Nectar Lifesciences Limited

Brickwork Ratings upgrades the ratings for the Bank Loan Facilities of Rs. 1215.91 Crs. of Nectar Lifesciences Limited.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (12 Jul 2021)	Present
Fund Based	806.74	858.67	Long Term	BWR D Downgrade	BWR B + /Stable Upgrade
Non Fund Based	545.40	357.24	Short Term	BWR D Downgrade	BWR A4 Upgrade
Grand Total	1352.14	1215.91	(Rupees One Thousand Two Hundred Fifteen Crores and Ninety 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

RATING ACTION / OUTLOOK

BWR has upgraded the ratings for the bank loan facilities, availed by Nectar Lifesciences Ltd (NLL or the company), amounting to Rs. 1215.91 Crs. ( details given in Annexure 1 below). The revision in the ratings take into account satisfactory banking conduct of the company with timely servicing of the debt obligation for the last more than 3 months, steady scale-up of operations in FY22, improving profitability margins and comfortable overall solvency position. The ratings are, however, constrained by the history of debt-restructuring, promoter succession plans, intense competition from other established players, working capital intensive nature of  operations and regulatory risks faced by the company. 

RATING OUTLOOK: STABLE

BWR believes that the company's business risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to ‘Positive’ in case the company is able to deliver substantial  growth in its operations coupled with improved profitability margins and comfortable solvency profile. The rating outlook may be revised to ‘Negative’ if there is a significant decline in the scale of operations or there is a moderation in the profitability margins, and/ or deterioration in the solvency profile.

KEY RATING DRIVERS

Credit Strengths:

• Timely servicing of the debt obligation :

  NLL had opted for moratorium I and II for the deferment of debt obligations from March 2020 till August 2020 coupled with OTR (one time restructuring) under the COVID-19 regulatory package announced by RBI, which provided cushion to its liquidity position upto some extent. Nevertheless, some of the lenders had classified the account as sub-standard in 2021. However, the account has remained in the Standard category for the last more than 3 months and the servicing of the debt obligation has also remained timely (for the last more than 3 months till May 31, 2022). However, there are certain conditions pertaining to the restructuring, which the company is required to comply with by October 01, 2022. BWR shall keep a close watch on the developments and it will remain a key rating monitorable.

• Established track record of operations with strong market position and approvals received from various international regulatory agencies :

  NLL benefits from its established track record of operations in the pharma segment in the domestic and international markets. It is one of the leading players in the API segment, having a brand presence in 20 states across India and 75 countries across the world, and has a global leadership position in some oral and sterile molecules. Its domestic sales contributed 54% of its total sales, followed by exports, at 46%, during FY21. NLL’s facilities are already approved by various international regulatory agencies such as the MCC (South Africa), PMDA(Japan), OGYI (Hungary) and KFDA (South Korea). NLL has also received the ANVISA c-CMP (Current Good Manufacturing Practices) approval for its Cephalosporin API’s manufacturing facility. NLL is also awaiting a facility approval from the USFDA, which will significantly add to its turnover and profitability growth.

• Steady scale up of operations in FY22, with improvement in the profitability margins and satisfactory overall solvency profile :

  NLL’s turnover increased from Rs.1542.90 Cr in FY21 to Rs.1668.26 Cr in FY22 (year-on-year increase of 8.13%) owing to increase in demand for its antibodies segment coupled with gradual resumption of export revenues which was impacted due to COVID 19 related cross border trade disruptions. Prior to that, the operating income of the company had declined by 34.71% in FY21 (on a y-on-y basis) on the back of a reduction in demand for second stage antibiotics and rescheduling of avoidable surgeries across the globe.The profitability margins also saw an improvement in FY22, with the operating profitability margins and PAT margins improving to 9.52% and 1.52%, respectively, compared to 7.15% and (-) 4.74% in FY21. The improvement was on account of carry forward of FY21’s inventory of finished goods. NLL’s solvency profile continues to remain comfortable as indicated by overall gearing ( TD/TNW) at less than 1x over the last three FYs. As on 31 Mar 2021 NLL has reported satisfactory overall gearing of 0.82x, as against 0.88x as on 31 Mar 2021. On the back of improved profitability, the ISCR for the company also remained at a comfortable level of 2.02x in FY22 (less than unity in FY21).

Credit Risks:

• Succession risks :

  Mr. Aryan Goyal and Mr. Saurabh Goyal (sons of the promoter- Mr.Sanjiv Goyal) resigned from the company w.e.f 1 October 2020, due to the differences that arose within the family and after having completely dissociated themselves from their father by giving up all claims over the property and business. Thus, succession risk remains in the company due to the absence of the management succession planning.

• Regulatory risk and intense competition in the pharma segment :

  The pharmaceutical industry is highly regulated and requires various approvals, licenses,  registrations and so on for business activities. The approval process for a new product registration is complex and time consuming. Any delay or failure in getting an approval for a product launch could adversely affect the company’s business prospects. NLL also faces competition from larger players in the US generic market. In India, it faces competition that is purely price-driven. Pricing pressure and intense competition in the US generic market play an important role in the company’s turnover and margin trajectory.

• Working-capital-intensive nature of operations :

  NLL’s operations continue to remain working-capital-intensive, driven by high inventory levels every year. NLL is required to maintain adequate raw material as per the production process requirement until it gets clearances from the quality control department. NLL continues to have high cash conversion cycle of 145 days as on 31 Mar 2022(Prov) on account of high gross cash accrual days of 260 days as on 31 Mar 2022(Prov).The utilization in the working capital limits also remained high at close to 90% over the last 6 months ending May 2022.

ANALYTICAL APPROACH - Standalone

BWR has applied its rating methodology on a standalone basis, as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Positive: Steady scaling up of operations along with satisfactory profitability margins, leading to an improvement in the overall credit profile. 

