Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL A-/Positive’ rating to the long-term bank facilities of Jubilant Agri and Consumer Products Limited (JACPL).

 

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.

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 46% of revenue in fiscal 2021; 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 44% 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 the second largest 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/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 14% year-on-year to Rs 622 crore in fiscal 2021, led by capacity ramp-up and higher sales volume in SSP, which more than offset subdued sales in performance polymer sub-segments (caused by the Covid-19 pandemic). Driven by higher demand for SSP and gradual ramp up in other products, JACPL is likely to register annual revenue growth of 10-15% over the medium term.

 

• Average, though improving, operating performance: JACPL’s operating profitability has ranged between 8-9% in fiscals 2020 and 2021, up from 6.0-7.5% in the previous 3 fiscals, supported by better sales volumes in the SSP segment with re-commissioning of the Kapasan plant. This partly offset lower sales in other segments due to the impact of the pandemic in the first half of fiscal 2021. Improvement in operating profitability was sustained in fiscal 2021, despite one-off expenses associated with re-commissioning of the Kapasan plant, higher raw material prices in SSP and industrial polymer segments, and continuing losses in the consumer product segment. With ramp-up in production at the Kapasan plant and sales pick-up in industrial polymer segment, JACPL’s operating profitability is expected to improve to 9-10% over the medium term. 

 

• Adequate financial risk profile: The financial risk profile is adequate and supported by improving operating performance and debt reduction initiatives taken by the management, 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 138 crore as on March 31, 2021 from Rs 199 crore as on March 31, 2019. Consequently, debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio improved to 2.6 times in fiscal 2021, 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 0.27 time and interest coverage ratio was 3.4 times in fiscal 2021.

 

JACPL has planned capital expenditure (capex) of Rs 20 crore in fiscal 2022, largely towards capacity expansion in industrial polymer sub-segment. This is largely expected to be funded from accrual, resulting in continued improvement in debt metrics. Debt to EBITDA ratio is expected to be below 1.5 times over the medium term. Any large, debt-funded capex or acquisition could impact the expected improvement in debt metrics and will remain a rating sensitivity factor.

 

• Continued support from JBG: Both JIL and JACPL are part of JBG. JIL was formed by hiving off the agri-related and other businesses from Jubilant Pharmova Ltd (JPL, erstwhile Jubilant Life Sciences Ltd). JACPL was formed after the demerger of the operating business from JIL. Promoter shareholding in JIL, directly or through group companies is substantial at 74.96% as on June 30, 2021. JIL and JACPL benefit from the continued need-based timely financial support of JBG, as demonstrated in the past.

 

The promoters had infused equity of Rs 42 crore in JIL during fiscals 2019 and 2020. Furthermore, JBG companies had provided inter-corporate deposits of Rs 56 crore, which were almost paid up over time, with improving financial performance of JACPL. During fiscal 2021, JIL sold its Indian made foreign liquor (IMFL) bottling plant assets at Nira, Maharashtra, to a JB group company for Rs 13.3 crore, which was subsequently used for debt reduction in JACPL. CRISIL Ratings believes the promoter group will continue to provide timely financial support in the future, in case of exigencies.

 

Weaknesses

• Exposure to intense competition in consumer product segment and regulatory risks in the fertilizer segment: JACPL is exposed to stiff competition from large players mainly in the consumer product sub-segments, thereby limiting its growth. However, increasing focus on advertisement and promotional expenses, strengthening the channel inventory and diversifying its customer base has helped JACPL sustain its market position. The company is fairly placed in other businesses (second largest in SPVA and VP Latex), 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. The phosphatic-fertilizer industry was brought under the nutrient based subsidy (NBS) regime from April 1, 2010. Under this scheme, the Government of India fixes the subsidy payable on nutrients for the entire fiscal (with an option to review this every 6 months), while retail prices are market-driven. Fertilizer companies are also exposed to delays in subsidy payments from the government, leading to high reliance on short-term working capital loans. While the government has largely cleared past dues, which has improved the financial position of most fertilizer players, any deferment in the disbursement of subsidy on account of under-budgeting and any change in the regulatory scenario will remain key monitorables.

 

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 5 fiscals. Receivables and inventory were 60-70 days each. Receivables have not reduced significantly despite fertilizer subsidy dues being cleared to a large extent by the government, as credit period in other businesses have gone up. Also, the company gets a longer credit period from its suppliers, which results in lower working capital debt. Creditors averaged 100 days in the past 5 fiscals. High creditors along with material annual debt repayment (in keeping with the tenure of term loans) resulted in a modest current ratio of just under 1 time. In addition, total outside liabilities to tangible networth ratio was modest at 3.53 times as on March 31, 2021.

 

• Susceptibility to volatility in raw material prices and forex 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 55% 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 40-50% of its raw materials from Singapore and China, which exposes it to fluctuations in forex rates. JACPL does not have any hedging contracts in place and relies on natural hedge.

 

JACPL’s operating profitability has varied between 6.5% and 9% over the past 5 fiscals, largely due to volatility in raw material prices and time lag in passing on price increases to its customers or paid through higher fertilizer subsidy. Any significant increase in raw material prices particularly in consumer products business could adversely impact JACPL’s operating profitability and will remain a key rating sensitivity factor.

Liquidity: Adequate

JACPL’s liquidity is driven by improving cash accrual (estimated at over Rs 60 crore annually, compared to Rs 40 crore in fiscal 2021) and moderate bank limit utilisation of 57% on average over the 12 months through June 2021. Surplus cash, however, was modest at Rs 8-10 crore. The company’s current ratio was below 1 time since fiscal 2017, due to high annual term debt obligation and longer credit period for raw material purchases. With significant portion of long-term debt likely to be retired by fiscal 2023, the current ratio will witness steady improvement.

 

Cash accrual will suffice to meet modest capex and debt repayment of Rs 20 crore and Rs 37 crore, respectively, in fiscal 2022, and Rs 15 crore and Rs 27 crore, respectively, in fiscal 2023. 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 and better operating profitability. Higher cash generation and modest capex 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 the financial risk profile due to better-than-expected cash generation and continued prudent capex, leading to debt to EBITDA ratio below 1.5-1.75 times on a sustained basis

 

Downward Factors

• Sluggish revenue growth and weakening 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	2021	2020
Operating Income	Rs.Crore	622	544
Profit after tax (PAT)	Rs.Crore	(9)	17
PAT margin	%	-1.5	3.15
Adjusted debt/adjusted networth	Times	1.66	1.96
Adjusted interest coverage	Times	3.38	2.34

*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	35.00	NA	CRISIL A-/Positive
NA	Cash credit^	NA	NA	NA	10.00	NA	CRISIL A-/Positive
NA	Cash credit#	NA	NA	NA	20.00	NA	CRISIL A-/Positive
NA	Cash credit^^	NA	NA	NA	10.00	NA	CRISIL A-/Positive
NA	Cash credit$	NA	NA	NA	20.00	NA	CRISIL A-/Positive
NA	Term Loan 1	NA	NA	Mar-23	17.75	NA	CRISIL A-/Positive
NA	Term Loan 2	NA	NA	Oct-23	63.75	NA	CRISIL A-/Positive
NA	Term Loan 3	NA	NA	Apr-26	26.38	NA	CRISIL A-/Positive
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	2.12	NA	CRISIL A-/Positive

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

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

#Including Rs15 cr sublimit for WCDL

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

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