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.

 

Operating performance weakened in fiscal 2023, with revenues declining by 4% on-year to Rs. 4,773 crore, mainly due to weak demand in the nutrition and health solutions (NHS) segment due to the impact of avian and swine flu in certain key markets as well as fall in realisations in the NHS and chemical intermediates (CI) segments; while specialty chemicals (SC) segment grew at a healthy rate.

 

For the first quarter of fiscal 2024, while performance of the NHS segment has improved, overall revenues declined 8% year-on-year due to lower demand from the agrochemical customers of the SC segment. However, CRISIL ratings expects the revenues to recover during the second half fiscal 2024.  Over the medium term, business prospects continue to remain comfortable with an annual revenue growth of 8-10% expected, supported by addition of new value-added products and the company’s capacity expansion plans across the business segments.

 

Operating margins declined to 11.5% in fiscal 2023 from 17.0% in fiscal 2022 due to sharp increase in the power and fuel cost (formed ~15% of the revenue in fiscal 2023). While operating margin remained low in the first quarter of fiscal 2024, it is expected to improve to 13-15% going forward driven by lower fuel cost and improved operating performance in the NHS segment.

 

The financial risk profile remains comfortable, with a healthy networth of Rs 2,652 crore and gross debt of Rs 397 crore as on March 31, 2023. Debt protection metrics remained healthy with interest coverage of 26.9 times and net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) of 0.6 times in fiscal 2023. Financial profile is expected to remain stable over the medium term even after factoring in sizeable ongoing and planned capex over fiscals 2024 and 2025, 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 flows.

 

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 33 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 2023, 12% from the NHS segment and the balance 50% from the relatively low-contribution CI segment. Revenue diversity is further augmented by presence in the domestic and international markets, which accounted for 57% and 43%, respectively, of the total revenue in fiscal 2023. The company has a wide reach in the markets of North America and Europe, which accounted for about 29% of the total revenue in fiscal 2023, while China and Rest of World accounted for about 12%. JVL has more than 1,500 clients globally with the top 10 customers contributing to 27% of the total revenue in fiscal 2023. Furthermore, JVL serves diverse end-user industries, such as pharmaceuticals, agrochemicals, nutrition, cosmetics and industrial segments such as paints, packaging and solvents. This aids in lowering the impact of downturn in any one industry.

 

Healthy financial risk profile

The financial risk profile is supported by healthy capital structure and steady cash accruals. Net debt increased to Rs 324 crore as on March 31, 2023 (against Rs 191 crore a year earlier) due to higher working capital requirement and drawdown of long-term debt for funding capex. Consequently, while net debt/Ebitda ratio increased, it remained comfortable at 0.6 time in fiscal 2023. Other debt protection metrics were healthy, with net cash accrual to adjusted debt and adjusted interest coverage ratios of 0.9 times and 26.9 times, respectively, in fiscal 2023.

 

JVL has planned capex of ~Rs 1,700 crore over fiscals 2022 to 2025, towards expansion for diketene derivative products, expansion of facilities for crop protection chemicals, human-grade vitamin B3 products and acetic anhydride. As part of this plan, capex outflow over fiscals 2024-2025 is expected to be sizeable at Rs 600-700 crore annually, including some outflow for routine maintenance. Majority of the capex is progressing as per schedule and is expected to be funded prudently through a mix of debt and internal accruals; gearing is likely to remain below 0.3 time and net debt to Ebitda to remain below 1.5 times over the medium term.

 

Weaknesses:

Working capital-intensive operations

Operations are moderately working capital intensive, indicated by gross current assets (GCAs) of 137 days for fiscal 2023, 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. The cash collection policy is prudent, resulting in receivables of about 40-45 days. JVL benefits from good creditors support, thereby helping in working capital management. JVL’s working capital requirement is expected to increase owing to 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 margins. While input price is a pass-through, in case of any sharp fluctuations, there could be some impact on the margin due to stock impact. Operating profitability will remain exposed to fluctuations in acetic acid prices as the CI segment is likely 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. 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 debt repayment obligation of Rs 50-100 crore over fiscals 2025-2026 (including for expected debt drawdown to meet the extensive capex outlay) and part fund the capex. Debt obligations in fiscal 2024 remain nil. Also, the company has adequate cushion in its fund-based working capital limit of Rs 700 crore, which was utilised at 67% on average over the 12 months through June 2023. Unencumbered cash and bank balance was Rs 73 crore as on March 31, 2023.

Rating Sensitivity factors

Downward factors

• Sharp weakening of operating performance resulting in net cash accrual below Rs 350 crore on a sustained basis
• Significant delay in ramp-up of new capacities or larger-than-expected debt availed for funding capex or acquisition, leading to deterioration in debt metrics with net debt/Ebitda over 1.75-1.90 times

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 its 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, 2023, the promoters held 51.47% stake in JVL, foreign portfolio investors held 6.15%, individuals held 26.14% and the balance was held by others.

In the first quarter of fiscal 2024, the company reported revenue of Rs 1,075 crore (Rs 1,166 crore in the corresponding period of fiscal 2023) and net profit of Rs 58 crore (Rs 79 crore).

Any other information: Not applicable