Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Jubilant Ingrevia Ltd (JVL).

 

The rating continues to reflect the healthy business risk profile of JVL, supported by its leading market position across most products, vertically integrated operations, and diversified revenue profile across business segments, geographies and end-user industries; the rating also factors in the company’s healthy financial risk profile. These strengths are partially offset by moderately large working capital requirement and exposure to fluctuations in input prices as well as government policies.

 

The operating performance of JVL moderated in fiscal 2024 with revenue degrowth of 13% on-year mainly due to weak performance in the Specialty Chemicals (SC) and chemical intermediates (CI) segments led by lower volumes in agro-chemical and pharma products even though nutrition and health (NHS) segment grew at a healthy rate of 23%. CI segments revenues were mainly impacted by pass-through of lower prices of Acetic Anhydride, which were primarily driven by lower pricing of underlying key raw material, i.e. Acetic Acid. The moderation was also on the back of industry-wide factors including Chinese oversupply and channel inventory overstocking.

 

For the first quarter of fiscal 2025, while sales in SC segment improved on account of higher volumes coming from Pyrdine building blocks, Diketene and Fine Chemicals, revenue de-grew by 5% year-on-year due to moderate performance in the NHS and CI segments. This also led to growth in revenue share of SC and NHS growing to 60% in the first quarter this fiscal from 53% during the same period last year. Revenue is expected to recover during second half of the year and is expected to grow at 6-8% in fiscal 2025 which is expected to fasten over the medium-term supported by improvement in demand scenario in the specialty chemicals industry, addition of new value-added products and capacity expansion plans across the three business segments.

 

Operating margin moderated to 10.2% in fiscal 2024 from 11.5% in fiscal 2023 due to reduced operating leverage and impact of red sea crisis on freight costs beginning December-2023. Margin has improved moderately to 10.7% in the first quarter of fiscal 2025 and is expected to improve further to 13-15% going forward driven by improved operating leverage, better pricing, and increasing share of higher-margin SC and NHS segments. Share of EBITDA from SC and NHS has improved to 75% during the first quarter of fiscal 2025 to 55% during the same period last year.

 

JVL has also launched its ambitious ‘Pinnacle 345’ plan with a target to triple revenue and grow EBITDA by 4 times in next 5 years from fiscal 2024 base year with increased focus on specialty and nutrition products in Pharma/Cosmetics/Nutrition sectors and higher-focus on the US/Japan markets to be achieved through targeted capex, low cost and efficient manufacturing.

 

The financial risk profile remains healthy with robust capital structure, sizeable networth of Rs 2,717 crore as of March 31, 2024, despite increase in net debt to Rs 653 crore as of March 31, 2024 from Rs 324 crore last year owing to part funding of capex, part of which has become operational from fourth quarter of fiscal 2024. Resultantly, net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio increased to 1.55 times in fiscal 2024 from 0.59 times last year. Debt protection metrics too has moderated but remained healthy with interest coverage of 8.7 times in fiscal 2024 from 26.9 times last year. Financial profile is expected to remain stable over the medium term even after factoring in sizeable ongoing and planned capex over fiscals 2025 and 2026, which is to be funded prudently through mix of debt and internal accruals. 

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JVL and its subsidiaries, collectively referred to as JVL, 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 more than 134 products. In the SC business, JVL is globally the lowest cost producer of pyridine-based derivative products, amongst the top two in pyridine and the leader in 18 pyridine + picoline derivatives. In the NHS business, it ranks amongst the top two manufacturers of vitamin B3 globally and amongst India’s largest in vitamin B4 (choline chloride) manufacturing. The company is one amongst the top two players in the acetic anhydride merchant market globally. Furthermore, a healthy pipeline of 40 new products 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 40% of the CI segment volume is consumed by the SC segment and about 40-45% 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 operating profitability of JVL.

 

• Diversified revenue profile: Revenue profile is diversified, with 38% derived from the high-margin SC segment in fiscal 2024, 16% from the NHS segment and the balance 46% from the relatively low-contribution CI segment. JVL is targeting to increase the share of revenue from higher-margin SC and NHS segments over the medium term as the share from SC and NHS improved to 60% during the first quarter of fiscal 2025. Revenue diversity is further augmented by presence in the international markets, which accounted for 41% share of the total revenue in fiscal 2024. The company has a wide reach in the markets of North America and Europe, which accounted for about 32% of the total revenue in fiscal 2024, while China and Rest of World accounted for about 9%. JVL has 1,500+ clients globally with top-10 customers forming 23% of the total revenue in fiscal 2024. Furthermore, JVL serves diverse end-user industries, such as pharmaceuticals, agrochemicals, nutrition, cosmetics and industrial segments such as paints, packaging, solvents, etc. This aids in lowering the impact on JVL from downturn in any particular industry.

