Jubilant Industries Ltd

Link to 18-page Research Note – http://www.scribd.com/doc/66376263

Link to Annual Report (2011) – http://www.scribd.com/doc/66376158

Link to CSR2011 Report (2011) – http://www.scribd.com/doc/66376115

(Rated A+ - Audited by Ernst & Young)

Views are invited on Jubilant Industries Ltd. [ NSE a JUBLINDS ; BSE a 533320 ], a US$ 3 bn. Jubilant Bhartia Group company which counts amongst its group successful companies like Indian-listed Jubilant Foodworks, Jubilant Lifesciences and AIM-listed Jubilant Energy.

The most interesting aspect which compels to invite fellow members’ views with an aim to understand the company better is its valuation at just INR 220.24 cr. vis-a-vis FY12e revenues of INR 854 cr. & FY13e revenues of INR 1125 cr.. Such valuations, even when the company enjoys not only domestic but a world-leadership status in each of the operational segments makes the company hard to ignore for any serious fund manager.An attempt is madeto deal with each and every aspect in our research note inluding the critical parameters of peers like Pidilite, Wacker Chemie (Germany), Pantaloon, Shoppers Stop, Aditya Birla Retail, Reliance Retail, Bharti Retail, etc.

Annual Report (2011) of the company as well as latest CSR Report ( as per GRI Standards a Audited by Ernst & Young) are attached alongwith the Research Note for reference.

Please feel free to share your candid views and get back to me in case of any query.

Link to 18-page Research Note – http://www.scribd.com/doc/66376263

Link to Annual Report (2011) – http://www.scribd.com/doc/66376158

Link to CSR2011 Report (2011) – http://www.scribd.com/doc/66376115

(Rated A+ - Audited by Ernst & Young)


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Jubilant Industries Ltd.

BSE Code â 533320


Operational Segments :

Consumer Products ( 2nd Largest after Pidilite )

Food Polymer ( 3rd Largest in World )

VP Latex ( 3rd Largest in World )

Agri Inputs ( 4th Largest in India )

Retail ( 2nd Largest in Bangalore )

Management Quality :

Mr. Hari Bhartia, Chairman

(President CII ; Chairman IIM, Raipur)

Mr. Priyavrat Bhartia, Director

(Director HT Media)

Mr. Ananda Mukherjee, CEO

(ex. Vice President Havells India)

Mr. Ghanshyam Dass, Independent Director

(Senior Advisor KPMG ; ex. M.D. NASDAQ OMX)

Mr. S. K. Roongta, Independent Director

(Chairman FICCI â Reforms in PSU & Steel Committee)

Valuation Parameters

Price-to-BookValue ( P/BV ) = 0.54

EV/Sales = 0.22

MCap/Sales = 0.28

EV / EBITDA = 2.50

P / E = 5.40

Debt-to-Equity ( D / E ) = 0.02

Cash & Investments (FY11) = Rs. 77.80 cr.

Promoters' Holding :- 65.5 %

( 47.51 % + 18 % via Acquisition of Retail Business


Current Mcap :- Rs. 220.24 cr. (on expanded capital)

FY11 Sales : Rs. 554 cr. (FY10 - 419 cr.)

FY11 EBITDA : Rs. 46.82 cr.

FY11 EPS : Rs. 35.7

FY12e Sales â Rs. 854 cr.

FY13e Sales â Rs. 1125 cr.

Valuation Grading

( Refer Sum-of-the-Parts (SOTP) Valuation given on Page 16 for details )

Undervalued Till

(0.5xFY11.Sales, 6.55xFY11.EPS

Reasonably Valued @


(0.7xFY11.Sales, 9.1xFY11.EPS

Fairly Valued @


(0.84xFY11.Sales, 10.98xFY11.EPS

Some of the contents of the Note reproduced for quick Readability

Why Jubilant Industries Ltd. deserves to be a part of one’s core portfolio ? :

  1. Clean & Credible Management led by Mr. Hari Bhartia [ **current President of **__Confederation of Indian Industry (CII)___ ] and backing of a strong US$ 3 bn. Jubilant Bhartia Group ( ___**promoters of Jubilant Foodworks, Jubilant Lifesciences & Jubilant Energy-AIM Listed **__) are the first and foremost factors that go in favour of Jubilant Industries Ltd.

  2. High Corporate Governance followed by the company, which is evident from the fact that it is one of the few top-notch Indian & MNC companies which has voluntarily chosen to publish comprehensive annual Corporate Sustainability Report (CSR) as per Global Reporting Initiative (GRI) standards and its CSR2011 has attained the highest rating A+ and is audited by Ernst & Young.

