RATING RATIONALE
24Feb2025
Medec Medicare Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs. 150.00 Crs. of Medec Medicare Ltd.
Particulars| Facilities** | Amount(Rs.Crs.) | Tenure | Rating# | |
|---|---|---|---|---|
| Fund Based | 150.00 | Long Term |
BWR BBB -
/Stable Assignment |
|
| Grand Total | 150.00 | (Rupees One Hundred Fifty Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
Brickwork Ratings has assigned a rating of BWR BBB- (Stable) for bank facilities of the Company aggregating to Rs. 150 Crs. The rating drives strength from the healthy scale-up of operations, comfortable financials risk profile with no term debt obligation, adequate liquidity, and experienced promoter. Limited track record along with customer concentration risk, inherent risk associated with the trading nature of business and exposure to forex fluctuation risk, susceptibility to fluctuations in raw material prices, and regulatory restrictions constrain the ratings
BWR believes that the business risk profile of Medec Medicare Limited will be maintained over the medium term. The 'Stable' outlook indicates BWR's expectations that the company sustains its comfortable financial risk profile with no term debt obligation and adequate liquidity to continue in the medium term.
Credit Strengths:
-
Healthy scale-up of operations :
The company historically was engaged in trading intermediates and specialty chemicals and has ventured into contract manufacturing as well which is margin remunerative in nature. Standalone financials show a 92.5% revenue growth in FY24, reaching Rs. 1325 cr (FY23: Rs. 688.3 cr) whereas Consolidated financials also demonstrate a 73.3% growth, with revenue at Rs. 1478.1 cr (FY23: Rs. 853.2 cr).
-
Comfortable financial risk profile: :
The company's financial risk profile is currently assessed as comfortable highlighted by the absence of any term debt obligations, comfortable coverage indicators, and a moderate to comfortable capital structure. The capital structure has been further strengthened by a healthy net worth of Rs. 184.97 crore, equity infusion from promoters, and the accretion of profits to the company's net worth. Additionally, based on the FY24 financials, the subsidiaries do not have any debt obligations. MML's interest coverage remained comfortable at 5.31x in FY24 (FY23: 8.54x). The total debt/TNW ratio stood at a comfortable 0.55x as of March 31, 2024, showing improvement from 1.08x as of March 31, 2023.
-
Limited track record of operations and customer concentration risk albeit experienced promoter :
While incorporated in 2010, the company's primary focus for much of its operational history was trading intermediates and specialty chemicals. The company ventured into contract manufacturing only a few years ago, following Dr. Deepak Shenoy's acquisition of a majority stake. Dr. Shenoy has two decades of experience in the industry. Although the company has successfully scaled up its operations since then, key areas for monitoring include: sustaining the improved scale of operations while maintaining healthy operating margins, establishing long-term relationships with suppliers and customers, and managing incremental working capital requirements. It is important to note that within the pharmaceutical industry, client relationships are typically long-lasting due to the necessary quality certifications and licenses.
-
Inherent risk associated with the trading nature of business and exposure to forex fluctuation risk :
At present, 75-80% of our revenue is generated through trading activities. This reliance on trading exposes the company to inherent risks, including thin margins due to minimal value addition, limited control over prices, price fluctuation risk, and inventory risk. Additionally, in FY24, 31% of our total revenue was derived from exports while 81% of purchases were imported. This reliance on international markets exposes the company to foreign exchange fluctuation risk. To mitigate this risk, we have availed an LER limit from Axis Bank and reported a gain of Rs. 14.44 crore from exchange rate differences in FY24.
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Susceptibility to fluctuations in raw material prices and intense competition :
The bulk drugs industry is highly competitive due to the presence of numerous domestic as well as global players, which exerts pricing pressure on individual entities. The pharmaceutical industry is highly competitive, which constrains sizeable growth restricts bargaining power with customers and suppliers, and benefits accruing from economies of scale. This necessitates the company to remain cost-competitive to maintain profitability.
-
Operations exposed to regulatory restrictions :
The operations remain exposed to regulatory restrictions in terms of pricing caps and product approvals in export destinations.
For arriving at its ratings, BWR has considered the consolidated approach for the Company. 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 sensitivities
- The company's ability to expand its scale of operations while simultaneously improving its profitability (operating margin above 7%) and capital structure on a sustained basis.
