Rationale

ICRA has taken a consolidated view of Bal Pharma Limited (BPL), which includes BPL and its subsidiaries (Lifezen Healthcare Private Limited, Balance Clinics LLP, Bal Research Foundation and Golden Drugs Private Limited), while assigning the credit ratings, given the common management and significant operational and financial linkages between them. Together, they are hereby referred to as BPL/the Group/the company. The revision in the outlook to Stable from Negative factors in the sequential and YoY improvement in the operational and financial profile of the Group since Q1 FY2021, supported by healthy revenue growth aided by the execution of the healthy order book position. The improved product mix and better raw material availability boosted the operating profitability. The ratings continue to draw comfort from the extensive experience of the promoters in the pharmaceutical industry and the welldiversified customer base of the company across domestic as well export markets. The ratings also take into account BPL's manufacturing capabilities and its established position as a manufacturer of the anti-diabetic bulk drug, Gliclazide, for which it commands a healthy market share across geographies. The ratings also factor in the USFDA and EU GMP approved facilities in Bengaluru and Rudrapur, which are expected to drive revenue growth, primarily in regulated markets. The ratings remain constrained by BPL's average financial risk profile characterised by a leveraged capital structure and moderate debt protection indicators in the backdrop of weak accruals in FY2020 and H1 FY2021. Further, the ratings factor in the high working capital intensity of operations due to the high inventory levels and elongated receivables cycles, which keep the company dependent on its working capital limits. The ratings also remain constrained by the intense competition in the domestic formulations business, the nascent stage of operations of the over-the-counter (OTC) business, and the limited pricing flexibility under the active pharmaceutical ingredients (API) division.