  3. Leadership Position (not only domestic but a ___**world-leadership **_) in each of the Operational Segment is the other highlight of the company. Before going into its details lets briefly analyse company’s positioning in each of the operational segment :

  • ___2______nd______** Largest Brand **_______( Jivanjor ) next to Pidilite’s Fevicol in Indian Consumer Adhesives Segment

  • ___1______st_** position** in India ( 90 % share ) and 3rd** position Globally** in Food Polymer Segment (Solid PVA)

  • ___1______st_** Position** in India & 3rd** Position** Globally in Vinyl Pyridine Latex (VP Latex)

  • ___4_____th** Largest Brand** (Ramban) in Indian SSP Fertilizer Segment

  • ___2_____nd** Largest Hypermarket** Chain with 20 % marketshare in Bangalore

  1. Revenues of Performance Polymer Segment (which includes Consumer Products-Jivanjor Brand, Food Polymer & Latex Business) has grown over last five years at a CAGR of 17.8 % backed by a 8.3 % CAGR in actual volumes. If we exclude here the low-margin Application Polymer business, which the company has disposed off in FY11, then, the actual volume and sales performance of Consumer Products, Food Polymer and Latex Business is really heartening and signals robust demand for company’s products in each of the segment.

  2. Now, we will go into slight detail of each of the operational segment of Jubilant Industries Ltd. starting with Consumer Products Segment.

  3. Consumer Products Segment ( Jivanjor Brand ) contributed ~Rs. 120 cr. to FY11 revenues of the company. Under this segment, company manufactures and sells consumer & woodworking adhesives, footwear adhesives, epoxy sealants and wood finishes. Its Jivanjor Brand in adhesives segment, which, the company has built over last many years, has withstood the pressure from the likes of Pidilite and Huntsman and progressed to become 2nd** Largest Brand after Pidilite’s Fevicol** in Organised Indian Consumer Adhesives Market.

  4. Company has renewed the thrust on R&D and considerably strengthened distributor network in last few months to aggressively penetrate further deep into the Indian Market so as to make Jivanjor an even stronger No.2 Brand and capture some marketshare out of the peers. A case in point here is its recent launch of its super premium category adhesive ‘Lamino’, which is first of its kind adhesive launched by any company in India designed specifically for laminates. Its recent launch in Delhi, Mumbai, Hyderabad, Chandigarh and other major towns of India met with tremendous positive response and this product is expected to contribute handsomely in second half of FY12.

  5. To move to the second operational segment, viz., Food Polymers_, under which company manufactures and is a global supplier of Solid PVA which is used to make gum base of chewing gum and bubble gum. It is the only manufacturer in India commanding **~ 90 % **marketshare domestically and is the 3rd** largest supplier** to global chewing gum and bubble gum industry._

  6. It is worthwhile to note here that Gum Industry worldwide is highly concentrated with top 6 players accounting for ~85 % market. Jubilant counts amongst its international clients, Wrigley’s, Perffetti and GumLink which together account for ~50 % of the world gum market.

  7. Also, the Solid PVA market itself is a very concentrated one with top 4 manufacturers supplying 75 % of the global demand. Jubilant atpresent occupies 3__rd_ largest position in global Solid PVA suppliers list and with the recent doubling of capacity of its plant, the company is set to become the 2nd** largest Solid PVA manufacturer of the world** after Wacker Chemie of Germany. Its entire expanded capacity is booked which augurs very well for the visibility of growth in this segment till FY15._

  8. Third operational segment of the company is Latex under which it manufactures and is a global supplier of synthetic lattices like VP Latex, SBR Latex and NBR Latex. This segment contributed ~Rs. 80 cr. to FY11 revenues of the company. It is worthwhile to note here that Jubilant was amongst the first companies to introduce VP Latex in India and is currently occupying No.1 position domestically and No.3 position globally in VP Latex. Company has recently expanded its capacity of Latex manufacture by 15 % in FY11 considering high demand for its products and the increased capacity utilisation is expected to show benefit in current FY12.

  9. Agri-Inputs_ is the fourth operational segment of the company which is dominated by ___‘Ramban’ Brand___. This segment contributed ~Rs. 261 cr. to FY11 revenues of the company. Here again the company’s acumen of building strong brands becomes evident as its Ramban brand occupies the ___fourth largest SSP fertilizer brand position in India___. SSP fertilizer industry, which got a fillip because of the new NBS policy of Indian Government, is expected to reap rich rewards because of SSP fertilizer’s positioning in the entire complex fertilizer landscape. Favourable treatment in NBS policy has made SSP fertilizer the cheapest and most effective amongst the lot becuase of which SSP fertilizer consumption in India is projected to grow to 6 mn. MT by FY13 from current 3.5 mn. MT. This is the basic reason why major Urea producers like Chambal Fertilizer and Tata Chemicals have recently decided to set-up new plant and expand existing capacities for SSP manufacture to ___capitalise on the opportunity this sector has in store for coming few years__.

  10. With an expected annual industry growth of ~35 % (especially SSP Fertilizer) for coming two fiscals, Agri-Input segment of Jubilant is expected to be a steady cash generator as the company improves capacity utilisation based on higher demand. It is worthwhile to note here that when other major peers in this segment (SSP) like Liberty and Khaitan have choose to aggresively expand the capacity of their plants as also to set-up new plants in anticipation of demand, Jubilant has decided to play safe by only concentrating on improving utilisation of its existing capacities so that this segment remains steady cash generator to feed the exponential growth of Retail (Hypermarket), Food Polymer and Consumer Products (Jivanjor Brand) segments.

