Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Wellness Forever Medicare Limited (WFMPL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'CRISIL BBB+’.

 

The revision in the outlook reflects the weakening of the business profile risk of the company marked by stretched working capital cycle and higher than expected net losses. While receivables were stretched to 31 days as on March 31, 2023 as compared to 11 days a year ago due to delayed payments from few customers, inventory levels also piled up with slowdown in movement of non-pharma products. This coupled with its high lease rental expenses further led to increased reliance on external debt for its working capital requirements.

 

Further the company has generated higher than expected net losses in fiscal 2023, sustained improvement in profitability along with improvement in working capital cycle will remain a key monitorable.

 

The ratings continue to reflect WFMPL’s established regional market position and extensive experience of its promoters in the pharmacy segment, wide product range, established supplier relationship and comfortable financial risk profile. These strengths are partially offset by exposure to intense competition and geographical concentration in revenue, large working capital requirement and to risks associated with stabilization of new outlets.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has consolidated the business and financial risk profiles of WFMPL and its two subsidiaries, which are strategically important to, and have a significant degree of operational integration with WFMPL. These subsidiaries are Amore Health Essentials Private Limited (AHEPL) and Wellness Forever Healthtech Private Limited (WFHPL). CRISIL Ratings considers these entities as being strategic to WFML in view of their strong integration with WFMPL’s operations.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position and extensive experience of the promoters: Benefits from the promoters' experience of over three decades and the strong market position for the ‘’Wellness Forever’’ brand in Mumbai and nearby regions should continue to support the business risk profile of the company. The company has expanded its stores to other locations in Maharashtra and states such as Karnataka and Goa and currently have 350+ outlets (as of Aug 2023) across these states. Further the company has recently opened few stores in Madhya Pradesh as well and is planning to increase its reach there as well as in tier II cities of Maharashtra and Karnataka. Revenue has steadily increased to around Rs. 1308 crore in fiscal 2023 from Rs 1202 crores in fiscal 2022 and is further expected to remain healthy over the medium term aided by new store addition and increased geographical reach.

 

• Wide product range and established supplier relationship: The product profile is diversified with more than 20000 stock keeping units (SKUs) for pharma products and 10000 SKUs for non-pharma products such as skin care products, nutritional products and other daily need items. This helps in mitigating intensifying competition in the pharmaceutical retail business. Also, the management has established strong relationship with a large number of suppliers and setup a central distribution centre at Bhiwandi, Maharashtra which enables efficient inventory management.

 

• Comfortable financial risk profile: Networth is comfortable at around Rs 308 crore and total outside liabilities to adjusted networth comfortable at 1.6 times as on March 31, 2023. This is driven by equity infusion of around Rs. 142 crore in fiscal 2023. The capital structure is moderate supported by capital infusion from investors over the past five fiscals ended fiscal 2023. Debt protection measures were also adequate with interest coverage at 2.8 times, respectively, in fiscal 2023. However, sustained improvement in financial risk profile with improved profitability and liquidity would be a key monitorable.

 

Weaknesses:

• Exposure to risks associated with stabilization of new outlets: WFMPL has been increasing its reach aggressively and plans to continue so over the medium term. Its future performance will be dependent on its ability to leverage on its brand image to maintain growth while sustaining margins. Moreover, the company operates most of its outlets on company owned company operated (COCO) model, wherein growth is gradual, and the break-even levels are reached only after the store is able to attract optimal volumes, which will depend on its ability to position itself in the locality and attract loyal clients. Over the medium term, the company is looking to increase its outlets on the franchise-based model.

 

• Stretch in working capital cycle: WFMPL working capital cycle has stretched marked by increase in gross current assets to 125 days as on March 31, 2023 as compared to 94 days a year ago. This is driven by increase in debtors as well as inventory days to 31 and 78 days respectively (as compared to 11 and 67 days a year ago). Debtors have increased due to delay in payments from few customers, while inventory levels have increased due to slowdown in the movement of non-pharmaceutical products. This further led to increased reliance on external debt and creditors to support the working capital requirement. Improvement in working capital cycle and hence reduced reliance on external debt and improved liquidity would be a key monitorable over the medium term.

 

• Industry competition and geographical concentration in revenue: The pharmacy business has low entry barriers, consequently there are a large number of unorganised players and e-commerce portals in the industry. Therefore, players such as WFMPL have to provide periodic discounts and attractive schemes in order to stave-off competition. Aggressive expansion by existing competitors and emergence of new players may impinge upon the profitability and revenue of WFMPL. The company is also exposed to geographical concentration in revenue, since majority of its stores are in Maharashtra which generates 75% of revenues.

Liquidity: Adequate

WFMPL has adequate liquidity driven by expected cash accruals of more than Rs 55 crore and Rs. 80 crore each of fiscal 2024 and fiscal 2025; against annual long term repayment obligations of Rs 17-18 crore. Unencumbered cash and cash equivalents was of Rs 13.5 crore as on March 31, 2023. Fund based limits of Rs 163 crore was utilized to the tune of 78% on an average over the past 12 months ended June 2023. Further the company has capex plans to set-up additional outlets and additional warehouses which is to be partially debt funded and partially through internal accruals. CRISIL Ratings expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Negative

CRISIL Ratings believes the business risk profile and liquidity of WFMPL may remain under pressure over the medium term owing to stretch in working capital cycle

Rating Sensitivity factors

Upward factors:

• Improvement in working capital cycle through reduction in debtor and inventory levels leading to improved liquidity
• Improvement in liquidity leading to overall bank limit utilization below 85% on a sustained basis

 

Downward factors:

• Continued stretch in working capital cycle with GCA of more than 120 days leading to higher reliance on external debt to support incremental working capital requirement
• Decline in revenues or margins impacting the cash accruals

About the Company

WFMPL, incorporated in 2008, is promoted by Mr Ashraf Biran, Mr Gulshan Bakhtiani, and Mr Mohan Chavan. The promoters are the majority stakeholders in the company, while balance stake is owned by individual investors. The company operates more than 350 pharmacies across Mumbai, Pune, Kolhapur, Satara, and Karad (Maharashtra), Goa, and Belgaum and Bengaluru (Karnataka), under the brand Wellness Forever. It also owns a 1 lakh sq ft distribution centre in Bhiwandi, Maharashtra.

 

AHEPL, incorporated in 2017, is engaged in manufacturing of a wide range of organic dietary supplements. The company sells its products under the brand ‘Forest Treasures’.

 

WFHPL, incorporated in 2021, is engaged in online pharmacy business.

Key Financial Indicators

As on / for the period ended March 31		2023*	2022
Operating income	Rs crore	1383	1203
Reported profit after tax	Rs crore	-58	-40
PAT margins	%	-4.23	-3.32
Adjusted Debt/Adjusted Net worth	Times	1.30	1.74
Interest coverage	Times	2.80	2.39

*Provisional

Status of non cooperation with previous CRA:

WFMPL has not cooperated with India Ratings and Research (Ind-Ra) which has classified it as non-cooperative vide release dated 09th July 2019. The reason provided by Ind-Ra is non-furnishing of information for monitoring of ratings.

Any other information: Not applicable