Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities and non-convertible debentures of Jubilant Ingrevia Ltd (JVL) to ‘Positive’ from ‘Stable’, while reaffirming the rating of non-convertible debentures at ‘CRISIL AA’. The rating on the commercial paper programme has been reaffirmed at ‘CRISIL A1+’. Simultaneously, the rating on the bank facilities have also been withdrawn based on request of the company and on receipt of no-dues certificate from bankers. The withdrawal is in line with CRISIL Ratings' policy on withdrawal of its ratings.
The outlook revision reflects CRISIL Ratings expectation of continued strong operating performance by JVL over the medium term, supported by value-added product addition and capacity expansion plans across three business segments. Revenue growth is expected to remain healthy at 15-20% annually and the operating margin will likely sustain above 15% over the medium term. CRISIL Ratings also expects JVL will sustain its healthy financial risk profile, while undertaking material expansion across its businesses over the medium term, which will be prudently funded, ensuring robust debt protection metrics.
In the first nine months of fiscal 2022, the operating performance of JVL improved sharply owing to healthy cash accrual and consequent improvement in the capital structure and debt protection metrics. Revenue grew by 51% year-on-year in the first nine months of fiscal 2022, driven by strong growth in the life science chemical (LSC) segment, backed by favourable market conditions and commercialisation of capital expenditure (capex). The operating margin grew to 18.9% in the first nine months of fiscal 2022 from 17.6% in fiscal 2021 on account of one-off gain in the LSC segment given the favourable pricing environment for key products. The specialty chemicals (SC) and nutrition and health solutions (NHS) segments continued to grow steadily.
With heathy cash accrual in the first nine months of fiscal 2022, JVL prepaid Rs 448 crore of its long-term debt, resulting in outstanding gross debt of Rs 284 crore as on December 31, 2021. Consequently, the debt protection metrics improved, with estimated interest coverage ratio at over 25 times and net debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio at 0.3 times for fiscal 2022. JVL is expected to sustain its healthy financial risk profile over the medium term, even after factoring in sizeable ongoing and planned capex over fiscals 2022-2025, funded mainly from internal accruals.
The ratings continue to reflect the healthy business risk profile of JVL, supported by leading market position across most products, vertically integrated operations, diversified revenue profile across business segments, geographies and end-user industries. The ratings also factor in the healthy financial risk profile of JVL. These strengths are partially offset by moderately large working capital requirement and exposure to fluctuations in input prices as well as government policies. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of JVL and its subsidiaries, collectively referred to as the JVL group, as all the entities are under a common management and have operational linkages and fungible cash flow.
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 business risk profile, driven by leading market position across most products and vertically integrated operations JVL has an established market position across business segments, with portfolio offerings of 165+ products. In the speciality chemicals business, JVL is globally the lowest cost producer of pyridine-based derivative products, among the top two in pyridine and the leader in 14 pyridine derivatives. In the NHS business, JVL ranks among the top two manufacturers of Vitamin B3 globally and among India’s largest in Vitamin B4 (Choline Chloride) manufacturing. The company is among the top two players in the acetic anhydride market globally and the leading producer of ethyl acetate. Furthermore, JVL has a healthy pipeline of 60+ new products, which will help sustain its market position across business segments over the medium term.
JVL benefits from vertically integrated operations across the value chain, leading to cost competitiveness. About 41% of the LSC segment volume is consumed by the SC segment and about 56% of the pyridine and picolines output of the SC segment is used in the NHS segment. Economies of scale derived from global presence of capacities, high level of integration in manufacturing, deep chemistry knowledge and continuous improvement in cost efficiency have historically supported the operating profitability of JVL on account of fluctuations in input prices as well as any shift in demand between different products in the value chain. Operating profitability remained healthy at 18.9% in the first nine months of fiscal 2022 and is expected to sustain at 17-19% over the medium term given the expanding portfolio of value-added products and ongoing capacity expansion for the current products.
Diversified revenue profile Revenue profile is diversified, with 26% derived from the high-margin SC segment in the first nine months of fiscal 2022, 15% from the NHS segment and the remaining 59% from the relatively low-contribution LSC segment. Revenue diversity is further augmented by presence in domestic and international markets, which accounted for 49% and 51% of the revenue, respectively, in the first nine months of fiscal 2022. The company has wide reach in international markets, such as North America and Europe, which account for about 25% of the revenue, while China and the rest of the world account for about 9% of the revenue. The company has 1,400+ clients globally, with the top 10 clients accounting for 20-25% of the overall revenue.
Furthermore, JVL serves diverse end-user industries, such as pharmaceuticals (accounting for 38% of the revenue in the first nine months of fiscal 2022), agrochemicals (20%), nutrition (21%), and industrial segments, such as paints, packaging and solvents (18%). This in turn insulates JVL from downturn in any particular industry. The company’s revenue grew by 51% year-on-year in the first nine months of fiscal 2022, driven by strong growth in the LSC segment, backed by favourable pricing scenario for key products, that is, acetic anhydride and ethyl acetate. The diversified revenue stream and increasing focus on value-added products will support annual revenue growth of 15-20% over the medium term.
