Rating Rationale
March 30, 2019 | Mumbai
J B Chemicals and Pharmaceuticals Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.140 Crore (Reduced from Rs.225 Crore)
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of J B Chemicals and Pharmaceuticals Limited (JB Chemicals; a part of the JB Chemicals group). CRISIL has also withdrawn its rating on the proposed fund-based and non-fund-based bank facility of Rs 55 crore and Rs 30 crore, respectively, based on client request. The withdrawal is in line with CRISIL's policy on withdrawal of bank loan ratings.
 
The ratings continue to reflect the group's healthy financial risk profile and established position in the pharmaceutical industry. These strengths are partially offset by susceptibility to intense competition and fluctuations in foreign exchange (forex) rates. The business risk profile is also susceptible to regulatory changes in domestic and international markets.
 
For the nine months through December 2018, JB Chemicals' standalone revenue grew by 20% compared to the previous year, led by growth in both domestic and export formulations. Expanded field force and enhanced product focus through therapy-wise separate divisions resulted in 15% sales growth for domestic formulations. Export formulations grew 32% compared to the previous year period, driven by product approvals and launches in the US and other markets. Revenue growth over the medium term should remain steady, supported by the group's diversified portfolio and established position in domestic and export markets.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of JB Chemicals and all its wholly owned subsidiaries: Unique Pharmaceuticals Laboratories FZE (Dubai), OOO Unique Pharmaceutical Laboratories (Russia), and its 95.24% subsidiary, Biotech Laboratories (Pty) Ltd (South Africa). This is because these entities, collectively referred to herein as the JB Chemicals group, have common management and business interests.

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:
* Healthy financial risk profile
Financial risk profile is healthy, driven by robust capital structure and debt protection metrics. Gearing is estimated to remain negligible for fiscal 2019 and over the medium term. Working capital borrowing and healthy profitability should keep debt-protection metrics robust, with net cash accrual to total debt and interest coverage ratios estimated at more than 5 times and 75 times, respectively, in fiscal 2019. The group has capital expenditure (capex) plans of Rs 30-40 crore annually, to be funded through internal accrual. Liquidity is healthy because of surplus liquid funds of about Rs 422 crore as on December 31, 2018, and is expected to remain stable over the medium term.
 
* Established position in the pharmaceuticals industry
The group has an established market position in the pharmaceutical industry, with a diversified revenue profile. In fiscal 2018, about 42% of the consolidated revenue was derived from India and the rest from the international market. Its three brands'Rantac (anti-peptic ulcerant), Cilacar (calcium channel blocker), and Metrogyl (amoebicides)'feature among the top 200 brands and account for over 75% of domestic revenue. In the international segment, the group has presence in regulated and semi-regulated markets, including Russia and countries of the Commonwealth of Independent States.
 
Weaknesses:
* Susceptible to intense competition and fluctuations in forex rates
The group mainly caters to therapeutic segments, including gastro, cardiovascular, antibiotic, and pain management. Furthermore, high concentration in the relatively slow-growing acute therapeutic segments (60% of domestic sales) exposes the group to pricing and competitive pressure in this mature market segment, coupled with 35% sale of from products under price control. Also, in semi-regulated markets, the group remains susceptible to risks related to fluctuations in forex rates.
 
* Susceptibility to regulatory changes
The group will remain vulnerable to regulatory changes in domestic and international markets. Addition to lists under Drug Price Control Order impacts product pricing and, thereby, profitability of players, though the extent of the impact may differ. Furthermore, regulatory risks faced by the group are manifested by increasing scrutiny and inspections by authorities such as the US Food and Drugs Administration and Therapeutic Goods Administration, Australia. For instance, in January 2016, JB Chemicals received a notification, along with several other companies, from National Green Tribunal to shut down its active pharmaceutical ingredients (APIs) plant in Panoli (Gujarat). Presently, there is a stay order by the Supreme Court and the matter is sub judice.
Liquidity

Liquidity is healthy, driven by cash and cash equivalents of Rs 422 crore as on December 31, 2018. Fund-based limit of Rs 120 crore was utilised at 19% on average over the 12 months through February 2019. The company does not have long-term repayment obligations, and cash accruals are largely paid out in the form of dividends. CRISIL believes the company has sufficient accrual and cash and cash equivalents to finance its capex requirements. Its unutilised bank lines are more than adequate to meet its incremental working capital requirement over the next one year.