  11. The last but most promising operational segment of the company viz., Retail (Mall cum Hypermarket) is the result of Jubilant Industries’ recent acquisition of a group firm which runs a Hypermarket chain under brand ‘Total’ and has, as on date, ~8,25,000 sq.ft. under opration in 5 mall-cum-hypermarkets with another 1,12,000 sq.ft. getting operational by Decemember’2011 which will make it the 3rd_** largest hypermarket chain of India** and Largest (No.1) hypermarket chain of Bangalore in terms of area under operation. All the other hypermarket chains of India except (Pantaloon) including Hypercity (Shoppers Stop), Trent (Star Bazaar), Bharti Retail (EasyDay Market), Reliance Retail (Reliance Mart), __Max Retai_l (SPAR Hypermarket), RPG group (Spencer Hyper) and Aditya Birla Retail (More) have less than 9,00,000 sq.ft. under operation as on date [ Refer Page 18 for all Hypermarket Chains details ]. Although, like-to-like comparision here is improper since the format of Jubilant (Total) is of mall-cium-hypermarket which no one else follows but, still, such a huge area of operation will bring in lot of cost efficiency and drive exponential growth from FY13 onwards.

  12. _FY11 revenues of Retail segment was _Rs. 315 cr.

  13. _The most interesting aspect here, which speaks highly of the transparent and ethical practices followed by the management of Jubilant is evident from the fact that inspite of Retail division of the group currently being 100 % owned by the promoters of Jubilant Industries as also exuberant valuations at which listed retail companies are trading at present on the bourses where, even Hypercity (the only pure comparable peer) was acquired by Shoppers Stop at more than 0.5 times sales just last year, the company has decided to issue only 0.38 cr. (38.35 lacs) shares as consideration for 100 % acquisition of Retail business, which, at current market price of Jubilant Industries, works out to be only _Rs. 71 cr.

  14. To acquire such promising Retail business at just 0.2 times FY11 sales inspite of it having one of the largest areas under operation in India with a leadership position in Bangalore commanding 20 % marketshare, signifies a great deal of justice done with minority shareholders of Jubilant Industries for which the management deserves an applaud.

  15. Retail Segment is expected to see an exponential jump in revenues starting this fiscal (FY12) as 2 Hypermarkets covering area of ~2,50,000 sq.ft. are getting operational in this fiscal itself ( ___**one already got operational in June’2011 **_) and another 4 hypermarkets are planned to be opened up in coming two years to take the total stores under operation in Bangalore to 10.

  16. This will also bring in a lot of cost efficiencies therby considerably improving margins as there will be no additional backend required apart from the set-up which company already has of 1,10,000 sq.ft. Distribution Centre, 5500 sq.ft. Collection & Consolidation Centre and 2200 sq. ft. Sourcing presence in APMC yard. This will significantly reduce backend cost from the current level of 8.7 % of revenues to 2.7 % of revenues by FY13.

  17. Debt, which is a major constraint for Hypermarket Chains to expand, will not be a major problem for Jubilant Industries as no significant additional debt will be required apart from the Rs. 160 cr. debt which retail division already has. This is because, the listed entity, Jubilant Industries, is a debt-free company with cash & investments on balance sheet (FY11) of Rs. 77.8 cr. With the current fiscal, FY12, also expected to bring in a conservative PAT of atleast Rs. 35 cr., all the additional 4 stores planned to be set-up in coming two years can ___get funded by the cash of listed Jubilant Industries_.

  18. Hence, to sum up, Jubilant Industries, by FY14, will have ~15,00,000 (__1.5 mn.__) sq.ft. In 10 stores under operation with a market leadership position in Bangalore without burdening balance sheet to a considerable extent and improving profitability margins because of heavy reduction in backend cost by ~68 % because of better utilisation of current backend infrastructure. This is the basic reason why, contrary to its peers who concentrate on national expansion, Jubilant has choose to expand in Bangalore itself, where it already enjoys 20 % marketshare with No.2 position, by setting up additional stores so that without much additional costs or raising much additonal debt, profitability could be attained on back of cost efficiences. Its a wise strategy and its likely to make Jubilant Industries a rare niche player in Retail industry.

To conclude, With such ----

  • High Corporate Governance standards,

  • most Credible & Efficient Management at the helm,

  • _backing of a strong US$ 3 bn. Jubilant Bhartia group which has already demonstrated their will & ability of generating exceptional stakeholders’ returns in all their companies like _Jubilant Foodworks, Jubilant Lifesciences & Jubilant Energy (listed at AIM)

  • _Strong Brand like Jivanjor under its belt whose only listed peer Pidilite with brand Fevicol is commanding a valuation of _3.11 x FY11Sales, TTM P/E of 26.8, P/BV of 6.63 & EV/EBITDA of 16.41

  • Leadership position in each of the Operational Segment

  • FY12e Revenues of Rs. 850 cr. with FY13e Revenues most likely to scale upto more than Rs. 1100 cr.

)---- Jubilant Industries should have traded with a premium, but, what we have is, its currently trading at :

  • 0.28 x FY11 Sales_ of Rs. 554 cr._

  • EV/Sales_ of just 0.22_

  • Price-to-BookValue_ of just 0.54_

  • P/E_ of just 5.43 on TTM FY11 EPS of Rs. 35.7_

  • EV/EBITDA_ of just 2.6_

This is an anomaly which can’t remain for long and it has to atleast get corrected upwards to trade at Rs. 325 where still it will be only reasonably valued but undervalued compared to its peers.