Healthy financial risk profile The financial risk profile is supported by healthy capital structure and steady cash accrual. The company has deleveraged in the first nine months of fiscal 2022 owing to healthy cash accrual, as a result of which gross debt declined to Rs 284 crore as on December 31, 2021, from Rs 548 crore as on March 31, 2021. The net debt/EBITDA ratio improved to 0.3 time in the first nine months of fiscal 2022 from about 0.7 time in fiscal 2021 and is estimated to remain at similar level in fiscal 2022. Other debt protection metrics were healthy, indicated by net cash accrual to adjusted debt and adjusted interest coverage ratios of 2.3 times and 28.5 times, respectively, in the first nine months of fiscal 2022 and is estimated at over 1.8 times and 25 times in fiscal 2022.
JVL has planned capex of ~Rs 900 crore over fiscals 2022-2024, largely towards expansion for diketene derivative products, expansion of facilities for crop protection chemicals, Vitamin B3 products and acetic anhydride. The capex is progressing as per schedule and is expected to be largely funded from internal accrual, with minimal reliance on external borrowings, leading to gearing remaining below 0.3 time over the medium term. JVL may undertake similar quantum of additional capex over the next 3-4 years, which is likely to be funded from internal accruals. Hence, debt metrics are expected to remain healthy over medium-term.
Weaknesses Moderate working capital intensive operations Operations are moderately working capital intensive, indicated by gross current assets (GCAs) of about 98 days as on September 30, 2021, driven by high inventory levels, as the company maintains at least two months of raw material and finished goods stock given its wide product portfolio. The company has a prudent cash collection policy, resulting in receivables of about 45 days. JVL benefits from good creditors support, thereby helping in working capital management. JVL’s working capital requirement is expected to increase owing to scale-up in operations over the medium term.
Exposure to fluctuations in input prices and government policies Fluctuations in prices of acetic acid, which is a key raw material for the LSC segment, has resulted in volatility in the operating margin of the company. While the input price is a pass-through, in case of any sharp increase or decrease in price, there could be some impact on the operating margin. The operating profitability of JVL will remain exposed to fluctuations in acetic acid prices, as the LSC segment is expected to account for about half of the overall revenue over the medium term.
Operations are exposed to government policies given the widespread international presence. For instance, JVL faced anti-dumping duty for its pyridine exports to China in 2015. Since then, the company has entered other geographies, thereby de-risking pyridine exposure to China. Furthermore, in November 2019, China terminated the anti-dumping duty. However, any adverse impact of government policies on revenue and profitability will remain key rating sensitivity factors. |
Liquidity: Strong Net cash accrual, expected at over Rs 550 crore per annum, will be adequate to meet the long-term debt obligation over the medium term. Also, the company has adequate cushion in its fund-based working capital limit, which has been utilised at 31% on average over the 12 months through February 2022. Furthermore, cash and bank balance is estimated at Rs 54 crore as on December 31, 2021. Capex is expected to be largely funded from internal accrual, thereby reducing dependence on external debt over the medium term. |
Outlook: Positive The business risk profile of JVL should benefit from its market leadership across business segments and expanding product portfolio of value-added products. Besides, profitability should remain at healthy levels, ensuring steady cash generation. The financial risk profile should also benefit from prudent funding of capex and efficient working capital management. |
Rating Sensitivity Factors Upward Factors
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About the Company JVL is a global integrated life science products and innovative solutions provider serving pharmaceutical, nutrition, agrochemical and industrial customers with customised products and solutions that are innovative and cost effective and conform to premium quality standards.
With more than four decades of presence in the chemical industry and integrated operations, JVL offers over 165+ products, ranging from speciality chemicals, advanced stage complex chemistry solutions, nutraceuticals, straight nutritional ingredients such as Vitamin B3, premix solutions for animal and human nutrition, pyridine and picolines and acetyl range of products to more than 1,400 customers globally. Company has five manufacturing facilities located across Maharashtra, Gujarat and Uttar Pradesh in India.
In addition to own proprietary products, the company is also engaged in offering contract development and manufacturing solutions ranging from route design to process development, process optimisation, scale-up and commercial manufacturing of intermediates for global customers across the pharmaceuticals, agrochemicals and other life science chemical industries.
As on March 31, 2022, the promoters held 51.10% stake in JVL, foreign portfolio investors held 11.21%, individuals held 27.32% and the balance was held by others.
On a consolidated basis, JVL’s net profit was Rs 408 crore in the nine months ended December 31, 2021 (Rs 221 crore in the corresponding period of the previous fiscal for the life science division of Jubilant Pharmova Ltd (erstwhile Jubilant Life Sciences Ltd)), on revenue of Rs 3,654 crore (Rs 2,413 crore). |
Key Financial Indicators
*Not applicable, as the company has been incorporated on February 1, 2021 **Includes 10 months financials of the life science division of Jubilant Pharmova Ltd (erstwhile Jubilant Life Sciences Ltd) and two months financials of Jubilant Ingrevia Ltd |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*Originally issued by Jubilant Pharmova Ltd (erstwhile Jubilant Life Sciences Ltd) |
Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | |||||||||
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Criteria Details
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