Fitch downgrades Jubilant Pharma to "BB-" indicating higher default risk

Rating agency foresees firm's financial leverage worsening as a rise in capex will coincide with lower profitability

Fitch Ratings has downgraded Jubilant Pharma Ltd's Long-Term Issuer Default Rating (IDR) from "BB" to 'BB-' as the rise in its capital expenditure will coincide with lower profitability. This could see its financial leverage worsen beyond earlier estimates.

Fitch has also downgraded the company's senior unsecured rating and that of its $200 million 6 per cent senior unsecured notes due 2024 to 'BB-', from 'BB'.

The rating agency said in a statement that JPL's ratings have been withdrawn for commercial reasons. It will no longer provide ratings or analytical coverage on JPL.

Fitch said the downgrade follows JPL's announcement of an expansion of its sterile product contract manufacturing business in Canada. This, together with an earlier announcement in the US, takes the segment's opportunistic capacity expansion close to $270 million in 2022.

While this will boost JPL's scale in the long term, the rise in expansion capex will coincide with lower profitability, and could worsen the company's financial leverage significantly above the agency's previous negative rating sensitivity of 3.0x through to FY25.

"The stable outlook underscores our expectation that a gradual improvement in profitability after FY23 will help JPL maintain adequate leverage headroom under our revised negative threshold of 4.5x," Fitch said.

JPL's favourable market position in speciality pharmaceutical-focused segments, as opposed to the more competitive generic formulations segment, underpins its credit profile, balanced by its smaller size than peers and the high degree of regulatory risk arising from limited production-facility diversification, it added.