Corporate Debt Restructuring Masterclass

18 July 2022 (Mon), 5pm Singapore/HK time

The credit rating of India’s Jubilant Pharma Limited (JPL) has been upgraded to BB from BB- by Fitch on the back of improvements in its business profile. The rating action comes as the Life Science Ingredient (LSI) business of its parent Jubilant Pharmova Ltd (JPHL) (previously Jubilant Life Sciences Ltd) has been demerged into a separate entity resulting in part of the debt being transferred. According to the rating agency, Singapore-based Jubilant Pharma stands to gain with the demerger since the LSI business is associated with lower-margins and is considered more volatile. While the EBITDA for JPHL’s pharma business is forecasted to be ~10% lower in FY21 compared to FY20, the company saw a pandemic-induced growth in a few segments including contract manufacturing of sterile products (CMO), active pharmaceutical ingredients (API) and generic dosage. While there are regulatory challenges for JPL due to its smaller size and limited production facilities, it has low dependence on generic drugs. Although its competitors including Viatris and Teva Pharma are more diversified, they also are exposed to higher acquisition-based leverage. The rating of JPL is the same as Indian peer Glenmark, which is much larger and diversified, due to its presence in specialty pharma and limited dependence on generic drugs.
Fitch expects JPHL’s revenue to increase by low single digits in FY21 and pick up from FY22. The company’s EBITDA margin is also likely to remain steady at ~20% over the next few years and its capex is likely to rise to 9% in the next two fiscals. The company has adequate liquidity with JPHL’s cash balance of INR 12.6bn ($173.5mn) as of December 31, 2020 which includes INR11.7bn ($161.1mn) at JPL. This is adequate to cover its short term liabilities of INR 3.8bn ($52.3mn). JPL redeemed $100mn of its 2021s in last month with the next big payment due in 2024 from its $200mn senior bonds and $150mn of an amortising term loan due in 2024. According to the rating agency, “We believe JPL’s reasonable leverage will mitigate the refinancing risk and expect JPL to address it well in advance, in line with its record.”
JPL’s 4.875% 2021s were up 0.87 to trade at 101.9 and its 6% 2024s were up 0.06 to trade at 106.2
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