Thanks for starting this very useful thread. I am adding some of my notes which were not covered in the original post.
Manufacturing capacity: 61 plants across 5-sites in 3 states (UP, Maharashtra, Gujarat) with a very diversified customer base (top-10 accounting for 20% sales). Company gets better pricing from smaller customers.
Opportunities
Forey into Diketene chemistry: Indian market size is $150mn (2019); 40% was imported; Laxmi Organics is sole Indian manufacturer with 55% market share; Plans to launch 6 derivates; One of the few global companies capable of handling large volume of ketene; Huge demand coming up for diketene and one of the leading producers has exited
CDMO: Invest in GMP and non-GMP multi-product facilities for pharma and crop protection (will they get higher margins by investing into GMP facilities?)
Agro-active: Moving up value chain from ingredients to producing agro-actives (for pesticides)
Leadership
- Expertise in 35 chemistry platforms (ammoxidation, vapor phase reactions, Grignard, ketene handling, photochlorination, chichibabin, etc.)
- Pyridine chemistry: Global leader in 11 pyridine derivates; Used to produce beta-picoline which is used to produce Vitamin B3; Uses 45% of volumes captively; More than 50% goes into producing agrochemicals; Lowest cost producer in pyridine beta and value added products; Takes 3-5 years in product approval and facility audit
- Vitamins (branded + commoditized): B3 (Niacin, niacinamide) global market share of 19%; B4 (Choline Chloride) domestic market share of 50%; Commoditized product facing competition from Chinese players who have excess capacity; Backward integrated into key raw material (beta picoline & differentiated technology; air oxidation for manufacture of niacinamide; main brand: ANICHOL); Looking to create brands for animal feeds; Most demand is from animal (80%) and human (16%) nutrition
- Acetyls (low margin, high volume, very high ROCE):
o Acetic anhydride: 71% domestic, 15% international market share; among top-2 globally; current capacity: 145’000 TPA; increase capacity by 35% in 3-years; Used in paracetamol, vitamins, aspirin;
o Ethyl acetate: 33% domestic, 4% international market share; Used as extracting agent in pharma; as industrial solvent in paints, adhesive, and also in flexible packaging; It’s a green solvent
o Bio acetaldehyde: 35% domestic market share; world’s largest manufacturer
o Specialty ethanol: 8% domestic market share; backward integrated using molasses; Leading supplier to oil marketing companies
o Propionic anhydride: Among top-2 global manufacturers
o Key raw material is acetic acid and is largely imported (China has 42% of global capacity); Prices fluctuates a lot
Environmental practices
- Most facilities are zero liquid discharge facilities
- Zero Liquid Discharge Plants, Multi Effect Evaporators, Reverse Osmosis, Water Polishing Plants
- Liquid & Gaseous Waste Incineration facility with online Vent Gas Monitoring
Interesting things to watch out for
Pyridine and beta picoline are produced together. Because of regulatory ban on paraquat, pyridine demand is going down taking prices down with it. As a result, supply of pyridine will also decrease, but demand for beta picoline is going up because there is no impact on vitamin B3 demand. As a result, company expects beta picoline prices to increase. For Jubilant, pyridine demand is mostly captive and not only for paraquat. This should overall be beneficial for jubilant.
Past group track record
- Tried to charge royalty for using brand name “Jubilant”. It was later withdrawn.
- Jubilant life was not able to reduce debt since 2010, ending into issues of too much foreign currency borrowings, hedging problems, etc.
- Has tried leverage buyouts in the past some of which have not played out leading to write-offs (in the pharma business line)
They are not really into enzymes, they produce Vitamin B3 and B4 which is used mostly in animal feeds (and is also commoditized because of excess Chinese capacity).
It seems that their nutrition segment is a mix of brand (higher margins) and commodity, not sure if blended margins are higher than company level margins. Management has mentioned that their highest margin business is that of fine chemicals which comes under specialty chemical business line.
Its not very clear how much of this business comes from innovators (high margin) vs contract manufacturing operations for generics (much lower margin). Also, their pipeline is not very rich (7 in pharma, 4 in agro). For context, PI Industries has a pipeline of 40-45 products in agro CSM on a similar revenue base.
Disclosure: Invested (position size here)