Press Release

Gujarat Themis Biosyn Limited

November 22, 2024

Amount (₹
Facilities/Instruments Rating1 Rating Action
crore)
CARE BBB Placed on Rating Watch with Developing
Long-term bank facilities 2.00
(RWD) Implications
CARE A3+ Placed on Rating Watch with Developing
Short-term bank facilities 3.00
(RWD) Implications
Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

CARE Ratings Limited (CARE Ratings) has placed ratings of bank facilities of Gujarat Themis Biosyn Limited (GTBL) on “Rating
Watch with Developing Implications (RWD)” following GTBL’s announcement on BSE dated November 18, 2024, for amalgamation
of GTBL with Themis Medicare Limited (TML; rated CARE BBB-; RWP / CARE A3; RWP). GTBL is TML’s associate company, holding
23.19% in GTBL. The scheme is subject to requisite approvals from the National Company Law Tribunal (NCLT), stock exchanges,
Securities Exchange Board of India (SEBI), requisite statutory and regulatory authorities, and respective shareholders and
creditors under applicable laws. CARE Ratings will continue to closely monitor developments on this announcement and would
take a view accordingly on GTBL’s ratings post-amalgamation after requisite approvals.

Reaffirmation of ratings assigned to bank facilities of Gujarat Themis Biosyn Limited (GTBL) factors in satisfactory financial profile
and operational performance amidst dependency on a few products. Ratings continue to derive strength from experienced and
qualified promoters and management team, niche product offerings despite high dependency on a few products, accredited
manufacturing facilities, healthy profit margins and comfortable capital structure, and debt coverage indicators.

However, ratings continue to be constrained by the moderate scale of operations, the working capital-intensive operations, project
execution and funding risk associated with capital expenditure undertaken to set up active pharmaceutical ingredients (API) unit
and addition of fermentation capacity expansion, customer and supplier concentration risk, intense competition and presence in
a fragmented industry, and profitability margins susceptible to raw material prices.

Rating sensitivities: Factors likely to lead to rating actions

Positive factors
• Increasing scale of operations marked by total operating income (TOI) exceeding ₹250 crore while maintaining operating
profitability at present level on a sustained basis.
• Successfully completing capex without cost and time overruns and subsequently stabilising and commercialising API
fermentation unit.

Negative factors
• Deteriorating overall gearing beyond 1x on a sustained basis.
• Substantially deteriorating profitability leading to build up stretch in the company’s liquidity profile amidst capex
execution.
• The company’s inability to complete of project in timely manner resulting in substantial cost overrun impacting liquidity
and credit metrics.

Analytical approach: Standalone

Outlook: Not applicable

Detailed description of key rating drivers:

Key strengths
Experienced and qualified promoters and management team
GTBL is actively managed by promoters of Themis Medicare Limited (TML) since 2007. Dr Dinesh Patel is the Executive Vice
Chairman, and his son, Dr Sachin Patel, Managing Director & CEO, has a PhD in Medicinal Chemistry by qualification. He has been

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Complete definition of ratings assigned are available at www.careedge.in and other CARE Ratings Limited’s publications.

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the recipient of several industrial accolades. Dr Sachin Patel holds a doctorate in Biological Chemistry from Christ’s College,
University of Cambridge, in the UK. The promoters are supported by a well-qualified and experienced second-tier management.

Niche product offerings, despite high dependency on a few products

The company is engaged in manufacturing intermediates; Rifamycin S and Rifamycin O, using the fermentation process. Rifamycin
S is an intermediate for manufacturing drug Rifampicin and Rifamycin O is an intermediate for manufacturing drug, Rifaximin.
Rifamycin is used for the treatment of several types of bacterial infections, including tuberculosis, Mycobacterium avium complex,
leprosy, and Legionnaires’ disease. Rifaximin is used for the treatment of diarrhoea, irritable bowel syndrome, and hepatic
encephalopathy. Owing to its complex fermentation capabilities with high capex involved, there is limited entry barrier.

Raw material sourcing and accredited manufacturing facilities

GTBL’s key raw material is Rifabutin, which is sourced through the domestic market. The company has long-standing relationships
with its suppliers, ensuring the timely supply of key raw materials. The company’s manufacturing plant is in Vapi, Valsad, Gujarat,
which is Current Good Manufacturing Practice (CGMP)-approved. The company has an installed capacity for manufacturing
216,000 kg of Rifamycin S and Rifamycin O per annum.

Healthy profit margins

The company’s profit before interest, lease rentals, depreciation, and taxation (PBILDT) margin continued to remain healthy and
between 45%-50% in the last three years ending FY24. It moderated to 46.85% in FY24 against 49.82% in FY23 considering
increase in employee cost, increase in cost of material and increase in cost of research and development. However, sales
realisation improved to ₹7,556/Kg sold in FY24 compared to ₹7,469/Kg sold in FY23. It achieved PBILDT margin of 46.76% in
H1FY25 compared to 46.44% in H1FY24.
profit after tax (PAT) margin also remained healthy and between 34% and 38% for last three years ended FY24. It moderated
to 34.77% in FY24 against 38.91% in FY23 considering increase in depreciation cost considering addition of machineries and
increase in leased assets in FY24. GTBL reported PAT margin of 32.10% in H1FY25 compared to 33.18% in H1FY24.

