	19.43	8.23
Total Debt/Tangible Net Worth	Times	1.34	3.15
Current Ratio	Times	1.23	1.01

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Care Ratings vide press release dated 14April2021 continued the rating to Issuer Not Cooperating category.

Icra vide press release dated 9Sep2021 continue the rating under Issuer Not Cooperating category.

ANY OTHER INFORMATION

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

Facilities	Current Rating (2021)			2021 (History)		2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	95.00	BWR BB+/Stable (Upgrade)	01Feb2021	BWR BB Stable (Assignment)	NA	NA	NA	NA	NA	NA
FB SubLimit	ST	(6.00)	BWR A4+ (Assignment)	NA	NA	NA	NA	NA	NA	NA	NA
		(6.00)	BWR A4+ (Assignment)	NA	NA	NA	NA	NA	NA	NA	NA
NFB SubLimit	ST	(1.80)	BWR A4+ (Assignment)	NA	NA	NA	NA	NA	NA	NA	NA
		(0.50)	BWR A4+ (Assignment)	NA	NA	NA	NA	NA	NA	NA	NA
Grand Total		95.00	(Rupees Ninety Five Crores 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
Priya Depala Senior Rating Analyst priya.d@brickworkratings.com	Dileep Narayan Singh Director dileep.s@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

Allchem Lifescience Pvt. 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	Axis Bank Ltd.	Term Loan - Proposed	25.00	_	25.00
2	Axis Bank Ltd.	Cash Credit - Proposed	5.00	_	5.00
3	HDFC Bank	Cash Credit - Proposed	5.00	_	5.00
4	HDFC Bank	Term Loan - Proposed	35.00	_	35.00
5	Union Bank of India	Term Loan - Proposed	_	_	0.00
6	Union Bank of India	GECL - Sanctioned	2.78	_	2.78
7	Union Bank of India	FCL - Sanctioned	1.62	_	1.62
8	Union Bank of India	Term Loan - Sanctioned	14.60	_	14.60
9	Union Bank of India	Cash Credit - Sanctioned	6.00	_	6.00
10	Union Bank of India	Cash Credit - Proposed	_	_	0.00
Total			95.00	0.00	95.00
TOTAL (Rupees Ninety Five Crores Only)

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