Vimta Labs Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 57.50 Crs. of Vimta Labs Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#@
	Previous	Present		Previous (04 Feb 2022)	Present
Fund Based	54.85	51.72	Long Term	BWR A/Stable Upgrade	BWR A /Stable Reaffirmation
	(15.00)	(15.00)
	(15.00)	(15.00)
	(10.00)	(10.00)
Non Fund Based	5.78	5.78	Short Term	BWR A1 Upgrade	BWR A1 Reaffirmation
	(2.00)	(2.00)
	(2.00)	(2.00)
Grand Total	60.63	57.50	(Rupees Fifty Seven Crores and Fifty 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
@This rating pertains to an existing assignment received prior to 6 October 2022

RATING ACTION / OUTLOOK

The reaffirmation of the bank loan ratings of Vimta Labs Ltd (Vimta or the company) continues to reflect the company’s established market position in testing and contract research in the areas of analytical testing of food and water, drugs, environment testing, clinical research and clinical reference testing (diagnostics), biopharmaceutical testing, pre-clinical studies and testing services for electronic and electrical products, its experienced management and long operational track record, long-standing relations with strong and diversified clientele, diversified revenue streams, consistent performance and a comfortable financial risk profile. The ratings also draw strength from the accreditations/certifications for its 18 geographically diversified testing laboratories across the country and the successful completion of regulatory audits. Brickwork Ratings (BWR) also takes note of the steady financial and operational performance of the company in H1FY23 (Unaudited). The rating strengths are partially offset by the exposure to foreign exchange fluctuation risks, increased competition, and regulatory and operational risks inherent in the fragmented research and testing industry.

BWR believes that Vimta’s business risk profile will be maintained over the medium term. The outlook may be revised to Positive if a sustained increase in the scale of operations, timely realisation of receivables, and higher-than-envisaged improvement in profitability result in an improved financial risk profile. The outlook may be revised to Negative if lower-than-expected revenue or profitability, a stretch in the working capital cycle due to the delayed realisation of receivables or sizeable or unanticipated capex adversely impacts the financial risk profile.

KEY RATING DRIVERS

Credit Strengths:

• Experienced management and long operational track record :

  The management is well experienced in the contract research and biopharmaceutical testing industry, and the company has an established track record of around three decades. Vimta has an established market position, with a network of 18 laboratories and 6 clinical diagnostics patient services centers spread across the country, including multiple branch laboratories for food testing and clinical diagnostics. The company has recently started 3 new laboratories in alliance with other entities. With the establishment of the wholly owned subsidiary - M/s Emtac Laboratories Private Limited (Emtac), the company plans to take advantage of the growing electrical and electronics industry.

• Established relations with reputed and diversified clientele :

  The company has established relations with reputed clients in domestic and export markets. The company exports to the US, Europe, Dubai, China, and Malaysia, among others, and exports contributed ~26% to the total revenue in FY22. The average length of relations with its top clients runs to ~15 years. BWR takes note of the operationalization of a National Food Laboratory (NFL) at JNPT Navi Mumbai in FY22 under public private partnership agreement with the Food Safety and Standards Authority of India (FSSAI). It has been given the accreditation of ISO/IEC 17025:2017 by National Accreditation Board for Testing and Calibration Laboratories (NABL) and has started commercial operations on 07Feb2022. The company will operate and maintain the facility for 25 years with an extension clause. This will help the company further diversify its revenue stream.

• Accreditations and certifications :

  Vimta is certified for compliance to Good Laboratory Practices (GLP) as per OECD guidelines, accredited by the NABL as per ISO/IEC17025 and is also ISO 15189:2007 certified. The Food Safety and Standards Authority of India recognised Vimta as the National Reference Laboratory for the testing of Water, Alcoholic & Non-alcoholic Beverages. Vimta is recognised by the Ministry of Health & Family Welfare, Government of India, Ministry of Environment & Forests, Government of India and Bureau of Indian Standards. Additionally, the company has successfully completed various regulatory audits conducted by the USFDA, European Medicines Agency (EMA) and Ukraine Ministry of Health, National GLP Monitoring Authority (NGCMA), among others. Vimta also has safety certificates OHSAS 18001. The company is the first laboratory in Asia to be pre-qualified by the WHO for the Medicines Programme Inspection of Quality Control Laboratory. Vimta is the first laboratory and the only private laboratory in India approved by European Commission to test pentachlorophenol (PCP) in guar gum exports. The company has successfully been audited over 70 times by regulatory authorities across the globe from various countries and institutions. Recently, its National Food Laboratory (NFL) at JNPT Navi Mumbai received accreditation of ISO/IEC 17025:2017 by NABL.