A comprehensive Sum-of-the-Parts (SOTP) valuation by taking into account the valuation of each of the operational segment separately of Jubilant Industries Ltd. is given on Page 16-17 of this Research Note. Members are requested to refer that to have a clear idea of current undervaluation and prospect valuation of the company.

Views are invited from fellow members to understand and assess the company as well its operational segments better.

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Brief Overview of the Company

Jubilant Industries Ltd. is a Jubilant Bhartia Group company which counts amongst its group, successful Indian-listed companies like Jubilant Foodworks, Jubilant Lifesciences and AIM-listed Jubilant Energy. Jubilant Industries was formed as a result of demerger of Agri & Polymer Business of erstwhile Jubilant Organosys Ltd. (now Jubilant Lifescience) because of which it automatically got listed on Indian bourses on February 14 2011. At the time of demerger, the implied valuation of the demerged business, based on share allotment ratios, was put at ~Rs. 300 cr. The demerger was done to enable the parent company, viz., Jubilant Organosys to concentrate on Pharma & CRAMS business and let the new company viz., Jubilant Industries, which had in its fold, strong brands like Jivanjor (2__nd_ largest after Pidilite) and Ramban (4__th__ largest in India) as well as world leadership position in Food Polymer & VP latex segments, to pursue independent growth strategy by concentrating on these growing segments. Application Polymers business, which was also a part of demerged entity, was subsequently discontinued w.e.f. 14__th__ February 2011 as this business was an extremely low-margin business with least growth prospects._

After getting demerged from parent company, Jubilant Industries significantly enhanced its distribution network for Jivanjor brand as also expanded capacities in Food Polymer and Latex business segments. The efforts made by the management enabled Jubilant Industries to acquire visibility of steady cash generation with decent growth in topline over next many years.

To channelise the cash resources expected to accrue in the company (in coming few fiscals) towards productive use, as well as to make a strong foundation for exponential future growth, management decided to acquire Jubilant Bhartia group’s Retail business which has, as on date, 5 mall-cum-hypermarkets under operation with **2____nd largest position in Bangalore___ commanding _20 % marketshare**_ with FY11 revenues of Rs. 315 cr… In consideration of the acquisition, 0.38 cr. (38.35 lacs) equity shares of listed Jubilant Industries Ltd. are to be issued which, at current market price, totals up to Rs. 71 cr… Post issuance of shares, equity capital of Jubilant Industries will go up to Rs. 11.84 cr. from current 8.01 cr. with 65.5 % promoter holding._

Retail business at present has Rs. 183 cr. as equity and Rs. 160 cr. as debt with 100 % holding of Jubilant Bhartia group. With the listed entity being almost debt-free having Rs. 77.8 cr. of Cash & Investments as at 31__st_ March 2011 and ~35 cr. PAT expected for FY12, it was a wise decision on part of management to merge cash-generating (but steadily growing) & cash-requiring (but exponentially growing) entities of the group so as to drive exponential growth in topline in immediate future and tremendous growth in profitability over medium-to-long term. Retail Division, after getting merged into Jubilant Industries, plans to open 4 additional hypermarkets to take the total number of hypermarkets under operation to 10 with ~15,00,000 (1.5 mn.) sq.ft. under operation._

The logic behind acquisition of Retail business by cash-rich listed entity is clear so that with no additional raising of funds (by using cash of listed entity), the expansion to 10 stores from current 5 can be undertaken thereby driving profitability very fast and ensuring exponential growth of listed entity. Management has a very well charted growth path for Jubilant Industries Ltd. wherein it is expanding only in Bangalore so that backend infrastructure (already present and no cost to be incurred) can be utilised to fullest thereby reducing cost as % of revenues which is critical to drive profitability of any Retail business.

Summarisation of Valuation Commanded by Peer in Each of the Operational Segment of

Jubilant Industries

( Important Benchmarks like RoE, RoCE, D/E, EV/EBITDA, EV/Sales, P/E, Mcap/Sales Included )

Consumer Products ( Jivanjor Brand -- 2nd to Pidilite's Fevicol )

[ Jubilant Revenues from this Segment for FY11 ~ Rs. 120.3 cr. ]






















Food Polymer ( Solid PVA )

[ Jubilant Revenues from this Segment for FY11 ~ Rs. 59 cr. ]













Wacker Chemie

( Germany )









Latex Business

[ Jubilant Revenues from this Segment for FY11 ~ Rs. 78.1 cr. ]






















Agri Business ( SSP Fertilizer )

[ Jubilant Revenues from this Segment for FY11 ~ Rs. 261.3 cr. ]








































Retail Business (To be Merged â Appointed Date 1st April 2011)

[ Jubilant Revenues from this Segment for FY11 ~ Rs. 315 cr. ]






















Shoppers Stop


















Like-to-Like Comparision of each of the Hypermarket Chain of India

with Critical Parameters like No. of Operational Hypermarket Stores (as at 31st March 2011), Sq.Ft. Area Under Operation, FY11 Revenues as also Latest Same-Store-Sales Growth %

Hypermarket Chain

No. of Stores

Area Under Operation

FY11 Revenues

( Same-Store-Sales-Growth )


(Brand â Big Bazaar & Food Bazaar)

149 + 56

~76,40,000 + 5,50,000

6900 cr.