Comfortable capital structure and debt coverage indicators

GTBL’s capital structure continued to remain comfortable with minimal outstanding debt in form of lease liability of ₹2.77 crore
compared to sizable net worth base of ₹201.38 crore as on March 31, 2024. Working capital bank borrowing also remained
unutilised, hence, overall gearing reached 0.01x as on March 31, 2024, against 0.0028x as on March 31, 2023.
The company’s debt coverage indicators continued to remain comfortable with interest coverage ratio remained at 220.27x in
FY24 against 369.79x in FY23 considering marginal increase in interest cost. Further, total debt to gross cash accruals (TD/GCA)
also moderated marginally to 0.04x in FY23 against 0.01x in FY23 considering increase total debt in FY24.
However, after availing proposed term loan of ₹75 crore, capital structure and debt coverage indicators are expected to be
moderated in the near-to-medium term, which will continue to remain comfortable considering sizable GCA levels.

Key weaknesses
Moderate scale of operations
GTBL’s scale of operation continues to remain moderate, however, grew by 12% and it reported TOI to ₹170.15 crore in FY24
against ₹148.97 crore in FY23 considering increase in quantity sold (2,24,723 kg in FY24 from 1,98,313 kg in FY23) primarily led
by spillover of inventory in Q4FY23, which was sold in Q1FY24 and increase in sales price in FY24. The company’s TOI declined
to ₹73.54 crore in H1FY25 compared to ₹89.03 crore in H1FY24. Despite growth in scale of operation it continues to remain
moderate. The company expects its revenue continue to remain at the similar levels due to optimum utilisation of its existing
capacities. Revenue growth entirely depends on successful completion and stabilisation of API manufacturing project within
envisaged timelines.

Working capital-intensive nature of operations

GTBL’s operation continues to remain working capital intensive. However, it improved to 34 days in FY24 against 67 days in FY23,
mainly considering decrease in outstanding inventory to ₹3.33 crore as on March 31, 2024, from 14.62 crore as on March 31,
2023, which led to decrease in average inventory period to 36 days in FY24 from 63 days in FY23. The company offers credit
period of 1-2 months leading to collection of 48 days in FY24 compared to 52 days in FY23. Average creditors’ period was 50
days in FY24 compared to 48 days in FY23. Therefore, operations remained working capital intensive and working capital
requirement was met through healthy GCA, therefore, utilisation of working capital bank borrowings of ₹2 crore remained minimal.

Project execution and funding risk

The company has undertaken forward integration project of setting up API manufacturing unit and developing products;
Rifapentine and Rifamycin, and addition of more fermenters for expansion in its intermediates manufacturing at its existing plant.
The land for it is already in place.
The company has been executing project of setting up an API unit since Q1FY23, which was supposed to be operational by
October 2023, however, it was delayed. However, as informed by the management, there was no cost overrun in the project. It
is now expected to be operational by April 2025.

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The project’s total estimated cost is ₹183.04 crore and entire project cost is to be funded through internal accruals. Currently,
the company has incurred ₹116.71 crore as on August 31, 2024 (₹29.22 crore incurred as on June 08, 2023) towards the project
execution.
The company has also planned to add fermenters for expansion in its intermediates manufacturing to meet raw material
requirement for APIs. The project’s total estimated cost of the project is ₹160 crore, of which, ₹85 crore will be funded through
internal accrual and rest ₹75 crore to be funded by term loan (yet to be sanctioned).
The project execution is at nascent stage and company has incurred ₹9.70 crore as on August 31, 2024, towards project execution.
Project execution was commenced in Q1FY25 and expected to be operational in FY26.
Thus, going forward, GTBL’s ability to complete the project without cost and time overrun and its subsequent stabilisation remains
critical from credit perspective.

Customer and supplier concentration risks

The company caters to two major customers, Lupin Limited, contributing 61% of the sales, and Optrix Laboratories Private
Limited, contributing the balance 37% of sales. The company has a ‘take or pay’ agreement with Optrix Laboratories Private
Limited, which is renewed annually, and has a contract with Lupin Limited for five years, hence, concentration risk is mitigated to
an extent. Per the contract clause, it is on a ‘take or pay’ basis, hence, the company is completely protected in supply. However,
major setback in the financial profile of these clients can significantly impact the growth of GTBL. The company’s supplier profile
also remained concentrated, with the top 10 suppliers contributing 84% of the total purchases in FY24 against 83% of the total
purchases in FY23.

