Nestor Pharmaceuticals Limited (NPL)

October 7th, 2022

Ratings
Instruments Amount Current Rating Action Complexity
(INR. Crore) Ratings Indicator

Long Term Fund 51.56 IVR BB+/Stable Revised to IVR D Simple

Based Facility – (Reduced from (IVR Double B from IVR BBB-
Cash Credit 60.30 Crore) Plus with Stable /Positive Outlook and
Outlook) simultaneously
upgraded to IVR
BB+/ Stable
Long Term Fund 13.48 IVR BB+/Stable Revised to IVR D Simple
Based Facility – (Increased from (IVR Double B from IVR BBB-
GECL INR9.87 Crore) Plus with Stable /Positive Outlook and
Outlook) simultaneously
upgraded to IVR
BB+/ Stable
Short Term Non- 20.00 IVR A4+ (IVR A Revised to IVR D Simple
Fund Based (Reduced from Four Plus) from IVR A3 and
Facility – Bank INR25.00 simultaneously
Guarantee Crore) upgraded to IVR A4+
Short Term Non- 10.00 IVR A4+ (IVR A Assigned Simple
Fund Based Four Plus)
Facility – Inland
Letter of Credit
95.04 (Ninety
Five Crore and
Four Lakh)

Details of instruments are in Annexure 1

Detailed Rationale
The revision in the long-term and short-term rating of the bank facilities of Nestor
Pharmaceuticals Limited (NPL) reflects irregularities in debt servicing by the company in the
past up to May 2022 due to stretched liquidity position arising out of delayed receivables.

The simultaneous upgradation of the rating reflects timely servicing of the debts in the last 90
days ending September 2022. This was due to better receivable management. However, the
company’s liquidity is still tight as reflected in its near-full use of the cash credit limits. Further,
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the aforesaid rating continues to derives strength from its experienced promoter along with
experienced management team, established market position with a wide product portfolio
,reputed clientele, moderate revenue and profitability, comfortable financial risk profile and
healthy order book position indicating a near to medium term revenue visibility. However, the
rating strengths are constrained by working capital intensive nature of operations and
vulnerability to change in government/regulatory policies and volatility in raw material prices.

Key Rating Sensitivities

Upward Factors
• Sustained & significant improvement in revenue & profit margins
• Sustenance of the capital structure while maintaining the debt protection parameters
• Efficient working capital management with improvement in liquidity
Downward Factors:
• More than expected dip in operating income and/or decline in profit margins
impacting the debt coverage indicators
• Elongation in the operating cycle impacting the liquidity

Key Rating Drivers with detailed description

Key Rating Strengths-
Experienced promoter & management team
The company is being managed by experienced promoter, Mr. Rahul Sehgal has a rich
experience of more than four decades in the pharmaceuticals industry and is instrumental in
development of the company. Having operated in industry since years now, the management
has established a strong network with suppliers and customers. Beside the promoter, the
company has a team of experienced and capable professionals, having over two decades of
experience in the segment, to look after the overall operations and day to day management.

Established Market Position with a wide product portfolio

NPL has an established market position in India in pharmaceutical formulations supported by
extensive experience of its promoter, its established marketing network and a wide product
portfolio consisting of Tablets, Capsules, Inject able, Syrups / Suspension, Ointments, Dry
Powder, Ear/ Eye Drops representing a range of clinically proven products developed from

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scientifically validated and licensed products. The pharmaceutical formulations in different
therapeutic groups include Cardiovascular, Anti Diabetic, Anti-Malarial, Anti allergic, Anti-
Diarrheal, Anti TB, Anti Inflammatory, Anti-Depressant, Multi Vitamins, Antacid, Analgesic,
Anti-Pyretic, Antibiotics, Cough & Cold, Pain Management, Muscle Relaxant.