(SSSG ~ 7.5 %)

Spencer Retail

(Brand - Spencer Hyper)


~6,20,000 sq.ft.


(SSSG ~ 14.5 %)

Reliance Retail

(Brand â Reliance Mart)


~7,80,000 sq.ft.

619 cr.

(SSSG ~ 25 %)


(Brand - Star Bazaar)


~8,00,000 sq.ft.

520 cr.

(SSSG ~ 20 %)

Bharti Retail

(Brand â EasyDay Market)


~5,80,000 sq.ft.



Aditya Birla Retail

(Brand â More)


~6,00,000 sq.ft.


(SSSG ~ 15 %)

Shoppers Stop

(Brand â Hypercity)


~8,00,000 sq.ft.

600 cr.

(SSSG ~ 27.5 %)

Max Retail

(Brand â SPAR Hypermarket)


~5,50,000 sq.ft.

300 cr.

(SSSG ~ 20 %)

Jubilant Retail

(Brand - Total)


6,83,306 sq.ft.

(+ 1,42,000 sq.ft.

= 8,25,306)

[ 5th Store with 1,42,000 sq.ft. area got operational in June'11 ]

315 cr.

(SSSG ~ 60 %)

Note â Same-Store-Sales-Growth (SSSG) is a critical parameter used in Retail industry to assess the growth attained by stores which are under operation for more than a year. Growing same-store sales leads to improved gains and lower dependence on opening new stores to boost sales and profits.

Comprehensive Sum-of-the-Parts (SOTP) Valuation for Jubilant Industries

This is the most crucial section wherein a fair conservative estimate is made in case each of the operational segment of Jubilant Industries Ltd. were to be a separate listed entity and therefore the valuation commanded by it having got pitched against its respective peer of each operational segment.

Here, we have made the most conservative estimate by taking into account various factors like size of Jubilant's operational segment vis-a-vis its peer, positioning of Jubilant vis-a-vis its peer, etc. We have included in the table âValuation Basis Usedâ as well as âJustification of such Valuationâ to let you assess for yourself asto whether Jubilant's respective operational segment deserves the given valuation as compared to the valuation commanded by its respective peer of that segment. Other parameters like debt-to-equity, RoE, RoCE, EV/EBITDA, etc. of each of the peer are given before in the Research Note for reference.

Comprehensive Sum-of-the-Parts (SOTP) Valuation for Jubilant Industries

Business Segment

FY11 Revenues of Respective Segment

Valuation Basis Used

( Justification of such Valuation )

Reasonable Valuation of Respective Segment

Consumer Products

(Jivanjor Brand)

120.3 cr.

1.0 x Revenues

(Only Peer in the Segment Pidilite commands >3.0 x Revenues)

120.3 cr.

Food Polymers

(Solid PVA)

59 cr.

0.5 x Revenues

(Only two Peers in the Segment including Wacker Chemie commands >0.8 x Revenues)

29.5 cr.

Latex Business

78.1 cr.

0.4 x Revenues

(Only formidable Listed Peer in the Segment Apcotex commands 0.43 x Revenues)

31.2 cr.

Agri Business

261.3 cr.

0.3 x Revenues

(All Listed SSP Fertilizer Peers in the Segment command

>0.35 x Revenues)

78.3 cr.

Total Valuation Based on the Current Core Business INR 259.3 cr.


Retail Business

(Mall cum Hypermarkets proposed to be Merged)

315 cr.

0.4 x Revenues

(All Peers in the Segment command >0.4 x Revenues as also Acquisition of Hypercity , the only pure comparable player, by Shoppers Stop was at much higher valuation than 0.5 x Sales)

126 cr.


Total Fair Valuation INR 385.3 cr.

As can be seen from the above, the conservative valuation of the existing core business of Jubilant Industries Ltd., viz., Consumer Products (Jivanjor Brand), Food Polymer, Latex & Agri Input segments works out to be Rs. 259.3 cr.. Now, since the existing core business is on an equity capital of Rs. 8.01 cr. (0.801 cr. shares) with almost nil debt, the conservative per share pricing on the existing equity capital works out to be Rs. 323 for it to command a market capitalization of Rs. 259.3 cr..

Now, here if we expand the equity capital by 0.3835 cr. shares which are to be issued for 100 % acquisition of Retail Business, then, the expanded equity capital works out to be Rs. 11.84 cr. (1.184 cr. shares). On such expanded equity capital, the conservative per share pricing based on adding the exisiting core business plus the acquired Retail business (for which the shares are issued & capital gets expanded) works out to be Rs. 325 for it to command a market capitalization of Rs. 385.3 cr..

Hence, anyway we look at it, Jubilant Industries Ltd. has a fair conservative per share pricing of Rs. 325 which signifies the groos undervaluation of the company on the bourses at present.

Hi Mahesh…good analysis…a few questions from my side…

  1. What % of revenue comes from PVA?

  2. What is the PVA market share by volume or by sales (worldwide)?

  3. Excuse my ignorance - but what is SSP Fertilizer? And why is it better than other conventional fertilizers? What is the respective market shares of the companies in this space?

