ICRA said that the rating action factors in steady revenue growth registered by NGL over FY2021 and H1 FY2022, supported by increase in average realisations as well as sales volumes. NGL's operating and net margins improved to 31.1% and 22%, respectively, in FY2021 from 14.5% and 5.5%, respectively, in FY2020. This was driven by an improved revenue profile and product mix, operating efficiency, softening in raw material prices and lower operating expenditures (power and employee costs).

The operating margins, however, witnessed a sharp contraction to 21.9% in Q2 FY2022 from 31.1% in Q1 FY2022 because of rising raw material prices and inability of the company to fully pass on these costs to customers given the short-term nature of contracts. Nonetheless, full-year fiscal margins are expected to remain comfortable despite the adverse impact of rising raw material prices.

Additionally, the ratings continue to factor in the extensive experience of NGL's management in animal health active pharmaceutical ingredients (API) segment, its geographically diversified presence in domestic and international markets, coupled with a well-established customer base.

NGL continues to maintain a strong market share of more than 50% for its top three APIs (Diminazene, Clorsulon and Buparvaquone), supported by competitive cost proposition since it is partly backward integrated for basic chemicals.

The ratings, however, remain constrained by NGL's moderate scale of operations and high working capital intensity of business emanating from receivables and elevated inventory holding cycle. NGL has placed orders for additional raw materials in advance to mitigate the impact of rising raw material prices.

The ratings also consider the vulnerability of the company's profitability to volatility in raw material prices and forex movement. Given the nature of short-term contracts, the company's operating profitability remains exposed to the adverse movements in the raw materials prices that cannot be passed onto the customers.

The 'Stable' outlook on the long-term rating reflects ICRA's opinion that NGL will continue to benefit from its established track record, a diversified customer base and geographic reach, strong market share in its key molecules and a comfortable financial profile.

NGL Fine-Chem is a veterinary API manufacturer with its products being used in the animal health industry. The company has a strong and growing international presence in Latin America, Asia and Europe.

The company's consolidated net profit declined 12.02% to Rs 13.91 crore despite a 14.68% increase in sales to Rs 78.37 crore in Q2 FY22 over Q2 FY21.

The scrip shed 0.12% to currently trade at Rs 2545.05 on the BSE.