Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the bank loan facilities of J B Chemicals and Pharmaceuticals Limited (JBCPL; part of the JBCPL group). The rating on the bank facilities of Rs 571 crore has been withdrawn basis a request from the company and on receipt of required documents. This is in line with the Crisil Ratings policy on withdrawal of ratings.

 

The ratings continue to reflect the established position of the group in the pharmaceutical sector and its healthy financial risk profile. These strengths are partially offset by susceptibility to intense competition, fluctuations in foreign exchange (forex) rates and regulatory changes in the domestic and international markets. 

 

Revenue grew 13% on-year in the first nine months of fiscal 2025 to Rs 2,969 crore, aided by healthy growth in base domestic business and high contribution from recent brands acquisitions.  Domestic formulation sales (including the acquired ophthalmology portfolio) grew 22% on-year in the first nine months of fiscal 2025 to Rs 1,749 crore. The base domestic growth (excluding ophthalmology) was 12-13%, driven equally by volumes and prices. The company registered volume-driven growth in key chronic and progressive portfolios. Furthermore, strategic acquisitions in the past scaled up and aided growth. JBCPL’s ranking in chronic therapies (48% share in revenue as of fiscal 2024) has improved to 20th as per MAT-Dec-24 from 25th four years ago, with a better than industry compounded annual growth rate (CAGR) of 24% during the same period. Also, the company’s presence in the high growth ‘progressive portfolio’ is 65-70%, which aids growth. In addition, its acquisition of brands from Sanzyme Pvt Ltd (February 2022), Azmarda brand from Novartis AG (April 2022), Dr Reddy’s Laboratories (June 2022), Razel brand from Glenmark Pharmaceuticals (December 2022) and Opthalmology from Novartis (December, 2023) has supported revenue growth.

 

In contrast, the international business reported a weaker 2% growth in the first nine months of fiscal 2025, with subdued performance in key markets for its generics sales (5% growth on-year; catering to the US, Russia and South Africa markets). In South Africa generics market, the group has recently refocused its reliance on tender businesses, and has now shifted focus to private markets for better margins. Furthermore, the contract development and manufacturing segment (2% de-growth on-year) faced muted demand and slow season pickup. Revenue was impacted by subdued demand in cough and cold lozenges due to extreme heat conditions globally. However, management is expecting strong recovery in the second half, with the third quarter already seeing more than 30% growth. The active pharmaceutical ingredient (API) segment within the international business remains small in scale.

 

Revenue growth is estimated to remain healthy at 11-13% in fiscal 2025 as well as over the medium term, supported by ramp-up in sales of existing products, new product launches and ramp up in the CDMO business. Operating margin was healthy at 27.1% in the nine months of fiscal 2025 against 26.7% in the first nine months of fiscal 2024, supported by healthy product mix with increasing share of focused products and cost-optimisation measures. The operating margin is expected to remain healthy at 26-28% over the medium term with better product mix and healthy revenue growth through margin-accretive acquisitions.

 

The financial risk profile was healthy, as reflected in adjusted gearing of 0.02 time as on December 31, 2024, with debt-free status expected to be achieved by March 2025. While the company will continue to invest in organic annual capital expenditure (capex) of ~Rs 100 crore, this is likely to be prudently funded through internal accrual over the medium term. The JBCPL group concluded a series of acquisitions over fiscals 2022-2024 and may grow through further acquisitions over the medium term. Also, cash consideration of $116 million will be paid to Novartis Switzerland for the Trademark License Agreement (TLA) on or before December 31, 2026. The payouts are expected to be funded through available cash surplus and internal accruals. It will prudently fund its expansion plans through internal accrual, maintaining a healthy capital structure and financial risk profile. Any large debt-funded capex or acquisition could impact the capital structure and debt protection metrics and hence, will remain monitorable. Crisil Ratings also takes comfort from the healthy track record of the company in prudently managing its capital structure and successfully leveraging its past acquisitions.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of JBCPL and its subsidiaries because these entities, collectively referred to as the JBCPL group, have common management and business interests. Crisil Ratings has amortised goodwill on consolidation/acquisitions and intangibles over five years and on acquisition of significant intangibles over 10 years, respectively; profit after tax (PAT) and networth are adjusted to that extent.

 

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:

• Established position in the pharmaceuticals industry: The business risk profile is supported by the group’s established market position in the pharmaceutical industry. The brands - Rantac, Cilacar, Metrogyl, Cilacar-T, and Nicardia - featured among the top 150 brands in India, as per IQVIA MAT December 2024 data; and accounted for 60-70% of the group’s domestic formulations revenue. Furthermore, the group has a well-balanced portfolio, with the acute and chronic segments each accounting for ~50% of the domestic formulations revenue in fiscal 2024. To increase the contribution of the chronic segment, the group undertook a few acquisitions since fiscal 2022 and now has an established presence in major sub-segments. In the international segment, the group operates in the regulated and semi-regulated markets with presence in the US, South Africa, Russia, among others.

