File name: B3 AshwinKumar Madival Nectar LifeSciences

CREDIT APPLICATION

Section and Group reference:B3 Name: Ashwin Kumar Vittal Madival

Company Nectar LifeSciences Ltd.
Name & SCO 38-29, Sector 9D,
Address Chandigarh 160 009, India
The companys existing business operations are concentrated on
Activities, % manufacturing and marketing of cephalosporins, phytochemicals and
profit allied products. It is engaged in contract manufacturing of API's for major
contributed pharmaceutical players besides being into generic formulations.
Bulk Drugs 38% | Phytochemicals 56% | Generic Formulations 6%
Promoters & Associates 44.35% | GDR 20.51% | Foreign Companies
11.59% | Residential Individuals & HUFs 10.75% | Corporates & Trusts
Ownership /
8.75% | Others 4.04%
Group / Key
Chairman & MD Sanjiv Goyal | CEO Dinesh Dua | Director Vijay J.
directors
Shah | Director Basant Kumar Goswami (IAS) | Director (Maj. Gen.)
Dr. S.S. Chauhan
Overall A - (Fitch India)
Fund based CC limits A
External
I-Risk Rating CY: A PY: NA (Fitch India)
Rating
Non Fund based CC limits
A1 (Fitch India)

Proposed Arrangement/share (%) Multiple/ Consortium (share-15% of total

requirement)
Facility Limits Proposed Remarks (pricing, tenure, validity, purpose)
(Rs. in lac)
Term Loan Capex 500 Major Capex expansions in 2011. Requirement
is low. Tenor 3-5 yrs @ base rate+3% for
incremental Fixed Asset expansion
Short term Loan 0

Cash Credit 500 To fund WCap needs @ base rate + 2%

Bill purchase 1000 Ease increasing AR, to fund research & Wcap
@ base rate + 1.5%
Bills discounted 1000 Pay suppliers earlier to reduce pressure on
small partners (Fiduciary responsibility) @ base
rate + 1.5%
Negotiation of bills 1000 As SBI has provided LC, it is risk free. @ base
under LC rate + 1%
Total FB 4000
 File name: B3 AshwinKumar Madival Nectar LifeSciences

Guarantees 500 Tenor of 1 year at commission of 1.5% p.a for

guarantees outstanding on account of
stores/spares and plant and machinery.

Letter of credit 1000 Based on Imports, for tenor of 9 months at

1.75% commission.
Total NFB 2000
Forex Instruments(Collateral as eq. % exports)
Treasury 500
as high exports
CMS Line intraday 0 *Not traded much i.e., trading volumes are low
Total Exposure(TE) 6500 Lakhs TE as % Bank 4.33%
excld CMS Capital Funds
Cross Sell Business Value Likelihood of shifting to our
(Rs in lac) bank
CMS 200 Moderate-High as the firm has
high need of working capital
(CCC=147 days)
Salary Acs 396.46 High as Bank is located near
the headquarters
Dealer/Supplier 200 As company supports many
business related parties through
advances and loans
Account Net Interest Non Int. Income RAROC %
Profitability Income Rs. Rs. Lacs
lacs
Account - expected 327.25 25 17%

Current Borrowing Arrangements (as seen from Balance Sheet)

Working Capital Banks Limit Outstandings

FB NFB Total FB NFB Total
State Bank of India NA NA NA 50911 0 50911
lakhs lakhs
Term Lenders

State Bank of India - Rs 26048.2 lakhs

Security Proposed
(nature, seniority, value, expected time for creation)
Primary Secured by hypothecation of Company's raw materials stock, stock-in-process
and finished goods at margin of 30% all other current assets including goods
in transit governed by documents of title at a margin of 20%.

Collateral First Pari Passu Charge by way of mortgage on all the fixed property and
hypothecation of all fixed assets of the Company at the plants Unit I & Unit II
Village Saidpura Tehsil : Derabassi Distt. S.A.S Nagar, Mohali