Intense competition and presence in a fragmented industry; profitability margins susceptible to raw material
prices
GTBL’s profitability margins are susceptible to raw material price volatility. Moreover, the Indian pharmaceutical industry (IPI)
comprises mainly of formulations, APIs, and contract research and manufacturing services (CRAMS) segments. Although IPI has
shown a healthy growth, the industry remains highly competitive. By volume, Indian companies produce about one-fifth of the
global generic medicines, nearly half of which was by way of exports, witnessing increasing competition.

Liquidity: Adequate
The liquidity position remained adequate marked by sufficient cushion in internal accruals and free cash and bank balance
including free fixed deposits against repayment obligations and funding for capex in FY25 and FY26. Working capital requirement
is also managed through internal accruals therefore average utilisation of working capital bank borrowings of ₹2 crore remain nil
in the last 12-months ended August 2024. Current ratio and quick ratio stood comfortable at 4.96x and 4.76x, respectively, as on
March 31, 2024 (against 6.70x and 5.74x, respectively, as on March 31, 2023). Cash flow from operating activities stood positive
of ₹104.27 crore in FY24 (against ₹10.26 crore in FY23).

Assumptions/Covenants: Not applicable

Environment, social, and governance (ESG) risks: Not applicable

Applicable criteria
Definition of Default
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Rating Watch
Manufacturing Companies
Pharmaceuticals
Financial Ratios – Non financial Sector
Short Term Instruments

About company and industry

Industry classification
Macroeconomic indicator Sector Industry Basic industry
Healthcare Healthcare Pharmaceuticals & Pharmaceuticals
biotechnology

GTBL was incorporated in 1981 and is engaged in manufacturing APIs, Rifamycin S and Rifamycin O. Rifamycin S is an intermediate
for manufacturing drug, Rifampicin (antibiotic used for the treatment of several types of bacterial infections, including tuberculosis,
Mycobacterium avium complex, leprosy, and Legionnaires’ disease). Rifamycin O is an intermediate for manufacturing drug
Rifaximin (antibiotic used for the treatment of traveller’s diarrhoea, irritable bowel syndrome, and hepatic encephalopathy). These
are niche products. The company’s manufacturing plant is in Vapi, Valsad, Gujarat, which is CGMP-approved.

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Brief Financials (₹ crore) March 31, 2023 (A) March 31, 2024 (A) September 30, 2024 (UA)

Total operating income 148.97 170.15 74.39

PBILDT 74.22 79.72 34.78

PAT 57.97 59.16 23.88

Overall gearing (times) 0.00 0.01 0.02

Interest coverage (times) 421.45 220.27 235.02

A: Audited UA: Unaudited; Note: these are latest available financial results

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years: Annexure-2

Detailed explanation of covenants of rated instrument / facility: Annexure-3

Complexity level of instruments rated: Annexure-4

Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Date of Rating
Maturity Size of the
Name of the Issuance Coupon Assigned and
ISIN Date (DD- Issue
Instrument (DD-MM- Rate (%) Rating
MM-YYYY) (₹ crore)
YYYY) Outlook
Fund-based- CARE BBB
- - - 2.00
Long Term (RWD)
Non-fund-
CARE A3+
based - ST- - - - 3.00
(RWD)
BG/LC

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Annexure-2: Rating history for last three years

Current Ratings Rating History

Date(s) Date(s) Date(s) Date(s)

Name of the
and and and and
Sr. No. Instrument/Bank Amount
Rating(s) Rating(s) Rating(s) Rating(s)
Facilities Type Outstanding Rating
assigned assigned assigned assigned
(₹ crore)
in 2024- in 2023- in 2022- in 2021-
2025 2024 2023 2022
1)CARE
BBB;
Stable
1)CARE (25-Sep- 1)CARE 1)CARE
CARE BBB; 23) BBB; BBB-;
Fund-based-Long
1 LT 2.00 BBB Stable Stable Stable
Term
(RWD) (07-Oct- 2)CARE (04-Aug- (07-Jul-
24) BBB; 22) 21)
Stable
(04-Aug-
23)
1)CARE
A3+
(25-Sep-
1)CARE 1)CARE 1)CARE
CARE 23)
Non-fund-based - A3+ A3+ A3
2 ST 3.00 A3+
ST-BG/LC (07-Oct- (04-Aug- (07-Jul-
(RWD) 2)CARE
24) 22) 21)
A3+
(04-Aug-
23)

LT: Long term; ST: Short term

Annexure-3: Detailed explanation of covenants of rated instruments/facilities : Not applicable

Annexure-4: Complexity level of instruments rated

Sr. No. Name of the Instrument Complexity Level

1 Fund-based-Long Term Simple

2 Non-fund-based - ST-BG/LC Simple

Annexure-5: Lender details

To view lender-wise details of bank facilities please click here

Note on complexity levels of rated instruments: CARE Ratings has classified instruments rated by it based on complexity.
Investors/market intermediaries/regulators or others are welcome to write to [email protected] for clarifications.

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Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
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Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
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in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.

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