Jubilant Ingrevia - Beneficiary of changing geopolitical scenario, Atma-nirbhar Bharat, and robust growth in the specialty chemicals business

Summary

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• Building diversified global-scale capacities across niche chemistries
• Cost competitive advantage due to vertical integration
• Strong presence in the industry value chain
• Presence in large and growing markets
• Witnessing robust growth in volume and prices

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Jubilant Ingrevia is a globally integrated provider of innovative life science ingredients and products. It enjoys global leading positions in Pyridine and 11 derivatives and is amongst the top two in Pyridine - Beta, Vitamin B3, and Acetic Anhydride globally. Jubilant is also the #1 in Vitamin B4 domestic market. Additionally, Jubilant has successfully established itself as a single point solution for CDMO solutions for global Pharma and Agro-industry from the process development and clinical phase to commercial manufacturing.

 

Jubilant Ingrevia is a part of the Jubilant Bhartia Group, a diversified global conglomerate having a presence in various sectors ranging from Pharma, Contract Research and Development Services, Life Science Ingredients, and Agri Products to Food, Auto, and Consulting. Jubilant Ingrevia was formed as a result of the demerger of the life science ingredients (LSI) business of Jubilant Life Sciences Limited in February 2021.

 

Jubilant Ingrevia offers a broad portfolio of ingredients that are useful in a wide range of industries ranging from Pharmaceutical (36%), Nutrition (19%), Agrochemical (20%), Consumer (4%), and Industrial (21%). The company operates through five major manufacturing facilities, 60 plants, and two R&D centers. It also has five subsidiaries both in India and globally. Jubilant manufactures ~110 products and its ingredients are used in more than 60 APIs and 16 Agro technical (Herbicide, Insecticide & Fungicide).

 

Jubilant Ingrevia also offers custom research and manufacturing for pharmaceutical and agrochemical customers on an exclusive basis. Domestic sales accounted for 66% of total sales in the last year and international sales (Europe - 20%, N. America - 5%, and ROW - 9%) constituted 34%.

 

Jubilant Ingrevia Pros

 

i) Extensive experience across Business Segments - The three business segments of Jubilant are Speciality Chemicals (~27% of sales), Nutrition & Health Solutions (15%), and the largest, Life Science Chemicals (59%). The company enjoys more than four decades of leadership in life science products, 30+years of experience in Pyridine Chemistry & value-added Speciality products, and 10+ years experience in Vitamin B3.

 

 

Source: Jubilant Ingrevia Investor Presentation

Key industries where Jubilant Ingrevia Limited provides solutions are Pharma, Human Nutrition, Animal Nutrition, and Personal & consumer care, and other industrial uses. Other businesses include specialty chemicals, nutrition & health solutions, and life science chemicals. Segments where Jubilant Ingrevia serves, witness 5-7% CAGR globally.

ii) Changing Landscape due to evolving Indo-China relations - Jubilant Ingrevia has been witnessing strong demand. Domestic demand continued to improve due to the shifting of some of the Pharmaceutical & Agrochemical end products customers from China to India. Customers now prefer to use Indian-sourced raw materials/ products. As a result, demand for Specialty chemicals manufacturing has got a boost. The Indian specialty chemicals industry is estimated to have a market size of US$ 36 billion in FY 2020 growing with a CAGR of 12.4% to reach US$ 64.5 billion by FY 2025. Lower domestic consumption as compared to developed and developing countries is expected to drive domestic demand in the future. The company is ramping up its manufacturing capabilities through forward integration of its Ketene capability, investing in a cGMP facility for pharma customers and non-GMP multiPurpose facility for Pharma and Agro customers.

iii) Improving Performance - Jubilant reported high quarterly revenue and EBITDA during Q1’FY22. The input cost rose throughout the quarter and Jubilant witnessed an all-time high price of Acetic Acid which was passed on successfully. The company also experienced strong growth across product segments in the Specialty Chemicals segment and increased demand in the Nutrition & Health Solution and Life Science Chemical segments. Jubilant enjoys a low cost of production due to the benefits of backward integration. It has more than 35 chemical platforms, which according to the company’s website is one of the highest in the country. Over the years, the company has carved out a niche position in chemistry which enables it to handle complex molecules. 

