Press Releases     24-Jan-25
Nosch Labs Private Limited: Long-term rating upgraded to [ICRA]A (Stable) and shortterm rating reaffirmed

Rationale

 

 The ratings action considers the likely improvement in Nosch Labs Private Limited’s (Nosch) credit profile on the back of expected sustained growth in the scale of operations while maintaining healthy margins. The company clocked revenue growth of 6.4% in FY2024, aided by steady demand for its products (active pharmaceutical ingredients [APIs], and semi-finished formulations/pellets). Continued demand from its key markets such as South America, Turkey, South Korea, etc. is expected to support its revenues, going forward. The company’s operating margin improved to ~37% in FY2024 from ~32% in FY2023 on the back of better product mix and healthy realisations amid stable raw material prices. Its margins are expected to remain healthy, going forward. The ratings consider Nosch’s established track record in manufacturing APIs and semi-finished formulations/pellets in various therapeutic categories for the past two decades, which resulted in a strong customer base. It also benefits from the strong distribution network of the Chemo Group, Nosch’s major customer and shareholder with a 40% stake, which helps the company command healthy realisations. The ratings also consider its comfortable capital structure and debt metrics on the back of negligible debt levels and healthy margins. The company’s manufacturing facilities have the necessary approvals for exporting to European Union (EU-GMP), Russia (Russia-GMP), South Korea (KFDA), Mexico (COFEPRIS), Brazil (ANVISA) and other markets. ICRA notes that one of its API facilities has been approved by USFDA in December 2024. The ratings, however, remain constrained by the high working capital intensity of the business on account of Nosch’s high inventory holding. The company holds over six months of inventory as the same facilitates it in ensuring quick turnaround for its customers. However, most of the working capital requirements are met by internal accruals with low reliance on borrowings. Though Nosch has been generating healthy earnings, high repatriation (in relation to profits) of funds to shareholders in the form of dividends and share buybacks in the past resulted in limited growth in free cash flows (FCF). Nosch is also exposed to regulatory developments that could impact the company’s revenues and profitability. Besides, over 50% of its revenues are derived from sales to the Chemo Group, which acts as a distributor to key markets like South America and Russia, however, the end-customer base is diversified. The Stable outlook on Nosch’s long-term rating reflects ICRA’s opinion that the company’s revenue and profit growth would be supported by the demand for its products, and it will continue to maintain healthy debt metrics.

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