Negative: The ratings may be downgraded if there is a significant decline in the operating income, profitability margins, leading to significant deterioration in the overall financial risk profile or the liquidity position of the company. Non- compliance of the restructuring terms & conditions will also remain a key rating monitorable.

LIQUIDITY INDICATORS - Adequate

NLL’s liquidity position remains adequate with satisfactory cash accrual generation in FY22. During the year , Nectar has generated sufficient cash accruals of Rs.82.29Crs against the repayment obligation of Rs.63.17Crs. The company has a repayment obligation of ~Rs.66 cr. in FY23, which is also expected to be met through the internal accruals. The average EBITDA generated from FY20~22 stood at Rs.162.52Crs against the average interest obligation of Rs.105.55 Crs. The cash and liquid investment balance stood at ~Rs. 18 crore, as on March 31, 2022. The average fund based working capital utilization stood at a high level of ~90% of the sanctioned limits between Oct 2021 to May 2022.The company has not planned any major capex in the near future.

ABOUT THE ENTITY

Nectar Lifesciences Ltd (NLL), a public listed company based in Chandigarh, mainly manufactures specialized pharmaceutical intermediates, APIs,  phytochemicals (menthol), finished dosage formulations (FDF) along with Empty Hard Gelatin Capsule Shells. NLL was incorporated in 1995 and presently is one of the largest manufacturers of the Cephalosporin range of products in India. NLL is promoted by Mr. Sanjiv Goyal, who has over three decades of experience in the pharma business.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	1668.26	1542.90
EBITDA	Rs.Crs.	158.84	110.36
PAT	Rs.Crs.	25.32	-73.15
Tangible Net Worth	Rs.Crs.	1043.84	1022.37
Total Debt/TNW	Times	0.82	0.88
Current Ratio	Times	1.35	1.04

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

Nil

ANY OTHER INFORMATION

Nil

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

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	858.67	BWR B+/Stable (Upgrade)	12Jul2021	BWR D (Downgrade)	07Sep2020	BWR A Stable (Reaffirmation)	04Oct2019	BWR A Stable (Reaffirmation)
		0.00	NA	NA	NA	07Oct2020	BWR A- Negative (Downgrade)	NA	NA
		0.00	NA	NA	NA	27Nov2020	BWR BBB- Credit Watch with Developing Implications (Downgrade)	NA	NA
		0.00	NA	NA	NA	24Dec2020	BWR BBB- Credit Watch with Developing Implications (Reaffirmation)	NA	NA
		0.00	NA	NA	NA	22Feb2021	BWR BBCredit Watch with Negative Implications (Downgrade)	NA	NA
Non Fund Based	ST	357.24	BWR A4 (Upgrade)	12Jul2021	BWR D (Downgrade)	07Sep2020	BWR A2+ (Reaffirmation)	04Oct2019	BWR A2+ (Reaffirmation)
		0.00	NA	NA	NA	07Oct2020	BWR A2+ (Reaffirmation)	NA	NA
		0.00	NA	NA	NA	27Nov2020	BWR A3 Credit Watch with Developing Implications (Downgrade)	NA	NA
		0.00	NA	NA	NA	24Dec2020	BWR A3 Credit Watch with Developing Implications (Reaffirmation)	NA	NA
		0.00	NA	NA	NA	22Feb2021	BWR A4 Credit Watch with Negative Implications (Downgrade)	NA	NA
Grand Total		1215.91	(Rupees One Thousand Two Hundred Fifteen Crores and Ninety 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

• Approach to Financial Ratios
• General Criteria
• Short Term Debt
• Manufacturing Companies
• Default Recognition and Default Curing Period

Analytical Contacts
Neha Jain Senior Rating Analyst Board : +91 11 2341 2232 neha.j@brickworkratings.com	Sudeep Sanwal Associate Director - Ratings sudeep.s@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

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.	Cash Credit - Sanctioned	36.20	_	36.20
2	Export Import Bank of India	Term Loan - Out-standing	4.64	_	4.64
3	Export Import Bank of India	Cash Credit - Sanctioned	_	_	0.00
4	Export Import Bank of India	Working Capital Demand Loan - Out-standing	77.76	_	77.76
5	Jammu and Kashmir Bank	Working Capital Demand Loan - Out-standing	13.89	_	13.89
6	Jammu and Kashmir Bank	BG/LC/ILC - Sanctioned	_	21.49	21.49
7	Jammu and Kashmir Bank	Term Loan - Out-standing	105.28	_	105.28
8	Jammu and Kashmir Bank	Cash Credit - Sanctioned	26.80	_	26.80
9	Punjab National Bank	Cash Credit - Sanctioned	247.00	_	247.00
10	Punjab National Bank	BG/LC/ILC - Sanctioned	_	201.52	201.52
11	Punjab National Bank	Letter of Guarantee - Sanctioned	_	10.40	10.40
12	Punjab National Bank	Working Capital Term Loan - Sanctioned	80.65	_	80.65
13	Punjab National Bank	Common Covid Emergency Line of Credit (CCECL)	_	_	0.00
14	Shinhan Bank	Term Loan - Out-standing	_	_	0.00
15	State Bank Of India (SBI)	Term Loan - Out-standing	_	_	0.00
16	State Bank Of India (SBI)	Cash Credit - Sanctioned	217.00	_	217.00
17	State Bank Of India (SBI)	ILC/FLC/BG - Sanctioned	_	123.83	123.83
18	State Bank Of India (SBI)	Working Capital Demand Loan - Out-standing	49.45	_	49.45
Total			858.67	357.24	1215.91
TOTAL (Rupees One Thousand Two Hundred Fifteen Crores and Ninety One lakhs Only)