• Comfortable financial risk profile :

  The company’s financial risk profile continues to be comfortable, as marked by the steadily growing revenue, stable profitability margins, robust net worth and comfortable gearing and debt coverage metrics. The total operating income was Rs. 275.98 Crs. in FY22 compared to Rs. 209.05 Crs in FY21. The company's net worth has been growing over the years with TNW at Rs. 220.29 Crs as of 31 Mar 2022. The company's capital structure is strong as marked by a D/E ratio of 0.09 time and TOL/TNW of 0.33 time as of 31Mar 2022. Debt/EBITDA ratio of 0.24 time as on 31 Mar 2022 reflects the company's comfortable leverage position. Debt coverage metrics were comfortable, marked by ISCR of 53.45 times and DSCR of 7.57 times during FY22. Vimta's liquidity position continues to be strong as of 31 Mar 2022. The company has reported operating income, EBITDA and PAT of Rs. 157.82 Crs., Rs. 48.97 Crs. and Rs. 25.09 Crs., respectively, for H1FY23 on a provisional basis.

Credit Risks:

• Exposure to foreign exchange fluctuations :

  Exports contributed ~26% to the total revenue in FY22. The company also imports capital goods, software, chemicals, and some services providing a natural hedge to a certain extent. Besides, the company also hedges foreign exchange risk using working capital facilities availed in foreign currency.

• Exposure to regulatory and operational risks inherent in the research and testing industry :

  The contract research, biopharmaceutical testing, food testing and other field in which the company operates are subject to regulatory and reputation risk. The company operated in a highly regulated environment in terms of requirement of multiple approvals, licenses, registrations, and permissions. The laboratories and allied facilities are subjected to recurrent inspections by regulatory agencies, and the company has to comply as per the directives and observations by such agencies. Any delay or failure in getting approvals / certifications could adversely affect the business prospects of the company. Strong track record of the company in regulatory compliance mitigates this risk to certain extent.

• Competitive research and testing industry :

  Growth in the Indian clinical research, biopharmaceutical testing, and pre-clinical studies industry would be driven by increased outsourcing from international pharmaceutical companies. The competitive intensity is further accentuated by many large pharmaceutical players which have their captive laboratories, and the laboratories and allied infrastructure based in China, Eastern Europe, and other regions. The intense competition constrains pricing flexibility considering the moderate scale of operations. However, growing demand in India for fields like environmental testing, food testing and testing for electronic and electrical products may help the company to broaden its market presence and further diversify its revenue stream.

ANALYTICAL APPROACH - Standalone

M/s Emtac Laboratories Private Limited (Emtac), engaged in the electrical/electronic safety testing business, is the only subsidiary of Vimta Labs Ltd. Currently, the operations of Emtac are not meaningful in comparison with the holding company. Therefore, while assigning the ratings, BWR has adopted a standalone approach and applied its rating methodology as detailed in the Rating Criteria.

RATING SENSITIVITIES

Ability of the company to add new clients, increase the scope of existing contracts to ensure steady revenue growth while managing regulatory risks, and maintain its robust financial risk profile will remain the key rating sensitivities.

Upward

• Healthy growth in revenues and earnings with improvement in a competitive position on a sustained basis.

Downward

• Deterioration in key credit metrics owing to pressure on operating profits due to competition, sharp rise in receivables levels, or fresh debt-funded capex.
• Specific credit metrics which may result in a downward rating action include Total Debt/TNW exceeding 2 times, DSCR declining to below unity, and ISCR below 2 times on a sustained basis.

LIQUIDITY INDICATORS - Strong

Liquidity of the company continues to remain strong on the basis of low debt service obligations compared to annual operating profit and net cash accruals, nil short-term working capital borrowings in the past 6-7 months, moderate cash & cash equivalents and current ratio and contracting cash conversion cycle. Due to adequate cash & cash equivalents over the past 6-7 months, the company's cash credit accounts were in credit balance for most of the time, saving the company the associated interest cost. The term loan repayment obligations have remained low compared to the net cash accruals in the past three fiscals. The trend is expected to continue in FY23 and FY24. Growth in net profit and net cash inflow from operating activities net of outflows from investing and financing activities has resulted in an improvement of cash & cash equivalent position as on 31Mar2022 to Rs. 11.27 Crs., which further improved to Rs. 26.31 Crs. as on 30Sep2022 (unaudited). 

