Rationale

The upgraded ratings for Gufic Biosciences Limited (GBL) consider the expected strengthening of the company’s credit profile on the back of sustained growth revenues and earnings. This, coupled with the equity infusion in FY2024, has bolstered the net-worth base and facilitated the prepayment of GBL’s long-term debt, reducing its future repayment burden and improving the debt metrics. In FY2024, GBL reported a healthy growth of 16.8% amid favourable demand in its formulation business across key therapeutic areas. The revenue profile is also expected to be supported by the commercialisation of its Indore plant in the current month. Additionally, the extensive experience of GBL's promoters in the pharmaceutical industry, an established customer profile with repeat orders and a well-diversified portfolio, including pharmaceutical and herbal formulations, bulk drugs, and consumer care products, favourably support the ratings. However, the ratings are constrained by the GBL's profitability being susceptible to fluctuations in active pharmaceutical ingredient (API) prices and changes in Government policies, particularly those related to price control as well as inherent competition in the domestic formulations industry from both organised and unorganised players. Furthermore, the high working capital intensity of operations due to the extended credit periods to customers remains a concern, although it is partially offset by extended credit from suppliers. ICRA notes that GBL is in the final stages of commercialising capex to increase its existing formulation capacity with a new unit in Indore (Madhya Pradesh) to meet additional demand. The company is in the process of applying for approval from various regulatory bodies, including the USFDA, for the new unit, with approvals and sales expected in the medium term. Until then, the company plans to serve the domestic market from this unit. Going forward, the company's ability to achieve healthy capacity utilisation levels with corresponding returns by scaling up its new unit is a key rating monitorable. The Stable outlook on the rating reflects ICRA's opinion that GBL’s credit profile will remain supported by its stable business profile and the expectation of favourable demand for its existing products, along with anticipated incremental sales from the enhanced capacities planned in the near term.