Reputed Clientele
The company derives majority of its revenue from State Government Institutions and has
developed an established & longstanding relationship with various state bodies. The
institutional segment contributes approximately ~70% to the total revenues over the years.
The clientele of the company includes Madhya Pradesh Public Health Services Corporation
Ltd, Gujarat Medical Services Corporation Limited, Rajasthan Medical Services Corporation
Ltd, Haffkine Bio-Pharmaceutical Corporation Ltd, Haryana Medical Services Corporation Ltd,
Jharkhand Medical & Health Infrastructure Development & Procurement Corporation Ltd,
Punjab Health System Corporation Ltd, Odisha State Medical Corporation Ltd and Uttar
Pradesh Medical Supplies Corporation Ltd. The company’s good quality products at a
reasonable pricing has led to continuous and strong order book from various State
Government Institutions.

Moderate revenue and profitability

The company reported operating income of ~INR155.30 Crore in FY22 as compared to INR
174.45 Crore during FY21, decline in growth rate of ~10% is being observed. The growth in
total operating income is largely driven by improvement in order book size of the company
followed by on going demand in domestic and international market for the pharma products
as the pharma industry is the sunshine industry however the decline in FY22 was due to
decline in institutional sales along with the delays being observed in receiving the obligation.
Further, the company has established presence at PAN India level coupled with promoters’
strong relationships established with the supplier and/distribution network over the years
which helped the company to increase its scale of operations. Although total operating income
declined in FY22, profitability of the company has remained stable as compared to FY21. The
company reported EBITDA margin of ~13.48% and PAT margin of ~5.94% in FY22 (FY21 :
12.99% and 5.22%)

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Comfortable financial risk profile
The financial risk profile of the company remained comfortable over the years marked by its
overall gearing ratio at 0.89x (FY21:1.79x) and moderate debt protection metrics. The debt
protection metrics of the company improved and remained comfortable marked by interest
coverage of 2.18x in FY22 (FY21: 1.96x). Moreover, the total debt to equity remained at 0.35x
as on March 31, 2022 as compared to 0.62x in FY21. Further, the TOL to TNW stood at 1.24x
as on March 31, 2022(2.55x in FY21).

Healthy order book position indicating a near to medium term revenue visibility
The company has a strong order book comprising orders from various State government
Institutions to the tune of approximately ~INR277 Crore as on October, 2022. The orders are
to be executed in the next 1-2 fiscal years which indicates a comfortable revenue visibility in
the near to medium term. Moreover, the company has been diversifying its revenue model
and during FY19-20 the company started with ‘Nestor Online’ which is a B2B platform and in
FY22 started with B2C platform as well which caters to retail chemists for various OTC
products as well as Branded Generics.

Key Rating Weaknesses-

Working capital intensive nature of operations
NPL's business has large working capital requirements, as reflected in the collection period
cycle days of 167 days as on March 31, 2022, followed by average inventory holding period
of 142 days as on March 31, 2022 thereby affecting the operating cycle of the company, which
stands at 252 days as on March 31, 2021.

Vulnerability to change in government/regulatory policies and volatility in raw material

prices
The pharmaceutical industry is highly regulated, and hence, any adverse change in
government/regulatory policies can impact the business risk profile of the Company.
Moreover, intense competition in the generics business limits the pricing flexibility of players.
Raw materials account for 60-70% of the cost of sales, and operating margin remains
susceptible to any sharp change in input prices.

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Analytical Approach: Standalone

Applicable Criteria:
Rating Methodology for Manufacturing Companies
Financial Ratios & Interpretation (Non-Financial Sector)
Criteria of assigning rating outlook
Policy on Default Recognition

Liquidity: Stretched
The liquidity position of the company is expected to remain stretched in the near term with
moderate liquidity buffer from its working capital limits, with average utilization of ~95% over
the 12 months ended September 2022.. The current ratio is comfortable at 1.81x in FY2022.
However, working capital cycle remain stretched.