ABOUT THE ENTITY

Vimta Labs Ltd, incorporated in November 1990 in Hyderabad, is engaged in the business of testing and contract research in the areas of analytical testing of food and water, drugs, environment testing, clinical research and clinical reference testing (diagnostics), biopharmaceutical testing, pre-clinical studies and testing services for electronic and electrical products. The company is listed on the NSE and BSE. The company is cGMP, GLP and GCP - compliant and is an established market leader in contract testing and analytical R&D services. Vimta is reported to have India’s largest laboratory space of 400,000 sq.ft. It has a network of 18 own laboratories, 3 laboratories in alliance with other entities and 6 clinical diagnostics patient services centers across the country, including multiple branch laboratories for food testing and clinical diagnostics. Emtac Laboratories Pvt. Ltd (Emtac), engaged in the electrical/electronic safety testing business, is the wholly owned subsidiary of Vimta.

The company is promoted by Dr. S. P. Vasireddi (Founder, Non-executive Chairman) and Mr. V. Harriman (Co-founder, Executive Director – Operations). Ms. Harita Vasireddi is the Managing Director.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	275.98	209.05
EBITDA	Rs.Crs.	79.96	53.14
PAT	Rs.Crs.	41.06	21.26
Tangible Net Worth	Rs.Crs.	220.29	194.32
Total Debt/TNW	Times	0.09	0.15
Current Ratio	Times	2.64	2.09

KEY FINANCIAL INDICATORS (Consolidated)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	278.28	210.68
EBITDA	Rs.Crs.	80.48	53.40
PAT	Rs.Crs.	41.33	21.40
Tangible Net Worth	Rs.Crs.	215.05	188.80
Total Debt/TNW	Times	0.09	0.16
Current Ratio	Times	2.60	2.05

KEY COVENANTS OF THE FACILITY RATED

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

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

NA

ANY OTHER INFORMATION

Nil

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

Facilities	Current Rating (2022)			2022 (History)		2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	51.72	BWR A/Stable (Reaffirmation)	04Feb2022	BWR AStable (Upgrade)	04Aug2021	BWR A- Negative to Stable (Reaffirmation and change in Outlook)	25Jun2020	BWR A- Stable to Negative (Reaffirmation and change in Outlook)	09Oct2019	BWR A- Stable (Reaffirmation)
		0.00	NA	NA	NA	NA	NA	06Nov2020	BWR A- Negative (Reaffirmation)	NA	NA
FB SubLimit	LT	(15.00)	BWR A/Stable (Reaffirmation)	04Feb2022	BWR AStable (Upgrade)	NA	NA	NA	NA	NA	NA
		(15.00)	BWR A/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA	NA	NA
		(10.00)	BWR A/Stable (Reaffirmation)	NA	NA	NA	NA	NA	NA	NA	NA
Non Fund Based	ST	5.78	BWR A1 (Reaffirmation)	04Feb2022	BWR A1 (Upgrade)	04Aug2021	BWR A2+ (Reaffirmation)	25Jun2020	BWR A2+ (Reaffirmation)	09Oct2019	BWR A2+ (Reaffirmation)
		0.00	NA	NA	NA	NA	NA	06Nov2020	BWR A2+ (Reaffirmation)	NA	NA
NFB SubLimit	ST	(2.00)	BWR A1 (Reaffirmation)	04Feb2022	BWR A1 (Upgrade)	NA	NA	NA	NA	NA	NA
NFB SubLimit	ST	(2.00)	BWR A1 (Reaffirmation)	NA	NA	NA	NA	NA	NA	NA	NA
Grand Total		57.50	(Rupees Fifty Seven Crores and Fifty 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

• General Criteria
• Approach to Financial Ratios
• Services Sector
• Short Term Debt

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

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 - Out-standing	16.72	_	16.72
2	Axis Bank Ltd.	Cash Credit - Sanctioned	15.00	_	15.00
	Sub-Limit (EPC/RPC/PCFC/RPCFC/FBD/ EBRD) - Sanctioned	(15.00)
3	Axis Bank Ltd.	Loan Equivalent Risk - Sanctioned	_	0.98	0.98
4	Axis Bank Ltd.	BG/LC/ILC - Sanctioned	_	4.00	4.00
5	HDFC Bank	Pre Settlement Risk - Sanctioned	_	0.80	0.80
6	HDFC Bank	Cash Credit - Sanctioned	15.00	_	15.00
	Sub-Limit (BG) - Sanctioned		(2.00)
	Sub-Limit (LC) - Sanctioned		(2.00)
	Sub-Limit (PCFC/POST SHIPMENT CREDIT) - Sanctioned	(15.00)
	Sub-Limit (WCDL) - Sanctioned	(10.00)
7	HDFC Bank	Term Loan - Sanctioned	5.00	_	5.00
Total			51.72	5.78	57.50
TOTAL (Rupees Fifty Seven Crores and Fifty lakhs Only)