- Shortening of the working capital cycle, resulting in improved bank limit utilizations to below 75%.
Negative sensitivities
- A decrease in operating profitability, leading to lower cash accruals.
- Any significant elongation in the working capital cycle or significant debt-funded capital expenditure, which could weaken the financial risk profile and liquidity.
The company's consolidated liquidity profile is deemed adequate, supported by net cash accruals of Rs. 44.13 crores for FY24 and an unencumbered cash and bank balance of Rs. 5.34 crores as of March 31, 2024, against nil term debt obligations. Further support is provided promoter equity infusion of approximately Rs. 13 crores over the past two years and the absence of long-term debt repayment obligations. The current ratio and ISCR remained healthy at 1.46 times and 5.31 times, respectively, as of the FY24 balance sheet date. Liquidity is somewhat constrained by the average utilization of working capital limits, which ranged between 85-90% for the last 12-month period ending January 2025 period. Additionally, Axis Bank has reduced the sanctioned cash credit limit from Rs. 85 crores to Rs. 68 crores, as per their latest sanction letter. The company managed the reduction by preemptive equity infusion and better working capital management. The company anticipates an enhancement of its working capital limits by approximately Rs. 82 crores, which is expected to provide additional headroom to the company's liquidity profile.
ABOUT THE ENTITY| Macro Economic Indicator | Sector | Industry | Basic Industry |
|---|---|---|---|
| Services | Services | Commercial Services & Supplies | Trading & Distributors |
Formerly known as Medec Dragon Private Limited, the company was incorporated in 2010 and is headquartered in Mumbai. As a global integrated pharmaceutical company, the company offers active pharmaceutical ingredients (APIs), intermediates, and bulk drugs, including generics, and specialty chemicals. These products cater to various applications, primarily used to manufacture drugs for critical illnesses like cardiovascular diseases, cancer, malaria, etc. The company is currently led by Managing Director Dr. Deepak Shenoy and a team of experienced professionals.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 22 - 23 (Audited - Annual) |
FY 23 - 24 (Audited - Annual) |
FY 24 - 25 (Unaudited - Midterm-Q3) |
|---|---|---|---|---|
| Operating Revenue | Rs.Crs. | 688.32 | 1324.96 | 707.32 |
| EBITDA | Rs.Crs. | 51.92 | 40.84 | 32.56 |
| PAT | Rs.Crs. | 33.85 | 36.39 | 18.44 |
| Tangible Net Worth | Rs.Crs. | 53.51 | 98.00 | Not Available |
| Total Debt / Tangible Net Worth | Times | 2.20 | 1.03 | Not Available |
| Current Ratio | Times | 1.20 | 1.25 | Not Available |
Standard covenant as per bank sanction letters.
STATUS OF NON-COOPERATION WITH PREVIOUS CRA
Not Applicable
RATING HISTORY FOR LAST THREE YEARS (including withdrawal and suspended)| Facilities | Current Rating (2025) | 2024 | 2023 | 2022 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Fund Based | LT | 150.00 |
BWR BBB-/Stable
(Assignment) |
NA |
NA
|
NA |
NA
|
NA |
NA
|
| Grand Total | 150.00 | (Rupees One Hundred Fifty Crores Only) | |||||||
- General Criteria
- Approach to Financial Ratios
- Consolidation of Companies
- Trading Entities
- Manufacturing Company
| Analytical Contacts | |
|---|---|
|
Kanwalpreet Singh Ratings Analyst kanwalpreet.s@brickworkratings.com |
Niraj Kumar Rathi Director Ratings niraj.r@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.) | Complexity of the Instrument |
|---|---|---|---|---|---|---|
| 1 | Axis Bank Ltd. | Cash CreditSanctioned | 68.00 | _ | 68.00 | Simple## |
| 2 | Others | Proposed loanProposed | 82.00 | _ | 82.00 | Simple## |
| Total | 150.00 | 0.00 | 150.00 | |||
| TOTAL (Rupees One Hundred Fifty Crores Only) | ||||||
## 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.
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate (%) | Maturity Date | ISIN Particulars | Complexity of the Instrument |
|---|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| Medec Dragon Limited, UAE | 100 | 100% | Wholly owned subsidiary in same line of business |
| Medec Dragon PTE Limited, Singapore | 100 | 100% | Wholly owned subsidiary in same line of business |
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