S&P lowers outlook for Jubilant Pharma to negative, sees weak performance

Operating performance may remain weak due to regulatory issues, says rating agency.

Standard and Poor’s (S&P) has lowered outlook on Jubilant Pharma Ltd from “stable” to “negative” on likely weaker operating performance by the drugmaker.

The rating agency affirmed the long-term issuer credit rating at “BB”. Jubilant’s operating performance could remain weak over the next 12 months due to regulatory issues in its generics business and the loss of one-time development and manufacturing contracts related to Covid-19.

The negative outlook reflects the likelihood of a downgrade if the group's EBITDA margins remain below 20 per cent and debt-to-EBITDA ratio stays above 2x without signs of improving toward about 2x beyond the next 12 months.

Singapore-based Jubilant Pharma has presence in the niche specialty (radiopharma and allergy therapy products) pharmaceuticals, generics manufacturing, and CDMO of API and sterile injectables and non-sterile products. Jubilant Pharma is a 100 per cent-owned subsidiary of India-listed Jubilant Pharmova Ltd.

The group's EBITDA will be lower by 10-12 per cent in fiscal 2023 (year ending March 31, 2023), compared to fiscal 2021 levels, despite an about 15% year-on-year growth. This is primarily because of the weaker performance of the group's generics and contract development and manufacturing operations (CDMO) business segments.

In July 2021, the U.S. Food and Drug Administration (USFDA) restricted imports from the group's solid dosage formulations facility in Roorkee, India. The CDMO business is also losing revenue as one-time contracts for Covid-19-related drugs and vaccines start tapering off. The generics and the CDMO segments accounted for about half of the group revenues in fiscal 2021.

The issues at the group’s Roorkee plant are expected to be resolved by the end of fiscal 2023 without further significant drag on earnings. Moreover, Jubilant Pharma is working on replacing its one-off Covid-19-related CDMO business with more stable products. The group's EBITDA should recover to fiscal 2021 levels in fiscal 2024.

Not recovering from its current operational weakness is a key rating risk for Jubilant Pharma. The expectation of an improvement in earnings by the end of fiscal 2023, compared to fiscal 2022, hinges on the good recovery of the radiopharmaceuticals business, S&P said.