  4. What is debt for the retail venture?

If you could add the growth potential of individual segments in the next few years then it would help in the analysis.

Also, it seems that this company is more of a conglomerate, so it is likely that it will continue to be valued at a discount to pure plays in their segments. In today’s market, cheap valuation is predominant everywhere, so the opportunity cost of a new investment is very high.

Good indepth report as usual from you, Mahesh.

Coming to the company Jubilant Inds, I think as mentioned by Abhishek, this will continue to trade based on SOTP valuation parameters which usually always fall short of actual valuations.

Regarding the merger of the mall division, I think one should add debt of 160 crores along with the valuation of the 38 lac odd shares allotted to the promoter group bcos the division being merged brought in debt along with it.

If you could put up individual operating margins of all the businesses it will help in formation of a clearer picture.

Coming to the trading history of the company which is very short, the high has been around 260 and the low has been around 155.

I dont think too many people have a clue about the various divisions u highlighted and hence those in the know might have an edge in entering this company.

One thing negative about this company is its poor return ratios. This might be due to it being a conglomerate.

On first look based on the prospects of the jivanjor and the food additives brand, it looks attractive based on this report.



Hi Mahesh,

The rationale behind this move as mentioned by Promoters is

1). To enable effective utilisation of the surplus cash generated by the ACP business of

JIL for growing this business

2.To enable the company to attract a different set of investors, strategic partners who

can bring relevant experience for the growth of this business.

3.This Scheme has been drafted by Amarchand Mangaldas and on successful implementation of the scheme it is envisaged that the promoter holding in JIL will be at 65.5% from the current level of 47%.

I think it’s illogical to merge “High growth retail” into low profile agri inputs,latex divisions.I am assuming here to divert cash generated by existing units to cash starving retail divisions.The motive behind this move might be 1.To increase stake 2.Divert cash 3.Increase valuation of entity 4.Equity dilution.earlier i am invested in this company. With less than 10% dividend payout and this move i decided to exit .

We all know the way Goenka’s merge Spencer into CESC.All the cash generated by CESC going into Cash starving Spencers.Here we have to value this entity based on cash flows.It should be negative.That’s why this price.

Hi Abhishek,

find my replies in bold…

  1. What % of revenue comes from PVA?

Its around 59 cr. and is mentioned in the research note…

  1. What is the PVA market share by volume or by sales (worldwide)?

No specific data on this but top 4 companies occupy 75 % marketshare and Jubilant is currently the 3rd largest in the world

  1. Excuse my ignorance - but what is SSP Fertilizer? And why is it better than other conventional fertilizers? What is the respective market shares of the companies in this space?

SSP stands for Single Super Phosphate… Its a fertilizer with three main components :

Phosphorous, Sulphur and Calcium

Role of Phosphorous :

Plant growth

Quality & yield improvement

Quality & yield improvement

Root development

Root development

Enhance crop maturation

Enhance crop maturation

**Role ofSulphur : **

Chlorophyll & Protein formation

Oil synthesis

Formation of enzymes and vitamins

Formation of enzymes and vitamins

Promotes nodulation in legumes for N-fixation

Promotes nodulation in legumes for N-fixation

Increases crop yield by 15-25% in S deficient soils

Increases crop yield by 15-25% in S deficient soils

**Role ofCalcium : **

Plant cell elongation and stability

Improves lodging resistance

Improves lodging resistance

Removes acidity and restore soil health

Removes acidity and restore soil health

Remove soil compaction

Remove soil compaction

**Why SSP has great prospects from Indian context: **

India has acute Sulfur Malnutrition in soils leading to sluggish Productivity

Sulfur demand of crops can be met by Using Fertilizers like SingleSuper Phosphate

DAP is dependent of Global Phos Acid suppliers and availability depends on global swings

DAP is dependent of Global Phos Acid suppliers and availability depends on global swings

SSP could easily meet P requirement while simultaneously supplying S, Ca and microânutrients to Crops

SSP could easily meet P requirement while simultaneously supplying S, Ca and microânutrients to Crops

SSP also helps to protect the soil from disintegration

SSP also helps to protect the soil from disintegration

SSP use in Sulphur deficient crops increases the crop yield by 15-25%

SSP use in Sulphur deficient crops increases the crop yield by 15-25%

**Marketshare of each company in SSP space: **

Liberty - 22 %

Khaitan - 17 %

Rama - 16 %

Jubilant - 13 %

BEC fertilizer - 9 %

Coramendel - 5 %

Teesta - 5 %

Tata Chemical - 4.5 %

Jayshree - 4 %

Basant - 3.5 %

  1. What is debt for the retail venture?

Rs. 160 cr.

If you could add the growth potential of individual segments in the next few years then it would help in the analysis.

As indicated in the note… Agri business will be a steady cash generator…Food Polymerwill scale up to double its current size by FY13… Latex will grow steadily… Retail will grow exponentially and should reach >500 cr. by FY13.

Also, it seems that this company is more of a conglomerate, so it is likely that it will continue to be valued at a discount to pure plays in their segments. In today’s market, cheap valuation is predominant everywhere, so the opportunity cost of a new investment is very high.