About the Company

Nestor Pharmaceuticals Ltd (NPL) incorporated in 1975 is in the pharmaceuticals business for
more than four decades with expertise in manufacture and marketing of a wide array of ethical
allopathic branded and generic formulations. The existing product portfolio consists of
approximately more than 165 products in the form of Tablets, Capsules, Injectable, Syrups /
Suspension, Ointments, Dry Powder, Ear/ Eye Drops and so on in various therapeutic
segments including Cardiovascular, Anti Diabetic, Anti-Malarial, Anti allergic, Anti-Diarrheal,
Anti TB, Anti Inflammatory, Anti-Depressant, Multi Vitamins, Antacid, Analgesic, Anti-Pyretic,
Antibiotics, Cough & Cold, Pain Management, Muscle Relaxant to name a few. The company
has two manufacturing plants located at Faridabad and Goa and both the facilities 6 are WHO-
GMP compliant. These plants have large production capacities to produce the
pharmaceuticals products

Financials: Standalone (INR. Crore)

31-03-2021 31-03-2022
For the year ended/ As On*
(Audited) (Audited)
Total Operating Income 174.45 155.30
EBITDA 22.66 20.93
PAT 9.08 9.23
Total Debt 74.77 68.23
Tangible Net-worth 41.39 73.37
EBITDA Margin (%) 12.99 13.48
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 PAT Margin (%) 5.20 5.94
Overall Gearing Ratio (x) 1.79 0.89
*Classification as per Infomerics' standards

Status of non-cooperation with previous CRA: The rating continues to be under INC with
the Brickworks Ratings dated February 10, 2022

Any other information: None

Rating History for last three years:

Sl. Name of Current Rating (Year 2022-23) Rating History for the past 3 years
No. Instrument/ Type Amount Rating Date(s) & Date(s) & Date(s)
Facilities outstanding Rating(s) Rating(s) &
(Rs. Crore) assigned in assigned in Rating(s)
2021-22 2020-21 assigned
(July 8, (August 21, in 2019-
2021) 2020) 20
1 Long Term Fund Long 51.56 IVR IVR BBB- IVR BBB- --
Based Facility – Term BB+/Stable /Positive /Stable
Cash Credit Outlook Outlook Outlook
2 Long Term Fund Long 13.48 IVR IVR BBB- IVR BBB- --
Based Facility – Term BB+/Stable /Positive /Stable
GECL Outlook Outlook Outlook
3 Short Term Non- Short 20.00 IVR A4+ IVR A3 IVR A3 --
Fund Based Term
Facility – Bank
Guarantee
4 Short Term Non- Short 10.00 IVR A4+ -- -- --
Fund Based Term
Facility – Inland
Letter of Credit

Name and Contact Details of the Rating Team:

Name: Jayshree Purohit Name: Amit Bhuwania
Tel: (022) 62396023 Tel: (022) 62396023
Email: jpurohit@infomerics.com Email: abhuwania@infomerics.com

About Infomerics:
Infomerics was founded in the year 1986 by a team of highly experienced and knowledgeable
finance professionals. Subsequently, after obtaining Securities Exchange Board of India

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registration and RBI accreditation and the activities of the company are extended to External
Credit Assessment Institution (ECAI). Adhering to best International Practices and maintaining
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visit www.infomerics.com.

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Annexure 1: Details of Facilities

Name of Facility Date of Coupon Rate/ Maturity Size of Rating Assigned/
Issuance IRR Date Facility Outlook
(Rs. Crore)
Long Term Fund -- -- -- 51.56 IVR BB+/Stable
Based Facility –
Cash Credit
Long Term Fund -- -- -- 13.48 IVR BB+/Stable
Based Facility –
GECL
Short Term Non- -- -- -- 20.00 IVR A4+
Fund Based
Facility – Bank
Guarantee
Short Term Non- -- -- -- 10.00 IVR A4+
Fund Based
Facility – Inland
Letter of Credit

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Annexure 2: List of companies considered for consolidated analysis: NA
Annexure 3: Facility wise lender details
https://www.infomerics.com/admin/prfiles/Len-Nestor-oct22.pdf
Note on complexity levels of the rated instrument: Infomerics has classified instruments
rated by it on the basis of complexity and a note thereon is available at www.infomerics.com.