 

• Healthy financial risk profile: The financial risk profile remains healthy with robust capital structure, sizeable networth of Rs 2,717 crore as of March 31, 2024, despite increase in net debt to Rs 653 crore as of March 31, 2024 from Rs 324 crore last year  due to part funding of, part of which has become operational from fourth quarter of fiscal 2024. Commissioning of new plants is in line with company’s strategy of strengthening its SC and NHS product portfolio. Resultantly, net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio increased to 1.55 times in fiscal 2024 from 0.59 times last year. Debt protection metrics too has moderated but remained healthy with interest coverage of 8.7 times in fiscal 2024 from 26.9 times last year.

 

JVL is on the last leg of planned capex of ~Rs 2,000 crore over fiscals 2022 and 2025 towards expansion for diketene derivative products, expansion of facilities for crop protection chemicals, vitamin B3 products and CDMO GMP Products. As part of this plan, capex outflow in fiscal 2025 is expected to be sizeable at Rs 550-650 crore. However, this shall moderate thereafter but remain at Rs 400-500 crore annually given growth plans under ‘Pinnacle 345’. Funding is expected to be prudent through a mix of debt and internal accrual. Majority of the capex is progressing as per schedule with commissioning of multi-purpose agro actives & intermediate plant in Bharuch and diketene derivatives plant in Gajraula in fiscal 2024 and expected commissioning of GMP compliant facility for Food and Cosmetic grade Vitamin B3 expected in the third quarter of fiscal 2025.

 

Weaknesses:

• Working capital-intensive operations: Operations are moderately working capital intensive, indicated by gross current assets (GCAs) of 160 days for fiscal 2024, having increased from 137 days last year, driven by high inventory levels, as the company maintains about two months of raw material and one month of finished goods stock given its wide product portfolio and presence across multiple geographies. Cash collection policy is prudent, resulting in receivables of about 45-50 days. JVL benefits from good creditors support, thereby helping in working capital management. JVL’s working capital requirement is expected to increase owing to ramp-up in operations over the medium term.

 

• Exposure to fluctuations in input prices and government policies: Fluctuations in the prices of acetic acid (key raw material for the CI segment) has led to volatility in operating margin. While input price is a pass-through, in case of any sharp increase or decrease in price, there could be some impact on the margin. Operating profitability will remain exposed to fluctuations in acetic acid prices despite the expected moderation in the share of revenue coming from the CI segment over the medium term. However, given significant export sales, JVL has natural hedge

 

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. Any adverse impact of government policies on revenue and profitability will remain a key rating sensitivity factor.

Liquidity: Strong

Net cash accrual is expected to be healthy at over Rs 400 crore per annum, sufficient to meet annual repayment obligations of Rs 24 crore in fiscal 2025 and Rs 89 crore in fiscal 2026. Also, the company has adequate cushion in its fund-based working capital limit, which was utilised at 66% on average over the 12 months through March 2024. Cash and bank balance was Rs 80 crore as on March 31, 2024 (June 30, 2024: Rs 64 crore).

Rating Sensitivity factors

Downward factors:

• Significant delay in ramp-up of new capacities or larger-than-expected debt availed for funding capex or acquisition, or moderation in operating performance leading to sustained deterioration in debt metrics with net debt/Ebitda over 1.75-1.90 times
• Sharp weakening of operating performance resulting in significant decline in net cash accrual on a sustained basis

About the Company

JVL is a global integrated life science products and innovative solutions provider serving pharmaceutical, nutrition, agrochemical and industrial clients with customised products and solutions that are cost effective and conform to premium quality standards.

 

With more than four decades of presence in the chemical industry and integrated operations, the company offers over 134 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. It has over 1,500 customers globally and five manufacturing facilities across Maharashtra, Gujarat and Uttar Pradesh.

 

In addition to own proprietary products, the company also offers 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 June 30, , 2024, the promoters held 51.47% stake in JVL, foreign portfolio investors held 6.55%, individuals held 27.08% and the balance was held by others.

 

In the first quarter of fiscal 2025, the company reported revenue of Rs 1,024 crore (Rs 1,075 crore in the corresponding period of fiscal 2024) and net profit of Rs 49 crore (Rs 58 crore).

Any other information: Not Applicable