Yes you are right to an extent and if you closely look at the SOTP valuation of the Research Note, I have considered considerable discount to the current valuation commanded by peer in each of the segment… Even after that discount, the present valuation at which Jubilant Ind. is trading are mouth-watering valuations which gives serious investors a great deal of opportunity…

In today’s market cheap valuations are predominant everywhere but what a serious long term investor has to look for amongst the cheap lot is the management quality and its execution capability… When we get a great group like Jubilant Bhartia trading at such mouth-watering valuation, its a great long term picking opportunity.


Hi Hitesh,

Please find my take in bold…



As mentionedin my reply to Abhishek, in SOTP valuation, significant discount to peers is considered and its after that discout its valuation look so attractive which are hard to ignore…



Retail segment is not valuedlike thisHitesh… If it was so then the valuations commanded by retailors as mentioned in Research Note are too low…We need to add huge debts of each of the retailors and then the picture on mcap will be totally different…Also, just to make a point and give a like-to-like comparision on debt front, Hypercity, having almost double the debt Jubilant’s retail division currently has, was valued at 0.5 times sales for acquisition of 51 % stake by Shoppers Stop…Also, even if we take your point that debt has to be deducted from valuations, then also, by deducting 160 cr. debt from 315 cr. revenues gives us a figure of 155 cr. against the valuation paid of 71 cr.



OPM figures for each of the division is not available, but yes, EBITDA figures of agri division as well as combine CP, FP & Latex division can be found in results…However, I will say this is not a profitability story atpresent but a growth story and we need to look at differently…



Yes you are right and that might be the reason for such undervaluation of the company and the other being that those who have got demerged shares from Jub.Life and have no interest in Jub.Ind. or a compulsion not to hold a small-cap stock, might be selling it…



Not only due to this but you see Hitesh FY12 will be the real first year of operation as in FY11 it got demerged… We need to give management a time of atleast two fiscals to build a company and stabilise the business

On report.

Still Hitesh you go through it in deep and pinch back in case of any further queries…


Good indepth report as usual from you, Mahesh.

Hi Omprakash,

I differ with you…Retail segment, which has got a bad reputation because of huge debts and therefore negative profitability is still the fastest growing segment in India and currently is the fifth largest in the world…Out of the retail segment, Hypermarket format is the most promising format and is growing handsomely…Jubilant’ business model of Mall-cum-hypermarket is a decent one wherein company gets benefited first by having low rentals for hypermarkets because of huge space it contracts andearning steady income from mall units to support the hypermarket business…Hence, if Jubilant is able to increase the hypermarkets no. to 10 w/o taking much additional debt, what will actually happen is the listed co.'s shareholders will get benefited hugely as the growth in topline will be exponentail and therefore the valuation commanded by Jub.Ind. will rise exponentially…

Yes promoters stake is raised by this move but we need to look at the price they are paying for raising the stake… Its 315 cr. revenues retail business they are merging for just 0.38 cr. shares or in other words, for a val. of 71 cr. they are giving a businessworht atleast 150 cr. (0.5 times sales)… And this too at what stage, when their two hypermarkets are ready to be launched in this fiscal with one already launched…

Yes cash is diverted but to a productive use… If they would have used the cash generated in the listed co. to give loans to the retail venture then it would have been a cheating done with minority shareholders but instead, what they are doing is they are merging the entire business which gives an opp.to minority shareholders to participate in future growth…what will actually happen is, from this move, the 30-33 % tax which listed co. is paying to Govt. will get reduced considerably to feed the retail business , which, when profitable, because of huge reduction in backend costs, will take the valuation of the company to greater hights…


Hi Mahesh,

Dear Mahesh ji,

Pardon me from bringing up a naive question.

Why don’t we consider the very low overall margins to determine the valuation as we do for other businesses? Also, just get a feeling that the trigger for any upside will be only from Retail venture as it doesn’t seem that the trigger will come from existing business.

Hi Sandeep,

The low overall margins that you are seeing till now was because of extremely low margin Application Polymer business which is already discontinued… For remaining businesses the EBITDA margins should be in the range of 11-13 % which although not exceptionally high but are decent…Raw material costs as well as currecy fluctuations might dent margins occasionallywhile at the same time a~15 % price increase in end product of latex business should help maintain margins of that segment and new premium products like Lamino in CP segment might bring good margins in second half…

Triggers are in place for every business segment of Jubilant except Latex to an extent but the thing is that the trigger from Retail venture is so huge that other triggers are getting overlooked…

If you go deep into the research note you will find that even on core business basis Jubilant is undervalued considerably and so the current trigger is the undervaluation and the future trigger is the exponentail growth of retail business.

Its a rare value-cum-growth play provided everything is executed perfectly.


Today’s investor doesn’t benefit from the growth of the past. I think this saying might just get proven right with this stock

Interview with Ananda Mukherjee, CEO and Whole Time Director in Jubilant

Industries Ltd. 5 Sep 2011


Hi Mahesh,

Once again a great pick and thumbs up from my side.

I have couple of question regarding this mall cum hypermarket business model.

  1. It would be great If you can throw light on this business model in terms of profitability and ratios after 2 years…i know it would be premature to hazard any kind of guess as this is in nursery at this point of time. But do you have any other company data similar to this kind of business model…knowing pantaloon and shopper’s stop is not strictly similar so far as business model is concern.

