Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of Jubilant Agri and Consumer Products Limited (JACPL) and subsequently withdrawn the rating at the company’s request and on receipt of no-objection certificate/no dues certificate from company’s bankers. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.

 

The ratings reflect JACPL’s diversified revenue profile across single superphosphate (SSP) fertilizer, industrial polymer and consumer product segments; average but improving, operating performance supported by healthy demand prospects; and adequate financial risk profile. The ratings also factor in financial flexibility available to JACPL, as part of the Jubilant Bhartia Group (JBG). These strengths are partly offset by exposure to intense competition in the industrial polymer and consumer product segments, moderate working capital intensity, susceptibility to volatility in raw material prices and foreign exchange (forex) fluctuations.

Analytical Approach

• For arriving at the ratings, CRISIL Ratings has taken a consolidated view of JACPL and its parent, Jubilant Industries Ltd (JIL), as JIL has given corporate guarantee for JACPL’s bank facilities
• CRISIL Ratings has factored in support the company may receive, if required, and financial flexibility available from being part of the JBG
• CRISIL Ratings has treated unsecured intercorporate loans from JBG companies as debt as these loans are interest bearing at market rates, non-deferrable, non-cumulative and have fixed maturities.

Key Rating Drivers & Detailed Description

Strengths:

• Diversified revenue profile: JACPL benefits from its presence in multiple unrelated business segments, and diversified customer profiles. The moderate-margin agriculture business (SSP fertilizer/Agri Nutrients) accounted for 42% of revenue in fiscal 2022; while the rest came from performance polymer (solid poly vinyl acetate (SPVA), latex and wood working adhesives/wood finish products.

 

JACPL’s fertilizer products brand, Ramban, is well established with healthy market share in the Uttar Pradesh and Uttarakhand markets. The company has sizeable capacity of 4.44 lakh tonne per annum (TPA) in SSP, spread across two plants, thereby providing economies of scale. JACPL is among the leading global supplier of SPVA, the major raw material for making gum base for chewing gum, and has an established tyre manufacturing clientele for VP Latex. The company has a modest presence in the consumer products business, where its products are sold under the Jivanjor, Charmwood and Ultra Italia brands. This segment is intensely competitive and dominated by the market leader, Pidilite Industries Ltd (‘CRISIL AAA/Stable/CRISIL A1+’).

 

JACPL serves diverse end-user industries such as agriculture, chewing gum, resin, automobile tyres, conveyor belts, and wood working adhesives. Furthermore, JACPL has diverse customer base across these industries, thereby limiting significant volatility in revenue, due to downturn in any particular industry.

 

JACPL’s revenue grew by 87% in fiscal 2022 to Rs 1,166 core supported by increase in sales volume and realisations across most of its product categories as well as higher subsidy received from the government for its fertiliser sales.

 

• Average, though improving, operating performance: JACPL’s operating profitability has ranged between 8-9% over fiscals 2020-2022, up from 6.0-7.5% earlier. The operating margin stood at 8.6% in fiscal 2022 in line with previous fiscal. 

 

• Adequate financial risk profile: The financial risk profile is adequate and supported by improving operating performance, which has translated into better debt metrics. The company has deleveraged in the past few fiscals, supported by improved cash accrual, proceeds from divestment of non-core assets, and equity infusion of Rs 42 crore during fiscals 2019 and 2020 from JBG. Gross debt declined to Rs 146 crore as on March 31, 2022 from Rs 199 crore as on March 31, 2019. Consequently, debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio improved to 1.5 times in fiscal 2022, from 5.5 times in fiscal 2019. Other debt protection metrics also improved to above-average levels. Net cash accrual to adjusted debt ratio is estimated to be 0.45 time and interest coverage ratio was 6.7 times in fiscal 2022. Any large, debt-funded capex or acquisition could impact further improvement in debt metrics and will remain a rating sensitivity factor.

 

• Continued support from JBG: Both JIL and JACPL are part of the JBG. JIL was formed by hiving off the agri-related and other businesses from Jubilant Pharmova Limited (JPL, erstwhile Jubilant Life Sciences Limited). JACPL was formed after the demerger of the operating business from JIL. Promoter shareholding in JIL, directly or through group companies is substantial at 74.78% as on September 30, 2022. JIL and JACPL benefit from the continued need-based timely financial support of the JBG, as demonstrated in the past. The promoters had infused equity of Rs. 42 crores in JIL during fiscals 2019 and 2020. Furthermore, JBG companies had provided inter-corporate deposits of Rs. 56 crores, which were paid up over time, with improving financial performance of JACPL.

