Rationale

 The ratings reaffirmation of East India Pharmaceutical Works Limited (EIPWL) factors in the company’s 80 years-long operational track record and established market position for its key molecules in the Indian pharmaceutical industry. Benefitting from the same, EIPWL’s top line rose 6.7% to Rs. 249 crore in FY2024 and the momentum is likely to sustain in the current fiscal as well. Further, the ratings continue to draw comfort from the company’s adequate financial profile, marked by a steady revenue growth and increased accrual generation, while maintaining a comfortable capital structure. However, the ratings remain constrained by EIPWL’s moderate scale of operations in the generic formulations industry, resulting in limited economies of scale. Besides, intense competition and vulnerability to volatility in key raw material prices and foreign exchange rates have constrained the company’s operating margins, which have witnessed some moderation in the recent fiscals. Also, EIPWL’s working capital intensity remains high on account of its elevated receivables and inventory holding cycle, translating into high utilisation of its working capital limits. The company also remains exposed to the regulatory restrictions related to pricing caps in the domestic market and high product concentration risk, as its top four molecules continue to account for more than 85% of its sales. Going forward, the company’s ability to develop and successfully market the new formulations will be key from the perspective of revenue diversification. The Stable outlook on the long-term rating reflects ICRA’s opinion that EIPWL will report a steady revenue growth and accrual generation over the near-to-medium term, supported by stable demand for its products.