  2. what kind of capex or money infusion is required in order to increase the total number of mall from 6 to 10 in say 2 years? will the internal cash flow of 35Cr+ would be sufficient to fuel the growth which management has envisaged for?

  3. I know they have huge capacity available in non retail businesses.They may not need money to expand these businesses but what about the management bandwidth which Jubilant needs to scale up successfully from Bangalore to say Delhi or Mumbai(or in Bangalore itself, I know i am jumping too far). My worry is, if one of these two businesses retail or agri will not be taken care properly,then retail business ( which is the “alpha” factor) will face major headwind in terms of debt and may be in execution.

In some sense Jubilant is quite like PI Industries where the stability of crams business is fuelling product/Brand business in turn reducing theriskof the business somewhat. For PI it might be easier to do because both businesses are in almost similar space and they do not require different sets of expertise. While in case of Jubilant, Agri and Retail are totally different fish which needs different kind of expertise.


Hi Anand,

Please find my replies in bold…

Anand, the business model here is just scale, scale and scale… The model is based onlow-margin-high-volume business andforany company adopting this format, scale is critical to drive profitability as its only after a certain scale, PAT-level profitability is possible…Although to compare figures of other peers is not proper, still, if you want to study then Hypercity is the nearest peer you can study who also adopts a similar business model but there mall-part is absent… To give the latest numbers of Hypercity, on a topline of ~600 cr., it has attained store-level loss of 0.2 cr. and a EBITDA loss of 30 cr. for FY11…

If you ask me to predict 2 years down the line for Jubilant Retail division, I think by 2013 there should be 7-8 stores under operation with topline of ~600 cr. and store-level breakeven…

**If you are asking specifically for new 4 stores planned to be opened, then it should be in the range of 55-65 cr. but if you are asking overall then you must put a 1.2-1.5 times turnover margin to gauge overall investments required to operate; 1.5 at optimum scale and 1.2 at growing scale… i.e. to simplify, if I am predicting a 600 cr.topline then the overall investments in the retail business at that point of time should be in the range of 500 cr. since its a growing scale phase and once the stores under operation are 10 and the scale reaches 800-1000 cr. the investment at that point of time should be in the range of 650 cr… **

The point to note here is that at an expanded capital of 11.84 cr. after the acquisition of retail business, it will already have 343 cr. overall investments in retail business so fresh investment requirement in next two years to reach 600 cr.scale in retail business should be 150-160 odd cr.

Now, your query as to whether the cash flow of present core businesses will be sufficient to feed the scale… to an extent … Yes… But overall No… I will explain in detail… already listed company has cash and investments to the tune of 77 cr. as at FY11 with a expected PAT of 30-35 cr. forcurrent FY12… Hence, a judicious mix of debt and equity infusion can easily be maintained considering the tiny scale of equity of Jubilant at 11.84 cr… There is high probability that after the merger, Jubilant will go for an equity dilution to raise atleast 100-150 cr. (although at much higher rate than the present market rate) which will suffice to reach a scale of 1000 cr. in Retail division with minimal debt…

First, current agri and polymer business is headed by ex-Havells vice president Ananda Mukherjee with separate divisional heads of each segment… for example Agri Business is headed by ex-Nagarjuna Fertilizer GM Mr. Reddy, Food Polymer Business is headed by ex Coca Cola GM Mr. Puneet Mathur, Latex business is headed by ex-Henkel Mr. J.Rao while CP business is headed by ex-Indian Emulsion Mr. Jayendran…

Retail business was till now headed by Mr. Dinesh Malpani but as per reliable sources, I am told that he was removed before few months and company is strengthening senior-level management team to achieve scaleto take retail business to next level…Mr. Shamit Bhartia, the younger son of Mr. Shyam Bhartia is taking active interest in Retail venture and this mall-cum-hypermarket business is his brain-child only…

With Jubilant Bhartia Group I don’t think management bandwidth should be an issue as they have adopted similar professional management formats for other companies like Jubilant Foodworks and Jubilant Energy.


I will say it again here that to compare two companiesin different spaces is not proper, however, with PI there are two similarities if you want to draw out-of-context… first Management Quality and second Visibility of Growth… The third thing, regarding transparency, I will rate Jubilant one notch higher than PI…

Two stories are totally different, with PI, the story was exponential growth because of foundation management had built over last decade while in Jubilant, the story is gross undervaluation vis-a-vis its business segments, management quality and group…

Each company deserves its place in a portfolio and my experience and analysis makes me believe that in current markets PI Ind. is still the safest pick followed by Jubilant Industries and then Solar Industries. All three companies form part of my core portfolio and my views have to be takenwith that regard.


Hi Mahesh,


Thanks a ton Mahesh for your insight…

I know the disclaimer part which i alwaysconsideredoverrated. At the end of the day its individual’s decision whether to invest or not.

The last point , which i made regarding the similarities in the growth model of PI and Jubilant Industries(JI) is essentially how the relatively stable business is feeding the growth of high growth/risky business. Investors can take solace from the fact that a certain big part of the business is comparatively stable.

You wrote :


Are you talking about 55-65 cr/Mall or for all 4 malls put together?

I did not get your equity dilution thing. Why JI would go for equity dilution when it can meet all its capital requirement by internal accrual?