 

Weakness:

• Exposure to intense competition in consumer product segment and regulatory risks in fertilizer segment: JACPL is exposed to stiff competition from large players mainly in the consumer product sub-segments, thereby limiting its growth. The company is fairly placed in other businesses, where the market leader holds sizable market share. While JACPL has an established market position in the fertilizer segment in North India, it remains exposed to changes in government policies specifically related to subsidy. The fertilizer industry is strategic, but highly controlled, with fertilizer subsidy being an important component of profitability. Fertilizer companies are exposed to delays in subsidy payments from the government, leading to high reliance on short-term working capital loans.

 

• Moderate working capital intensity: The company’s operations are moderately working capital intensive, as reflected in gross current assets (GCAs) of 120-140 days over the past few fiscals. Receivables and inventory averaged 60-70 days each. Also, the company gets a longer credit period from its suppliers. High creditors along with moderate debt resulted in total outside liabilities to tangible networth ratio being modest at 3.7 times as on March 31, 2022.

 

• Susceptibility to volatility in raw material prices and foreign exchange fluctuations: JACPL’s operating profitability remained exposed to volatility in raw material prices, particularly vinyl acetate monomer and rock phosphate. Raw material cost accounts for about 60% of JACPL’s revenue and the company has limited ability to pass on the increase in raw material prices to its customers particularly in consumer product business. The company also imports about sizeable portion of its raw materials, which exposes it to fluctuations in forex rates. Any significant increase in raw material prices particularly in consumer products business could adversely impact JACPL’s operating profitability.

Liquidity: Adequate

JACPL’s liquidity is driven by improving cash accrual (estimated at over Rs 60 crore annually) which should be sufficient to meet the annual debt obligations of ~Rs 42.47 crore in fiscal 2023. Fund-based limit utilisation remains moderate at 47% on average over the 12 months through June 2022. Surplus cash, however, was modest at Rs 6 crore as on Mar’22. Timely financial support from JBG is expected to continue, in case of any exigencies.

Outlook: Positive

CRISIL Ratings believes JACPL’s business risk profile will continue to improve, backed by good demand for its products. Higher cash generation will limit material debt requirement, enabling continued improvement in the company’s financial risk profile. Timely support from JBG is expected in the event of financial exigencies.

Rating Sensitivity Factors

Upward Factors

• Sustained double-digit revenue growth, coupled with healthy operating profitability, leading to net cash accruals of above Rs. 70-80 crore
• Strengthening of financial risk profile with better-than-expected cash generation and prudent capex, leading to debt to EBITDA ratio below 1.50-1.75 times on a sustained basis

 

Downward Factors

• Sluggish revenue growth and weakening of operating profitability, impacting cash generation
• Material increase in debt levels, due to capex, acquisitions or stretched working capital cycle, leading to deterioration in debt metrics; debt to EBITDA ratio above 2.75-3.00 times
• Change in stance of support from JBG or material weakening of the credit profile of JBG

About the Company

JACPL is a wholly owned subsidiary of JIL, a JBG company. It primarily operates in two divisions: agricultural business (manufacturing and supplying SSP and sulphuric acid) and performance polymers (presence in SPVA, latex and consumer products such as adhesives and wood finishes business).

Key Financial Indicators*

Particulars	Unit	2022	2021
Operating Income	Rs crore	1,166	622
Profit After Tax (PAT)	Rs crore	54	(9)
PAT Margin	%	4.6	-1.5
Adjusted debt/adjusted networth	Times	1.05	1.66
Adjusted interest coverage	Times	6.67	3.25

*CRISIL Ratings -adjusted numbers

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
NA	Cash credit*	NA	NA	NA	20.00	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Cash credit^	NA	NA	NA	10.00	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Cash credit#	NA	NA	NA	20.00	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Cash credit**	NA	NA	NA	15.00	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Cash credit^^	NA	NA	NA	10.00	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Cash credit$	NA	NA	NA	20.00	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Term loan 1	NA	NA	Mar-23	17.75	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Term loan 2	NA	NA	Oct-23	63.75	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Term loan 3	NA	NA	Apr-26	26.38	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)
NA	Proposed long-term bank loan facility	NA	NA	NA	2.12	NA	CRISIL A-/Positive (Rating Reaffirmed and Withdrawn)

*Including CC/WCDL/FCDL/EPC/PCFC/Bill discounting etc.

^Including WCDL/EPC/PCFC/bill discounting/sales invoice financing

#Including Rs 15 crore sublimit for WCDL

**Including CC/WCDL/FCDL/EPC/PCFC/Bill discounting etc.

^^Including CC/WCDL/sales bill discounting, and Rs 10 crore sublimit for EPC/PCFC and Rs 5 crore sublimit for FBP/PSCFC

$Including WCDL/PC/PCFC/FBP/FBD/RPC