Guarantees personal guarantee of directors namely Sh. Sanjiv Goyal

File name: B3 AshwinKumar Madival Nectar LifeSciences

Last
Performance/Financial Indicators LA - 2 LA - 1 Audited Projections
Net Sales 11,086 13,760 17,057 21,141
PBDIT 2,430 2,627 3,043 3,791
PAT 1,064 743 836 786
Tangible Net Worth 7,212 7,845 8,676 9,436
Net Working Capital 1,412 1,453 1,062 1,822
Net Cash From Opns 2,701 2,687 4,587
Capital Expenditure 1,822 1,318 1,505
NCFO/Repayment obligations 0.12 0.20 0.09
Contingent Liability 0 0 0 0
- of which (Disputed) 0 0 0 0
Growth in Net sales (%) 24% 24% 24%
PBDIT as a % of Sales 22% 19% 18% 18%
TOL/TNW 1.51 1.70 1.62 1.67
(TOL + Contingent Liability)/ TNW 1.51 1.70 1.62 1.67
Current Ratio 1.18 1.16 1.10 1.16
Interest Coverage 2.66 1.75 1.98 1.72
Bank Borrowing for WCap 3300 5652 5091 4768
MPBF 5555 5795 4598 4687
Exports
Imports of RM and Spares etc.
Foreign Currency loans (if any)
Space for comments on financial trends seen above
The Company has a low interest coverage ratio and NPM. This is explained by the fact that
the company took a large debt for capex expansion in 2011 and for redeeming all of its
FCCBs.
The Company was able to spring back from negative NCFO in 2011 to positive NCFO from the
very next year, which highlights its capabilities
The company has been striving to reduce its leverage and a sharp decline in TOL/NW is
evident from 2011-2013
Companys AR and AP has been increasing however AP has not increased as much as AP,
thus increasing the cash conversion cycle
Forex Risks have increased as nearly 75% of sales is from exports
 File name: B3 AshwinKumar Madival Nectar LifeSciences

Constituent Analysis

Peer Ratios Company Ind. Average

Comparison NPM 5.14% 6.12%
(Ind. Best and EBITDA 18.82% 17.80%
Ind. Average) Debt to Equity 0.42 0.92
Inventory Turnover 2.9 4.55
ICR 2.65 2.75

Peer The company is better than its peers although it has a slightly lower
Comparison NPM and ICR
Your Comments The Companys recent financials are better than the average industry
data.
The Company has a lower interest coverage ratio than industry
average and a lower NPM. This is explained by the fact that the
company took a large debt for capex expansion in 2011 and for
redeeming all of its FCCBs.
The companys debt to equity is also lower than the industry average
as the company relies on its profits to fund growth.

Capital Market: NSE: Current Market Price INR 27.30 |

Data 52 week H/L 10.10/34.94 |
Market capitalization v/s paid-up 6120(Mn)/224.26(Mn) |
P/E v/s industry P/E 9.86/27.55

Capital Market: Investors are optimistic about the growth in the bulk pharma-sector
Your Comments
 File name: B3 AshwinKumar Madival Nectar LifeSciences

Key Risks & Mitigants

Business & Stringent Regulatory norms- mitigated by approvals of quality by US

Industry FDA, WHO-GMP and EU GMP
Risks Economic and Geopolitical Risks- planning for expansions in Brazil
and Japan, with growing demand for generics
Delay in regulatory approvals- mitigated by applying for approvals well
ahead of expansions
Patent litigations- contingent liabilities maintained
Competitive pressure- mitigated by regular improvements in products
and manufacturing processes
Pricing guidelines in domestic market- focused on international
markets and limited exposure to domestic markets
Thus there is Moderate-High Business Risk
Financial Risks Exchange rate fluctuations- hedged through forex contracts
Funding Risk- low dependence on funding compared to peers
Market risks- 75% of sales are from exports, which can encounter
policy changes esp. US & UK. Domestic prices reductions also affect
the company. Mitigated by focusing on diverse markets
Credit Risk- Low, as companys overall debt is just 30% of assets
Thus there is Low-Moderate Financial Risk
Management The Management is looking out to diversify into related businesses
Risks such as agricultural products, dietic products & preparations in the
near past. Venturing into relatively unrelated business posses a higher
risk. This has been mitigated by the clause in the Companys Act 2013,
requiring the need for a special resolution for change in business
objectives which can be vetoed by the independent directors
The management has also brought in 2 new directors, who
participation in the governance of the company is yet to be seen
Take-Out Improving NCFO with steadily increasing gross margin (high ICR, low
Primary D/E ratio and improving current ratio) is the primary takeout.

Secondary --

Covenants TNW falling below Rs 700 crore

Total debt-equity gearing exceeding 0.60
Profit margin dropping below 4.00%
Negative trend in turnover
Cash loss in a quarter
Net loss in three continuous quarters
External rating of the guarantor slipping below BBB+
Default by the borrower or its promoters or guarantor with the Bank or
other lenders
Withdrawal of any fiscal benefit tagged to the pricing of the credit
Shareholding of key promoter / stronger promoter dropping below 40%
Cost overrun / time overrun in any projects under implementation by
the borrower (even though we may not be term lenders) / non-
disbursement of tied-up loans by term lenders
LC devolvement / discounted bills overdue on more than 4 occasions

Events of Failure to pay interest when due

default Insolvency of borrower
Material adverse change in borrowers business like a founder
 File name: B3 AshwinKumar Madival Nectar LifeSciences

promoter selling out partially/fully

Failure to maintain TOL/TNW at or below 2
Failure to maintain Current Ratio at or above 1 (flexibility provided as
the company is venturing into formulations; 5 formulations have
proved to be successfully out of 7 tested indicating confidence in
research)
Failure to maintain ICR at or above 2.2
Certification I have followed all the policy guidelines given by Reserve bank and
our bank.

Signature of
Student