Names and identifying details in this case study have been changed. The structure, the numbers and the sequence are as they happened.
The requirement
A formulations manufacturer with a turnover a little over ₹60 crore had a ₹4 crore cash-credit limit that was fully utilised every month, usually by the third week. The promoters were funding the gap from personal sources and from stretching supplier payments.
They came to us believing they needed a term loan. They did not. They needed the right limit.
What the numbers actually showed
We reconstructed the cycle from the company's own records rather than from its ratios. Raw material and API procurement was paid for largely in advance. Manufacturing and the QC release cycle took several weeks. Regulated-market documentation added more. Distributors and institutional buyers then paid on their own terms.
Measured end to end, the cash cycle ran to roughly 160 days. The existing limit had been assessed years earlier against a conventional assumption of about 90. Everything else followed from that single mismatch.
What we structured
- A re-appraised working-capital limit, enhanced from ₹4 crore to ₹9.5 crore
- Drawing power computed on the real inventory position, including stock held for QC release, which had previously been excluded
- A letter-of-credit sub-limit for imported API, so the supplier was assured without the company paying up front
- Export receivables presented separately, as they carried a different and stronger risk profile than the domestic book
The outcome
The enhancement was sanctioned by the existing bank rather than by moving the account, which kept the relationship and the pricing intact. Supplier payments returned to terms within two months, and the promoters stopped funding the business from personal sources.
What this case shows
A limit that is always fully used is not evidence of a well-utilised facility. It is usually evidence of a facility that is too small for the cycle it was meant to fund.
Inventory days that look alarming in a ratio can be entirely normal once the reason is documented. In pharma, a large part of what looks like slow stock is a regulated release cycle — and it can be shown, batch by batch, to a lender willing to read it.