iv) Large Customer base and development pipeline - Jubilant has a diversified customer base of 1400+ with the top 10 customers accounting for 22% of the revenue and 500 global customers. The company enjoys long-standing relationships with its customers. It is the “Partner of Choice” to ~420 global customers, serving 15 of the top 20 Global Pharma and 7 of the top 10 Global Agrochemical companies. Jubilant Ingrevia has sales in over 50 countries with 25% of sales in regulated markets such as North America Europe and Japan. Jubilant also has a strong R&D pipeline of over 60 molecules, which should ensure the launch of new molecules over the next three-four years. Additionally, the company has 35 key technology platforms, 94 granted patents, and 152 patent applications.

Challenges 

• Increase in Raw material and input costs - Though input costs related to raw material, utility, and logistics are increasing, Jubilant is trying to pass on the incremental costs.
• Compliance and regulations - Jubilant Ingrevia is subject to strict compliance and regulatory standards. The company has a higher number of pollution-related litigations when compared to its peers. However, recently, Jubilant announced the acquisition of a ~26% stake in AMP Energy Green Fifteen to meet the green energy goals and to comply with the regulatory requirement for captive power consumption under the electricity laws.

Future Opportunities

Jubilant is making efforts to improve the market share of Vitamin B3 (Niacinamide & Niacin) for specialized and higher-margin segments like Food, Cosmetics, etc., and also focusing to enhance its market share in North American markets. Jubilant also strengthened its global market share in four products during FY21.

Jubilant in undertaking capital investment towards Diketene derivatives, Contract Development & Manufacturing Organization (CDMO) expansion, agro-ingredients, and nutrition pre-mix plant, which should support margins improvement. The company’s ongoing Diketene Capex is as per the schedule and will be commissioned during the Oct-Dec 2021 quarter. Jubilant has also committed investment worth Rs. 360 crore for growth Capex. At peak capacity, these investments are expected to generate additional annual revenue of Rs. 900 Crore at current prices.

Most of its businesses are expected to grow at robust rates in the near future and have high demand scenarios. For instance, the Indian market for Ethyl acetate is estimated at US$ 118.5 million in FY 2020 and is projected to reach US$ 139.2 million with a CAGR of 4.4% by FY 2025. India is the fastest-growing country during the forecast period. The Indian market for vitamin feed supplements, especially for poultry and ruminant feedstuff, is also growing driven by the increasing demand for animal protein and poultry products.

Source: Jubilant Ingrevia Investor Presentation

Valuation

Jubilant Ingrevia has a market capitalization value of more than Rs.12,000 crores and its shares are currently trading at 192x its trailing earnings near Rs.790-mark. Jubilant stock has returned more than 185% in the last five years and sports a dividend payout of 10%.

Jubilant has maintained a strong cash flow and a deleveraged balance sheet. The company reduced its net debt by Rs 45 Crore in Q1’FY22 and is striving to become debt-free in the next two to three years. Its cash flow generation is healthy and sufficient to meet repayments as well as CAPEX requirements. The annual cash accruals are expected to be Rs. 350-400 crore which should adequately cover medium-term debt repayment obligations (Rs. 90-120 crore) along with CAPEX requirements.

The creation of separate and focused entities for the pharma and LSI businesses was done to unlock shareholder value and generate higher operational efficiencies.

 

Bottom Line

Jubilant enjoys leading market positions across business lines with high barriers to entry and low competition. Balanced demand-supply dynamics, a favorable pricing scenario, supply disruption from China, and a growing portfolio of value-added products act as strong tailwinds for the company. Jubilant Ingrevia should gain from its large and growing pipeline of value-added products as well as new platforms across its business segments. The demerger has further simplified the corporate structure with greater operational efficiencies and also helped in maximizing the shareholder value.

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Stock Disclosures:

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Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.