 

• Diversified revenue profile: The business risk profile is marked by diversified presence in both domestic and international markets. The domestic market contributed 54% to the revenue in fiscal 2024, with the balance coming from international markets (46%). The international market includes export of formulations (67%) and API (6%) as well as contract manufacturing (27%). This includes generic products for regulated markets and branded formulations for emerging markets. Generics are exported to USA, UK, South Africa, Australia and Canada and branded generics are exported to parts of Africa, South-east Asia, Gulf, Middle East and Central & South America. JBCPL is among the top 5 CDMOs globally for lozenges, and benefits from approvals from all global markets including US, Europe and other regulated markets.

 

• Healthy financial risk profile: Adjusted gearing is expected at 0.02 time as on December 31, 2024, and will remain healthy over the medium term. Outstanding debt reduced to Rs 54 crore as on December 31, 2024, from Rs 357 crore as on March 31, 2024. Planned organic capex of ~Rs 100 crore towards annual maintenance will be funded internally. In addition, the near-term inorganic capex plans will be funded through internal accrual. Healthy profitability and low reliance on debt have kept the debt protection metrics healthy, as reflected in total debt to operating profit before interest, tax, depreciation and amortisation and interest coverage ratios of under 0.1 time and over 80 times, respectively, in the first nine months of fiscal 2025. Any large debt-funded capex or acquisition could impact the capital structure and debt protection metrics and hence, will be monitorable.

 

Weaknesses:

• Susceptibility to intense competition and fluctuations in forex rates: The group mainly caters to therapeutic segments such as gastro, cardiovascular, antibiotic and pain management. High revenue concentration in the relatively slow-growing acute therapeutic segments exposes the group to pricing and competitive pressures in a mature market, especially since products under price control account for 15% of domestic sales. The group is also susceptible to fluctuations in forex rates in semi-regulated markets.

 

• Exposure to regulatory risks: The group remains vulnerable to regulatory changes in the domestic and international markets. Addition to lists under the Drug Price Control Order impacts product pricing and thereby, profitability of players; though the extent of impact may vary. Increasing scrutiny and inspections by authorities such as the US Food and Drugs Administration (US FDA) and Therapeutic Goods Administration, Australia, further intensifies the regulatory risk. For instance, in January 2016, JBCPL received a notification, along with several other companies, from the National Green Tribunal to shut down its API plant in Panoli, Gujarat. Thereafter, the Supreme Court, through its judgement of April 2020, set aside the order of closure of the API unit on the basis of precautionary principle and the company was directed to pay one-time compensation of Rs 10 crore, which was done.

 

Sales of Rantac (largest brand of the group) were affected in India during September-October 2019 after the US FDA raised concerns over the cancer-causing properties in ranitidine. Post-clarification issued by the US FDA in November 2019, that ranitidine contains normal levels of n-niteosodimethylamine (NDMA), sales of Rantac resumed. While JBCPL does not sell Rantac in the US, any escalation of this issue or regulatory action by the US FDA remains monitorable.

Liquidity: Strong

Expected cash accrual over Rs 550 crore in fiscal 2025 and Rs 650-800 crore annually over the next two fiscals will sufficiently cover debt obligation of ~Rs 54 crore and capex of ~Rs 100 crore in the near term. Inorganic growth plans are likely to be funded prudently through a mix of debt and internal accrual. Cash and equivalent was moderate at Rs 550 crore as on December 31, 2024, and is expected to remain healthy over the medium term. 

Outlook: Stable

Crisil Ratings believes the JBCPL group will continue to benefit from its established market position in India, improving revenue from regulated markets and healthy operating efficiency. Also, the group is expected to sustain its healthy financial risk profile over the medium term, supported by steady cash generation.

Rating sensitivity factors

Upward factors:

• Considerable ramp-up in revenues with compounded annual growth rate of over 15% over the medium term, along with diversification of the revenue profile, while maintaining stable operating margins
• Sustenance of healthy financial risk profile and debt protection metrics while pursuing inorganic growth.
   

 Downward factors:

• Sluggish revenue growth and decline in operating margin below 15% leading to lower cash accrual
• Large, debt-funded capex or acquisitions weakening the debt protection metrics

About the Company

JBCPL was set up in 1976 as JB Mody Chemicals and Pharmaceuticals Ltd by Mr JB Mody and his family members to manufacture APIs and formulations. The company was renamed in 1985. Its manufacturing units are in Ankleshwar and Panoli in Gujarat, and in Daman. The company manufactures a wide range of pharmaceutical formulation specialties, radio-diagnostics, APIs, and intermediates. It is listed on the Bombay Stock Exchange and the National Stock Exchange.

Key Financial Indicators

Particulars	Unit	2024	2023
Revenue	Rs crore	3,484	3,149
Adjusted PAT	Rs crore	476	345
APAT margin	%	13.7	10.9
Adjusted debt / adjusted networth*	Times	0.13	0.24
Adjusted interest coverage	Times	20.70	19.49

*Adjusted for goodwill and intangibles amortisation, in line with the Crisil Ratings analytical approach

Any other information: Not Applicable