Outlook: Stable

CRISIL believes the group's growth over the medium term will be supported by its established market position in India. The group is expected to gradually increase its share in regulated markets, thereby diversifying the revenue profile. The outlook may be revised to 'Positive' if there is considerable diversification of the revenue profile and significant improvement in operating performance, with healthy capital structure. The outlook may be revised to 'Negative' if there is significant decline in revenue or operating profitability, or if financial risk profile weakens due to large debt funded capex or stretch in working capital cycle. Weakening of liquidity or change in investment policy leading to increase in exposure to high-risk investments will also be a rating sensitivity factor.

About the Company

JB Chemicals was originally established as JB Mody Chemicals and Pharmaceuticals Ltd in 1976 by Mr J B Mody and his family for manufacturing APIs and formulations; the name of the company was changed in 1985. The promoters own 56.06% of the company as on December 30, 2018. The manufacturing units are in Ankleshwar, Panoli (both in Gujarat), and Daman (Union Territory of Daman and Diu). The company manufactures a wide range of pharmaceutical formulation specialties, radio-diagnostics, APIs, and intermediates.

For the first nine months of fiscal 2019, reported standalone PAT was Rs 139.9 crore on operating revenue of Rs 1122.3 crore against PAT of Rs 105.9 crore on operating revenue of Rs 935.9 crore for the corresponding period of the previous fiscal.

Key Financial Indicators
As on/for the period ended March 31 2018 2017
Revenue Rs crore 1410 1344
Adjusted PAT* Rs crore 128 173
Adjusted PAT margin* % 9.1 12.9
Adjusted debt/adjusted networth Times 0.02 0.03
Interest coverage Times 75.87 52.8
*Adjusted for goodwill and intangibles amortisation, in-line with CRISIL's analytical approach 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs. Cr)		 Rating Assigned
with Outlook
NA Cash Credit* NA NA NA 120 CRISIL AA/Stable
NA Letter of Credit# NA NA NA 11 CRISIL A1+
NA Letter of Credit@ NA NA NA 9 CRISIL AA/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 55 Withdrawn
NA Proposed Non Fund based limits NA NA NA 30 Withdrawn
*Cash credit is interchangeable with export packing credit, foreign bills purchase, and working capital demand loan facilities
@Letter of credit is interchangeable with bank guarantee, cash credit, export packing credit, foreign bill purchase and working capital demand loan facilities
# Letter of credit is interchangeable with bank guarantee
 
Annexure - List of entities consolidated
  Company Name
1 Unique Pharmaceuticals Laboratories FZE
2 OOO Unique Pharmaceutical Laboratories
3 Biotech Laboratories (Pty) Ltd
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  120.00  CRISIL AA/Stable          29-12-17  CRISIL AA/Stable  15-09-16  CRISIL AA/Stable  CRISIL AA/Stable 
Non Fund-based Bank Facilities  LT/ST  20.00  CRISIL AA/Stable/ CRISIL A1+          29-12-17  CRISIL A1+  15-09-16  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 120 CRISIL AA/Stable Cash Credit* 120 CRISIL AA/Stable
Letter of Credit# 11 CRISIL A1+ Letter of Credit# 11 CRISIL A1+
Letter of Credit@ 9 CRISIL AA/Stable Proposed Fund-Based Bank Limits 55 CRISIL AA/Stable
Proposed Fund-Based Bank Limits 55 Withdrawn Proposed Non Fund based limits 30 CRISIL A1+
Proposed Non Fund based limits 30 Withdrawn Letter of Credit@ 9 CRISIL A1+
Total 225 -- Total 225 --
*Cash credit is interchangeable with export packing credit, foreign bills purchase, and working capital demand loan facilities
@Letter of credit is interchangeable with bank guarantee, cash credit, export packing credit, foreign bill purchase and working capital demand loan facilities
# Letter of credit is interchangeable with bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for the Pharmaceutical Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation

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